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Daily Pivots: (S1) 114.34; (P) 114.70; (R1) 114.95; More...

Intraday bias in USD/JPY remains neutral at this point. Corrective pattern from 116.34 is expected to extend with at least another falling leg. On the downside, break of 114.30 minor support will turn bias to the downside for 113.47. Break there will target 112.52 structural support. Considering bearish divergence condition in in daily MACD, further break of 112.52 will confirm that it's already in correction to the up trend from 102.58. Deeper decline would be seen to 38.2% retracement of 102.58 to 116.34 at 111.08.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high). Sustained break there will pave the way to 120.85 (2015 high) and raise the chance of long term up trend resumption. However, firm break of 112.52 support will dampen this bullish case and we'll assess the outlook based on subsequent price actions later.

Daily Pivots: (S1) 0.9144; (P) 0.9161; (R1) 0.9191; More....

Intraday bias in USD/CHF remains neutral for the moment. On the downside, firm break of 0.9084 support will argue that choppy rise from 0.8925 has completed. Fall from 0.9471 might be ready to resuming. Further decline would be seen back to 0.8925 support first. On the upside, above 0.9276 will target 0.9372 resistance instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

Daily Pivots: (S1) 1.3561; (P) 1.3611; (R1) 1.3650; More...

GBP/USD is still in the pull back from 1.3748 and intraday bias remains neutral for the moment. While deeper fall cannot be ruled out, downside of retreat should be contained by 1.3489 support to bring another rally. As noted before, corrective fall from 1.4282 should have completed with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Above 1.3748 will target 1.3833 first. Sustained break of 1.3833 will pave the way back to retest 1.4248 high.

In the bigger picture, strong support was seen from 38.2% retracement of 1.1409 to 1.4248 at 1.3164. The development suggests that up trend from 1.1409 (2020 low) is still in progress. On resumption, next target will be 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Nevertheless sustained break of 1.3164 will argue that whole rise from 1.1409 has completed and bring deeper fall to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.1288; (P) 1.1355; (R1) 1.1394; More...

EUR/USD's fall from 1.1482 accelerates lower today and focus is now on 1.1284 support. Outlook is unchanged that rebound from 1.1185 is seen as corrective move. Break of 1.1284 will argue that larger down trend from 1.2348 is ready to resume. Intraday bias will be back on the downside for retesting 1.1185 low first. Also, in case of another rise, upside should be limited by 38.2% retracement of 1.2265 to 1.1185 at 1.1598 eventually.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Dollar is trying to extend near term rebound with help from surging treasury yields and risk-off sentiments in stocks. But Canadian Dollar is still outshining slightly, as support by oil price rally. Aussie and Kiwi are soft, but selloffs are mainly centered around European majors. Euro is particularly weak as it looks set to resume recent down trend against Sterling and Swiss Franc too.

Technically, Yen is also trying to firm up too, even though it's lagging behind the greenback and Loonie. A focus will be on 129.59 support in EUR/JPY. Sustained break there will dampen our original bullish view of near term reversal. That would indicate that rebound form 127.26 has completed at 131.59 already, and bring deeper fall back to this low. That could be a prelude to more Yen strength elsewhere.

In Asia, at the time of writing, Nikkei is down -2.26%. Hong Kong HSI is up 0.02%. China Shanghai SSE is down -0.29%. Singapore Strait Times is down -0.01%. 10-year JGB yield is down -0.0026 at 0.149. Overnight, DOW dropped -1.51%. S&P 500 dropped -1.84%. NASDAQ dropped -2.60%. 10-year yield rose 0.093 to 1.865.

NASDAQ lost -2.6% while 10-yr yield extends up trend

Major US stock indexes, particularly the NASDAQ tumbled sharply overnight, while benchmark treasury yields surged. Investors are still in the process of adjusting to the evolution of a more aggressive Fed in terms of stimulus withdrawal. At the same time, it's unsure when the no-longer-transitory inflation would start easing down, and Fed's response to that.

NASDAQ dropped -2.6% to close at 14506.89. The development is not a surprise as price actions from 16212.22 are seen as correcting the up trend from 10822.57 to 16212.22. Deeper fall could be seen. But we'd expect strong support around 14100/14200 to contain downside to bring rebound. The support zone coincides with 14715.11 resistance turned support, 14181.69 structural support, and 38.2% retracement of 10822.57 to 16212.22 at 14153.37. However, sustained break of this level will argue that NASDAQ is already in a larger scale correction.

10-year yield rose 0.093 to close at 1.865. The medium term up trend is back in full force. 2% handle now looks rather approachable. But TNX should start to feel heavy above there. There should be strong resistance from 2.16/18 zone to repel the rally. This is a cluster level of 61.8% projection of 0.398 to 1.765 from 1.343 at 2.187 and 61.8% retracement of 3.248 to 0.398 at 2.159. But then, a strong break there would indicate some substantial underlying development is underway.

