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Daily Pivots: (S1) 114.29; (P) 114.47; (R1) 114.79; More...

Further rise could be seen in USD/JPY as rebound from 113.47 might extend. But we're not expecting a break of 116.34 for now. Instead, the corrective pattern from there should extend with 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.

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) 0.9124; (P) 0.9141; (R1) 0.9161; More....

Intraday bias in USD/CHF remains neutral first. 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) 1.1387; (P) 1.1410; (R1) 1.1429; More...

Outlook in EUR/USD is unchanged and intraday bias remains neutral first. Rebound from 1.1185 is seen as a corrective move. Above 1.1482 will extend the rebound but upside should be limited by 38.2% retracement of 1.2265 to 1.1185 at 1.1598. On the downside, below 1.1284 support will bring retest of 1.1185 low. However, sustained break of 1.1598 will argue that the trend is reversing already.

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.

Daily Pivots: (S1) 1.3624; (P) 1.3657; (R1) 1.3676; More...

GBP/USD's pull back from 1.3748 extended lower today but stays above 1.3489 support. Outlook is unchanged and intraday bias remains neutral first. 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.

Stocks markets are turning back into risk off mode with US futures pointing to sharply lower open. Yen managed to reverse earlier losses and trading generally higher. Canadian Dollar is also firm as supported by extended rally in oil prices. Dollar is following with some lift by rising treasury yields. On the other hand, Sterling is currently the weakest one, weighed down further by selloff against other Europeans. But Aussie and Kiwi are not to far away.

Technically, we'll pay attention to WTI crude oil today as it's now pressing 85.92 high. We're not expecting a decisive break there. Rejection by this resistance, followed by break of 81.60 support, should trigger near term reversal back towards 73.66 resistance turned support. In this case, we could seen Canadian Dollar reverses too with USD/CAD breaking through 1.2619 resistance. However, strong break of 85.92 will give the Loonie another boost, probably pushing EUR/CAD through 1.4162 low.

In Europe, at the time of writing, FTSE is up 0.50%. DAX is up 0.86%. CAC is up -0.77%. Germany 10-year yield is flat at -0.023. Earlier in Asia, Nikkei dropped -0.27%. Hong Kong HSI dropped -0.43%. China Shanghai SSE rose 0.80%. Singapore Strait Times dropped -0.24%. Japan 10-year JGB yield rose 0.0056 to 0.152.

US Empire state manufacturing dived to -0.7, expectations firm

US Empire State Manufacturing Survey general business conditions index dropped sharply from 31.9 to -0.7 in January. Twenty-two percent of respondents reported that conditions had improved over the month, while 23 percent reported that conditions had worsened. Expectations for the six months ahead ticked down from 36.4 to 35.1.

Looking at some details, new orders dropped from 27.1 to -5.0. Shipments dropped from 27.1 to 1.0. Delivery times dropped slightly from 23.1 to 21.6. Price paid eased from 80.2 to 76.6. Prices received also dropped from 44.6 to 37.1.

Germany ZEW surged to 51.7, economic outlook improved considerably

Germany ZEW Economic Sentiment rose sharply from 29.9 to 51.7 in January, well above expectation of 32.7. Current Situation index deteriorated from -7.4 to -10.2, missed expectation of -7.5.

Eurozone ZEW Economic Sentiment jumped from 26.8 to 49.4, well above expectation of 29.2. Current Situation index dropped -3.9 pts to -6.2.

ZEW President Achim Wambach said: "The economic outlook has improved considerably with the start of the new year. The majority of financial market experts assume that economic growth will pick up in the coming six months. It is likely that the phase of economic weakness from the fourth quarter of 2021 will soon be overcome.

"The main reason for this is the assumption that the incidence of COVID-19 cases will fall significantly by early summer. The more positive economic expectations include the consumer-related and export-oriented sectors and thus a large part of the German economy."

