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The US 30 index has retreated from its all-time high in early January amid strengthening negative momentum. Moreover, the index has crossed below the 50-period simple moving average (SMA), which is considered as a bearish sign for the near term.

Short-term momentum indicators are also reflecting a negative bias for the index, as the RSI is located below its 50 neutral mark. The MACD is found below zero and below its red signal line, indicating that negative momentum might be gaining further ground.

Should the bears remain in charge, initial support might be found at the region which includes the 35,825 level and the 200-period SMA currently at 35,800. A break below that area could pressure the price towards the 35,640 obstacle, before sellers eye the 35,430 hurdle. Crossing below the latter, could increase selling pressures, opening the door towards the 34,665 barrier.

On the flip side, if the bulls retake control, the first target might be the 36,125 resistance before shifting their attention towards the area which includes the 50-period SMA and the 36,240 level. A decisive move above the latter could restore positivity for the index, paving the way towards the 36,510 point. Surpassing this obstacle, the price could then test the 36,680 barrier before sellers shift their attention towards the all-time high at 36,950.

In brief, the short-term outlook for the index is cautiously bearish. For sentiment to change, buyers would need to drive the price above the 50-period SMA.

The British pound is flat as we start the new trading week. The currency enjoyed another positive week and GBP/USD has now risen for four consecutive weeks, as the US dollar continues to struggle.

There are two factors behind which are driving the pound higher. First, investor risk appetite remains strong, which has led to a rotation out of US dollars and into the major currencies. Investors remain in risk-on mode despite soft US employment and retail sales numbers and a more hawkish Federal Reserve. Second, UK data has been solid, as the recovery continues to gain steam. UK GDP for November jumped 0.9%, much stronger than expected and pushing GDP above the pre-Covid level for the first time. On Tuesday, the UK releases key employment numbers, and I would expect some movement from GBP/USD in the European session.

Johnson leadership in crisis

Prime Minister Boris Johnson is under intense pressure to resign, over all things, reports that he and his staff took part in numerous parties when lockdowns and Covid restrictions were in effect. Johnson has admitted that he attended a party with alcohol in May 2020, during the first lockdown, but claimed it was a work event. This has been met with ridicule and some of Johnson’s fellow Conservative lawmakers have joined in the growing calls for him to resign. An official investigation into the matter, which will be released shortly, will likely determine whether Johnson keeps his job. The latest political crisis has not made a dent in the pound’s upswing, but the currency could come under pressure if this political storm topples Johnson and leads to a period of political instability in the UK.

GBP/USD Technical Analysis

• There are support levels at 1.3560 and 1.3438
• GBP/USD faces resistance at 1.3776. This is followed by resistance at 1.3870

Oil prices are showing no signs of easing as the bull market remains well supported by fundamentals. Brent crude has rallied for four consecutive weeks, surging by more than 11% since the beginning of the year and up 32% from the lows of early December 2021 when the highly transmissible Omicron coronavirus variant began spreading across the globe.

Crude futures touched a new three-year high at $86.71 in Asia this morning as traders closely monitor whether the bull run will continue. This is the level when Brent peaked in October last year and in October 2018 after which prices dropped sharply by 42% in the following three months. An upside breakout from here leaves us with no near-term major resistance level, suggesting a potential test of $90 and the more psychological resistance level of $100. What seemed impossible a few months ago is now highly likely to occur.

Several factors have contributed to the latest rally, including outages in Libya, Nigeria, Angola, Ecuador, and Canada most recently due to the extreme cold weather. Refiners may have also reduced purchases in December when the Omicron variant began to spread, but they were caught by a surprise as demand wasn’t severely affected, and now they are trying to cover the gap. So, it is both sides of the supply/demand equation that is contributing to the rally and previous expectations of supply outpacing demand in the first quarter isn’t materialising.

Geopolitical risk premium may also increase if the conflict between Russia and Ukraine escalates. Further disruptions of Russia’s gas supplies to Europe will not only lead to higher gas prices but also crude oil.