WTI oil hits 7-yr high, EUR/CAD downside breakout

WTI crude oil surged through a key resistance overnight and hit the highest level since 2014. The outage of Turkey's  Kirkuk-Ceyhan pipeline after an explosion was a factor causing concerns over supplies. In the background, there are also geopolitical issues surrounding Russia.

With 85.92 resistance taken out, WTI crude oil is resuming up trend from the 2020 spike low. For the near term, further rally is expected as long as 81.60 support holds. Next target 90 handle. But WTI could try to hit 261.8% projection of 62.90 to 73.66 from 66.46 at 94.62 before topping.

EUR/CAD followed and broke 1.4162 low to resume the down trend from 1.5991. Near term outlook will now stay bearish as long as 1.4357 resistance holds. Next target is 61.8% projection of 1.5096 to 1.4162 from 1.4644 at 1.4067. Firm break there could trigger downside acceleration to 100% projection at 1.3710.

Australia consumer sentiment dropped to 102.2 in Jan, cautiously pessimistic on economic conditions

Australia Westpac-MI consumer sentiment index dropped from 104.3 to 102.2 in January. The -2% decline was much better than the -5.2% fall during the first month of the delta outbreak in New South Wales, the -6.1% drop in Victoria's second wave in 2020, not to mention the epic -17.7% collapse in early 2020.

The 'economic conditions, next 12 months' sub-index dropped -9.6% from 104.9 to 94.8, a swing from "cautious optimism to cautious pessimism". 55% of respondents, an outright majority, expected mortgage interest rates to rise over the next 12 months. Unemployment Expectations Index increased by 8.2% to 112.7, marking a significant deterioration.

RBA would make a decision on the bond purchases program at the February 1 meeting. Westpac expects the central bank to choose to "scale back rather than full wind down, in response to the sudden emergence of Omicron. But that would depend on the upcoming employment and inflation data.

Looking ahead

UK inflation data are the main focuses in European session, with CPI and PPI featured. Germany will release CPI final. Eurozone will release current account. Later in the day, attention will be on Canada inflation data and wholesale sales. US will release housing starts and building permits.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1288; (P) 1.1355; (R1) 1.1394; More...

EUR/USD's fall from 1.1482 accelerates lower today and focus is now on 1.1284 support. Outlook is unchanged that rebound from 1.1185 is seen as corrective move. Break of 1.1284 will argue that larger down trend from 1.2348 is ready to resume. Intraday bias will be back on the downside for retesting 1.1185 low first. Also, in case of another rise, upside should be limited by 38.2% retracement of 1.2265 to 1.1185 at 1.1598 eventually.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Economic Indicators Update

Major US stock indexes, particularly the NASDAQ tumbled sharply overnight, while benchmark treasury yields surged. Investors are still in the process of adjusting to the evolution of a more aggressive Fed in terms of stimulus withdrawal. At the same time, it's unsure when the no-longer-transitory inflation would start easing down, and Fed's response to that.

NASDAQ dropped -2.6% to close at 14506.89. The development is not a surprise as price actions from 16212.22 are seen as correcting the up trend from 10822.57 to 16212.22. Deeper fall could be seen. But we'd expect strong support around 14100/14200 to contain downside to bring rebound. The support zone coincides with 14715.11 resistance turned support, 14181.69 structural support, and 38.2% retracement of 10822.57 to 16212.22 at 14153.37. However, sustained break of this level will argue that NASDAQ is already in a larger scale correction.

10-year yield rose 0.093 to close at 1.865. The medium term up trend is back in full force. 2% handle now looks rather approachable. But TNX should start to feel heavy above there. There should be strong resistance from 2.16/18 zone to repel the rally. This is a cluster level of 61.8% projection of 0.398 to 1.765 from 1.343 at 2.187 and 61.8% retracement of 3.248 to 0.398 at 2.159. But then, a strong break there would indicate some substantial underlying development is underway.

WTI crude oil surged through a key resistance overnight and hit the highest level since 2014. The outage of Turkey's Kirkuk-Ceyhan pipeline after an explosion was a factor causing concerns over supplies. In the background, there are also geopolitical issues surrounding Russia.

With 85.92 resistance taken out, WTI crude oil is resuming up trend from the 2020 spike low. For the near term, further rally is expected as long as 81.60 support holds. Next target 90 handle. But WTI could try to hit 261.8% projection of 62.90 to 73.66 from 66.46 at 94.62 before topping.

EUR/CAD followed and broke 1.4162 low to resume the down trend from 1.5991. Near term outlook will now stay bearish as long as 1.4357 resistance holds. Next target is 61.8% projection of 1.5096 to 1.4162 from 1.4644 at 1.4067. Firm break there could trigger downside acceleration to 100% projection at 1.3710.

Australia Westpac-MI consumer sentiment index dropped from 104.3 to 102.2 in January. The -2% decline was much better than the -5.2% fall during the first month of the delta outbreak in New South Wales, the -6.1% drop in Victoria's second wave in 2020, not to mention the epic -17.7% collapse in early 2020.

The 'economic conditions, next 12 months' sub-index dropped -9.6% from 104.9 to 94.8, a swing from "cautious optimism to cautious pessimism". 55% of respondents, an outright majority, expected mortgage interest rates to rise over the next 12 months. Unemployment Expectations Index increased by 8.2% to 112.7, marking a significant deterioration.