UK payroll rose 184k in Dec, unemployment rate dropped to 4.1% in Nov

UK payrolled employees rose 184k to 29.5m in December. The number was up 409k on pre-pandemic level back in February 2020. All region are now above pre-coronavirus levels.

For September to November period, comparing to the prior quarter, employment rate rose 0.2% to 75.5%. Unemployment rate dropped -0.4% to 4.1%. Economic inactivity rate rose 0.2% to 21.3%.

Average earnings including bonus rose 4.2% 3moy while average earnings excluding bonuses rose 3.8% 3moy.

BoJ stands pat, upgrades 2022, 2023 inflation forecasts

BoJ left monetary policy unchanged. Under the yield curve control, short-term policy interest rate is held unchanged at -0.1%. BoJ will also buy a "necessary amount" of JGB bonds to keep 10-year yield at around 0%.

BoJ maintained the pledge to continue with QQE with yield curve control, "aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner". It will also continue expanding the monetary base "until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner."

In the new economic projections, comparing to October forecasts:

• Fiscal 2021 real GDP growth downgraded from 3.4% to 2.8%.
• Fiscal 2022 real GDP growth upgraded from 2.9% to 3.8%
• Fiscal 2023 real GDP growth downgraded from 1.3% to 1.1%.
• Fiscal 2021 core CPI unchanged at 0.0%.
• Fiscal 2022 core CPI upgraded from 0.9% to 1.1%.
• Fiscal 2023 core CPI upgraded from 1.0% to 1.1%.

BoJ Kuroda: We are not debating an interest rate hike

In the post meeting press conference, BoJ Governor Haruhiko Kuroda said, "consumer inflation is likely to stay around 1% through the end of the BoJ's projection period. As such, there is no need to modify the BoJ's monetary easing."

"We are not debating an interest rate hike ... As shown in the report, we're not yet in a situation where inflation is steadily accelerating toward the BoJ's goal. The median forecast of board members is for inflation around 1%. Under such conditions, we are absolutely not thinking about raising rates or modifying our easy monetary policy," he said.

"If achievement of 2% inflation comes into sight, the BoJ's board will likely debate an exit strategy and communicate its intention to markets. That in itself won't be that difficult. The problem is that unfortunately, we haven't see inflation hit 2%. It's premature to debate an exit strategy," he added.

Downbeat New Zealand business confidence, strong inflation pressures

In the The latest NZIER Quarterly Survey of Business Opinion, a net 34.4% of New Zealand businesses expect a deterioration in general economic conditions over the coming months, much worse than prior quarter's 11.1%. Trading activity for the next three months dropped slightly from 8.7 to 8.3.

Regarding inflation, a net 61% reported increased costs in Q4, highest since 2008. A net 65% expect further increase in prices in the next quarter. NZIER said, "these results point to inflation pressures in the New Zealand economy remaining strong over the coming year."

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3624; (P) 1.3657; (R1) 1.3676; More...

GBP/USD's pull back from 1.3748 extended lower today but stays above 1.3489 support. Outlook is unchanged and intraday bias remains neutral first. 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.

Economic Indicators Update

US Empire State Manufacturing Survey general business conditions index dropped sharply from 31.9 to -0.7 in January. Twenty-two percent of respondents reported that conditions had improved over the month, while 23 percent reported that conditions had worsened. Expectations for the six months ahead ticked down from 36.4 to 35.1.

Looking at some details, new orders dropped from 27.1 to -5.0. Shipments dropped from 27.1 to 1.0. Delivery times dropped slightly from 23.1 to 21.6. Price paid eased from 80.2 to 76.6. Prices received also dropped from 44.6 to 37.1.

Full release here.

GBPUSD was even higher last week after a break above the channel resistance line on the daily chart, so we believe that the pound has bottomed at 1.3130 area, and that we are going to see more upside after any corrective retracement.