Only OPEC members and their allies can bring prices down at this stage by pumping more crude from the big players. However, there doesn’t seem to be a willingness to do this. Instead, OPEC+ are likely to continue pursuing their strategy of gradually relaxing output cuts as they enjoy the current high price tag.

While current prices may not be sustained at current or higher levels in the long run, we are still likely to see a further rally in the near term as tailwinds remain intact.

Breaking news: coronavirus won't be the number one enemy of the global economy in 2022. Instead, this year's most significant risks will come from inflation and policymakers' decisions in the recovery era from the consequences of the pandemic. Unfortunately, things are about to get worse before they get steadily better. This is roughly the belief economists have of the trajectory of US inflation in 2022.

In 2021, policymakers at the Federal Reserve and other central banks confidently shrugged off concerns about inflation, labor shortages, and supply chain bottlenecks as short-term consequences of the pandemic. Just give it some time, and these problems will be solved. That was the reasoning of central banks.

If this proves not true within the next 12 months, policymakers got it wrong, and the consequences will be worse than the COVID-19 recession.

How does the Federal Reserve see inflation?

The Fed stuck to the narrative that a large part of the inflation "surprise" during 2021 was due to the temporary rise in energy prices that affected the rest of the sectors, with transportation and shipping costs rising strongly, as supply problems increased, which led to strengthening the inaction of central banks.

However, by September, US inflation was at 6.8% annually, the highest level in 30 years and nearly three times the Fed's forecast at the beginning of 2021. As a result, in December, the inflation narrative finally shifted from "it's temporary" to "it's taking a long time to calm down, and may need a push to move on."

Markets are now betting that the Federal Reserve will raise interest rates at least three times in 2022 to withdraw stimulus and cheap money from the markets in an attempt to control inflation as quickly as possible after it reached its highest level in 40 years in December (7.1%).

The US economy will grow despite high inflation

Bloomberg expects the US economy to grow by 4.4% during the first half of 2022 and then slow to 2.7% in the second half of the year.

One of the main reasons the US economy will grow is that most American consumers still have money to spend — that $2.6 trillion stimulus in household bank accounts the US government gave them. These funds will help support demand and revive the economy.

When will inflation decline in the United States?

(1) The supply chains are expected to become somewhat more organized later in the year.

(2) It is unlikely that there will be a repeat of the exceptional lockdown period that we saw at the beginning of the coronavirus. Some commodities, including oil, have already surpassed their record pandemic heights.

(3) The Fed has begun to tighten its monetary policy, and these factors are supposed to tip the scales towards lower inflation rates. Add all that together, and you'll see why most economists expect inflation to slow to less than 3% by the end of 2022.

Gold price failed to clear the $1,830 resistance and corrected lower against the US Dollar. The price broke the $1,820 support level to move into a short-term negative zone.

Besides, there was a break below the $1,815 level and the 50 hourly simple moving average. However, the bulls are now protecting the $1,812 support zone. It is now rising and approaching the $1,820 resistance zone.

On the upside, the price is facing resistance near the $1,822 level. There is also a key bearish trend line with resistance near $1,822 on the same chart. The next main resistance could be near the $1,830 level, above which the price could rise towards the $1,842 level.

An initial support on the downside is near the $1,815 level, below which there is a risk of more downsides. In the stated case, the price could test $1,800 on FXOpen.

EURUSD is returning around the 1.1400 level and is flirting with the long-term descending trend line in the Ichimoku cloud. Also, the price is still hovering underneath the 23.6% Fibonacci retracement level of the down leg from 1.2348 to 1.1185 at 1.1460 and is trying to overcome the latest highs of the preceding week.

According to technical indicators, the MACD oscillator is holding above its trigger and zero lines, while the RSI is pointing slightly up in the positive region. The 20- and 40-day simple moving averages (SMAs) are following the current market action, confirming the recent bullish crossover.