RBA would make a decision on the bond purchases program at the February 1 meeting. Westpac expects the central bank to choose to "scale back rather than full wind down, in response to the sudden emergence of Omicron. But that would depend on the upcoming employment and inflation data.

Full release here.

Key Highlights

• Gold price is showing positive signs above the $1,785 and $1,800 support levels.
• A major bullish trend line is forming with support near $1,805 on the 4-hours chart.
• EUR/USD trimmed gains after it failed to clear the 1.1480 zone.
• GBP/USD corrected gains below 1.3650 and 1.3620.

Gold Price Technical Analysis

After another rejection near $1,830, gold price corrected lower against the US Dollar. The price declined below $1,800, but the bulls were active near $1,785.

The 4-hours chart of XAU/USD indicates that the price traded as low as $1,782 before a fresh increase. The bulls again attempted an upside break above $1,830 but failed.

A high was formed near $1,829 and the price is now consolidating. On the downside, there is a key support forming near the $1,805 level. There is also a major bullish trend line forming with support near $1,805 on the same chart.

The main support is near $1,782, below which there is a risk of a move towards $1,760. Any more losses might send the price towards $1,750.

On the upside, the price is facing resistance near the $1,825 level. The main resistance is near the $1,830 level. A clear break above $1,830 could send the price toward the $1,850 resistance zone in the near term.

Looking at EUR/USD, the pair failed to clear the 1.1480 resistance zone and started a fresh decline below 1.1400. Similarly, GBP/USD trimmed gains and declined over 150 pips.

Economic Releases to Watch Today

• UK Consumer Price Index for Dec 2021 (YoY) – Forecast +5.2%, versus +5.1% previous.
• UK Core Consumer Price Index for Dec 2021 (YoY) – Forecast +3.9%, versus +4.0% previous.
• Canadian Consumer Price Index for Dec 2021 (MoM) – Forecast -0.1%, versus +0.2% previous.
• Canadian Consumer Price Index for Dec 2021 (YoY) – Forecast +4.8%, versus +4.7% previous.

• Stocks drop, with GS down 8% on poor earnings
• US economic activity falls amid omicron and inflation
• M&A activity booms: Microsoft buys Activision
• WTI off best levels after hitting 7-year high

Following on the weaker performance in Europe, US markets fell sharply at the open. The Nasdaq was again leading the declines as yields rose and crude oil remained near 7-year high, keeping inflation worries supported. The drop of 8% for Goldman shares also weighed on the Dow, as it and other top US banks failed to live up to earnings expectations.

But it is not all doom and gloom out there, because M&A activity is going well, and the ongoing vaccination efforts by western governments means the soft patch in US and global data could be short-lived. Indeed, the UK government has indicated further easing of Covid measures as infections slow down. I continue to favour the attractiveness of European equities over the US, as a result.

We saw further evidence of the US economy slowing down, although it didn’t stop the dollar rally as yields refused to move lower with investors convinced it will not deter the Fed from tightening monetary policy aggressively. The latest sign of weakness came from the Empire State Manufacturing Index which showed a BIG miss: -0.7 vs. +25 expected, with all its sub-indices also disappointing. It has NOT been a good period for US data. We have also seen Retail Sales, Industrial production, University of Michigan Consumer Sentiment, Jobless Claims, and Non-Farm Payrolls all disappointing.

The soft US data clearly suggests economic recovery has slowed down, because of omicron while soaring inflation is also eating into consumers’ disposable incomes. Last week, we found out that consumer prices rose to their highest level since the 80s at a whopping 7.0%, while producer prices also remained near 10% year-over-year. But with WTI crude climbing to $86, gasoline prices should remain elevated and further underpin inflationary pressures and undermine disposable incomes.

On a micro level, Goldman Sachs shares dropped after disappointing with its quarterly results. Its earnings of $10.81 a share was short of $11.76 estimated as operating costs surged thanks to workers demanding higher wages because of surging inflationary pressures. But thanks to its investment banking and wealth management operations, the company saw its revenues rise to $12.64 billion compared to $12.08 expected. The earnings miss means GS has become the latest Wall Street giant to disappoint after JP Morgan and Citigroup produced poorly-received numbers on Friday.

But it is not all doom and gloom. M&A activity, which hit a record volume of more than $5 trillion in 2021, looks unlikely to slowdown. Microsoft announced today that it will buy Activision Blizzard, best known for popular games like “Call of Duty,” in a $68.7 billion deal. The easy availability of cheap financing and booming stock markets should keep deal making underpinned for as long as yields don’t rise too much.

Economic and earnings highlights coming up later in the week

Wednesday

• UK CPI and speech by BOE Governor Bailey
• Canadian CPI
• Earnings: Morgan Stanley, P&G, Alcoa, Just Eat

• Australia employment report
• US jobless claims, existing home sales and
• Philly Fed Manufacturing Index
• Earnings: Netflix, American Airline