Price has an extended structure in the middle, so it's worth being patient and waiting on pullbacks if you want to participate within an uptrend. Ideally the fourth wave is now in play with wave 4) support at 1.3590 followed by 1.3500 area, from where uptrend may resume when looking at the 4h time frame.

GBP/USD 4h Elliott Wave analysis

The British pound has extended its losses as GBP/USD has fallen for a third successive day. The pair has fallen below the 1.35 line in the European session.

US yields hit 2-year high

The US dollar has received a boost as 10-year yields have pushed above the 1.80% and touched a 2-year high. The 2-year yield also touched a 2-year high when it rose above 1% earlier in the day. The upswing is a reflection of market concern that the Fed will be more aggressive in its tightening. FOMC member Patrick Harker said last week that the Fed could raise rates three or four times this year, adding that inflation has been more persistent than previously expected. The CEO of JP Morgan, Jamie Dimon, went even further, saying that we could see six or seven rate hikes in 2022, due to surging inflation. The Fed is now in a no-comment “blackout” period ahead of next week’s policy meeting, so it will be interesting to see if yields continue to move towards the psychologically important 2% level.

The UK posted strong employment numbers, but the pound was unable to capitalize and move higher. Payrolls rose in December by 184 thousand m/m and wage growth came in at 4.2%, matching the estimate. Although wage growth remains strong, it has been overtaken by inflation, which hit 5.1% in November and could climb to 6% in the spring. Job vacancies continue to rise as businesses are short-staffed and are finding it difficult to find enough workers. Still, the latest job numbers show that the labour market is performing well and is a key driver of the UK recovery.

GBP/USD Technical Analysis

• 1.3560 is under pressure in support. Below, there is support at 1.3438
• GBP/USD faces resistance at 1.3776 and 1.3870

The US dollar has posted small gains, as USD/JPY briefly punched above the 115 line in the Asian session. The yen looked golden last week with gains of 1.15%, but has given up half of those gains so far this week.

BoJ revises inflation forecast

The Bank of Japan’s policy meeting are generally uneventful affairs, with the bank reaffirming its monetary policy. The bank did maintain policy, keeping interest rates at -0.1% and maintaining bond yield targets and asset purchases. But there was a difference at this meeting, with the bank revising upwards its inflation forecast, for the first time since 2014. This is significant because the BoJ is acknowledging that inflation could overshoot its projections, something we never saw in the years of deflation.

Inflation in Japan is much lower than in the US or UK, where the central banks have had to tighten policy in order to deal with what has inflation, which has become Enemy Number One. The global wave of inflation, which has seen energy and raw material costs soar, has also reached Japan, and the increase in inflation has forced the BoJ to pay attention to the new phenomenon of rising inflation. For the fiscal year starting in April, the BoJ is projecting inflation of 1.1% up from 0.9% gain it forecast in October. Last week, Reuters reported that the BoJ is considering the eventuality of having to raise interest rates even if inflation does not reach the bank’s two percent target.

The BoJ’s ultra-accommodative policy won’t be changed anytime soon and inflation still remains below 2%. Still, it is noteworthy that for the first time in years the BoJ is addressing inflation concerns, and that could eventually lead to a shift in policy.

USD/JPY Technical

• There is resistance at 115.54, followed by 116.88
• There is support at 113.18 and 112.16

Key takeaways

At the upcoming January meeting, we expect the Fed to indicate that the first rate hike is likely in March if the economy develops in line with expectations, supported by the tight labour market and still very high inflation.

It is one of the interim meetings without updated projections or dots.

We have changed our Fed call now expecting four 25bp rate hikes this year (in March, June, September and December, up from three previously) and still four rate hikes in 2023. We expect the Fed to start reducing the balance sheet from September.

Given the combination of a strong economy and high underlying inflation, we see risks as skewed towards more, not less, tightening. If this scenario plays out, the Fed is likely to hike 25bp at each meeting, not skipping interim meetings.

Fixed Income: We have lifted our target to 2.25% for 10Y UST.

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