Should buying forces strengthen, the 1.1480-1.1520 resistance area will come under the spotlight. The 38.2% Fibonacci of 1.1630 could initially be a tough resistance to the bias on the negative side. However, moving higher, the 1.1695 barrier and the 200-day SMA at 1.1725 could next add some footing ahead of the 50.0% Fibonacci of 1.1765.

Alternatively, a close below the Ichimoku cloud will turn the focus to the downside again, pushing the price towards the 1.1230 support level. Beyond that, the rally may gear down to the 16-month low of 1.1185 and the 1.1015 hurdle, taken from the inside swing high in April 2020.

In brief, EURUSD is facing a weakening bullish bias, where a drop below 1.1300 is expected to enhance selling interest again.

EUR/USD

After the rally was limited by the resistance zone at 1.1480, the bears prevailed. The European common currency lost quite a bit of ground against the dollar and, during the early hours of today`s trading, the pair is holding positions around the psychological level at 1.1400. If the bearish prevalence continues, then the expectations will be for a test of the support at 1.1359. A breach of the mentioned zone could easily deepen the corrective move towards 1.1272. If the bulls re-enter the market, then their first resistance can be found at 1.1450. Only a successful violation of the next target at 1.1480, however, could lead to future gains and could easily head the price towards the November 2021 levels of around 1.1520. The expected data for the initial jobless claims (Thursday; 13:30 GMT) should lead to increased volatility.

USD/JPY

The support zone at 113.75 withheld the bearish attack and the Ninja recovered some of its recent losses. The price tested the close resistance at 114.28 and, at the time of writing, is trading above the mentioned zone. A confirmation of the breach could easily lead to a recovery and could pave the way for a violation attempt of the next resistance at 114.99. If the bullish momentum fades, then a new successful test of the zone at 113.75 on behalf of the bears could mark the current move as a corrective and could easily deepen the decline towards the support zone at 113.30.

GBP/USD

The breach of the resistance zone at 1.3708 was not confirmed and the GBP lost some ground against the USD. The pair consolidated under the mentioned level and, if the bears prevail, then a test of the support at 1.3596 would be the most probable scenario. A violation of the next target at 1.3555, followed by a breach of the lower support at 1.3507, could lead to a change in the current sentiment of the market participants. If the bulls re-enter the market, then a new attack and a breach of the resistance zone at 1.3708 could most likely prolong the pair’s rally.

EUGERMANY40

Neither the bulls nor the bears managed to gain enough momentum and trading activity remains locked in the zone between 15835 and 15962. A breach of the upper border could easily lead the German index towards the next resistance at 16080, where a violation would strengthen the positive expectations. In the negative direction, the first support is found at the level of 15835, followed by the lower zone at 15711.

US30

The US30 tested the support zone at 35899 and, during the early hours of today`s trading, the price is hovering under the mentioned level. A confirmation of the breach and a successful violation of the lower target at 35445 could easily deepen the decline and lead to a drop towards 34747. An important resistance for the bulls is the level at 36237, followed by the upper zone at 36532. This week, investors will focus on the expected initial jobless claims data for the U.S. (Thursday; 13:30 GMT).

Our weekly analysis on Elliott Waves takes a close look at the GBP/USD, the Ethereum cryptocurrency, and the Gold commodity.

Our analysis indicates a bearish ABC correction on the GBP/USD, a potential 5 waves down on ETH/USD, and a slow wave 4 pattern on XAU/USD.

ETH/USD downtrend must respect shallow Fibs

The Ethereum (ETH/USD) cryptocurrency pair is in a downtrend after breaking below the support trend lines (dotted green):

1. Price action could be moving down lower in 5 waves (pink). But price action should respect the shallow Fibonacci levels (red box) and resistance trend line (red).
2. A break above these Fib levels place the bearish analysis on hold. A bearish bounce and continuation lower, however, could confirm the 5 wave pattern in wave A (grey).
3. The main targets of the bearish swing are the -27.2% and -61.8% Fibonacci targets.
4. In any case, a larger ABC (grey) pattern seems to be taking place in a wave 4 (yellow) correction.

GBP/USD strength expected to face opposition

The GBP/USD is showing a strong bullish impulse, which was able to break above the resistance trend line (red) of the downtrend:

1. The bulls however are facing a strong resistance zone from the previous top (red box). A bearish bounce is likely to occur here (orange arrows).
2. A bearish ABC (blue) pattern could emerge at the resistance to create a pullback. But this could simply complete a wave B (pink) within a larger ABC (pink) pattern.
3. The blue box could indicate an inverted head and shoulders pattern. A deeper bearish retracement would place the bullish ABC on hold or invalidate it. A stronger push up above the resistance (red box) however still will indicate a wave A (pink) most likely.

XAU/USD bullish chart pattern

Gold is moving sideways after a strong impulsive move up:

1. A bullish break above (green arrow) the resistance (red) trend line could indicate an uptrend continuation. But if the current Elliott Wave analysis is correct, then the previous top should stop the uptrend.
2. A bearish bounce (orange arrow) could complete the ABC (blue) in wave B (pink) and send price back down to the previous bottom.
3. A bullish bounce (green arrow) at the previous bottom could complete the ABC (pink) pattern within wave 4 (yellow) and restart the uptrend.
4. A deeper retracement below the previous bottom places the uptrend on hold or invalidates it.

Markets

US retail data on Friday printed softer than expected. Headline sales declined 1.9% M/M and control group sales (-3.1% M/M), a proxy for  consumption in GDP, missed the consensus by quite a big margin. Omicron is affecting sales, at least temporarily. Later, consumer confidence of the University of Michigan also disappointed, declining from 70.6 to 68.8. A the same time, measures of consumer inflation expectations remain upwardly oriented. The bond market reaction was telling. An initial post-retail sales jumped in bonds immediately met renewed selling pressure. So no safe haven positioning ahead of the long US weekend (Martin Luther King Day today), on the contrary. Recent Fed comments showed an almost unprecedented consensus that inflation needs immediate and decisive action. Even one of the ‘last doves standing’, NY Fed President Williams, saw the strong labour market as a good reason to start raising rates. So despite mediocre data, US yields again made a big leap higher rising between 7.4 bp for the 2-y and almost 10 bp for the 30-y, almost solely due to higher real yields. The 2-y (0.967%), 5-y (1.559%) and 10-y (1.784%) closed at a new cycle top. German yields joined the sharp US rebound rising between 1.6 bps (2-y) and 4.8 bps (30-y). ECB’s Lagarde in a speech reiterated that the drivers for inflation will ease this year, but at the same time said the ECB’s ‘commitment to price stability remains unwavering’. Oil closing north of $86 p/b suggests that the inflation dynamic won’t stop anytime soon. US equities closed mixed (Nasdaq +0.59%, Dow -0.56%). The dollar was already in better shape early in European dealings and was further supported by the rise in (real) yields. EUR/USD closed at 1.141. DXY rebounded of recent correction low and closed near 95.16.

This morning, Chinese Q4 growth data and reduction of the PBOC 1-yr MTL rate are taking center stage (cfr infra). The PBOC action to support growth apparently is a seen a positive for the yuan. USD/CNY dropped to 6.347, with Friday’s multi year top of the yuan again within reach. Regional indices are trading mixed, but the mostly hold up rather well considering persistent selling pressure on the bond markets. The dollar is gaining a few ticks with USD/JPY (114.53) taking the lead. EUR/USD trades little changed near 1.1415. Today, the eco calendar is empty and US markets are closed (MLK Day). This suggest technical, order driven trading at rather low volumes. Still, Friday’s price action shows the direction yield markets are heading as the Fed flags its rate hike intentions and further reduces bond buying. The 1.80% reference for the US 10-y yield stays at risk. The German yields holds in the vicinity of the symbolic 0% level. The dollar apparently enters calmer waters after the post CPI-setback. For now 1.1386/1.1483 remain the first technical reference for the EUR/USD cross rate. Despite political tensions, EUR/GBP is holding in the 0.835 area.

New Headlines

Chinese GDP growth continued to lose steam in 2021Q4 though less than expected. Growth on a quarterly basis accelerated from 0.2% to 1.6% but eased from a 4.9% y/y pace in Q3 to 4%. Over the whole of 2021, China activity grew 8.1%, well above the 6%+ government target. Monthly figures reveal solid industrial production (4.3% y/y), shrugging of shocks coming from a.o. electricity shortages. Property investment further slowed in December. Uncertainty in the vast real estate sector continues to linger. Retail sales were the most depressing figure, retreating from 3.9% y/y to a mere 1.7%. Omicron and China’s zero-Covid policy with hard lockdowns at every breakout dent consumption. To soften the blow on the economy, the central bank eased policy again by lowering the 1-yr medium term lending facility rate from 2.95% to 2.85%, the first rate cut since April 2020. The Chinese yuan strengthens this morning to USD/CNY 6.346, testing the

Boris Johnson’s Conservative Party is sliding in the opinion polls. A poll by Opinium gave Labour 41% of the vote share compared with 31% for the Conservatives, Reuters reported. It’s the biggest lead over the Conservatives since 2013. Johnson (and the party) are under pressure in particular after social gatherings at Downing Street during the lockdown became known to the public. YouGov trackers show the likelihood to vote Conservative in the next general election slipped to 2019 levels whereas Labour holds near recent highs. The next UK election isn’t due until 2024.

The EURUSD turned lower on Friday after the US published weak retail sales numbers. The data revealed that the country’s retail sales declined sharply in December as inflation concerns remained. The headline retail sales declined by 3.1% in December after they fell by about 0.5% in the previous month. This decline was worse than the median estimate of -0.1%. Meanwhile, core retail sales declined by 2.3% in December. Still, despite the weak retail sales numbers, analysts expect that the Federal Reserve will maintain a hawkish tone in a bid to lower inflation.

US equities were mixed on Friday as the earnings season kicked off. The Dow Jones declined by over 145 points while the S&P 500 and Nasdaq 100 index rose by 12 and 130 points, respectively. The earnings season were relatively mixed. While Wells Fargo reported strong results, JP Morgan’s revenue and profitability disappointed as the company warned about rising costs. The company is spending billions of dollars in technology investments. According to FactSet, about 60% of all companies in the S&P 500 index cited the rising costs in the Q4 earnings. US markets will be closed today. Later this week, companies like Morgan Stanley and Johnson & Johnson will publish its results.

The economic calendar will be muted today. Earlier on, China published the latest GDP numbers for the fourth quarter. These numbers showed that the economy did well in the fourth quarter even as the number of Covid cases rose. Still, there are signs that the performance will slow this quarter after the country announced major lockdowns in some cities. The major data to watch will be the latest Bank of Canada business outlook survey.

EURUSD

The EURUSD pair made a bullish breakout last week and soared to a high of 1.1482. This was the highest level since November 11th. It then declined to a low of 1.1415 after the weak US retail sales numbers. It has moved below the middle line of the Bollinger Bands. It also moved below the 25-day moving average while the Relative Strength Index (RSI) has moved below the overbought level. It is also slightly above the key support at 1.1377. Therefore, the pair will likely retest support and then resume the bullish trend.

USDCHF

The USDCHF pair bounced back and rose to a high of 0.9138, which was the highest level since Wednesday. The pair moved slightly below the middle line of the Bollinger Bands while the Stochastic Oscillator and Relative Strength Index (RSI) started rising. It is also above the Parabolic SAR indicator. Therefore, the pair will likely keep rising as bulls target the key resistance at 0.9200.

GBPUSD

The GBPUSD pair declined to a low of 1.3652, which was the lowest level since January 12. The pair moved slightly above the ascending trendline that is shown in red. It also moved to the 25-day moving average while the MACD has formed a bearish crossover pattern. Therefore, the pair will likely keep falling as bears target the key support at 1.3600.