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In an interview, ECB chief economist Philip Lane pointed to the December economic projections, and said, " inflation will fall this year, and that it will go below our 2 per cent target in 2023 and 2024."

While the 5% December inflation number is "unusually high", Lane said that's dominated by the 26% rise in energy prices last year. He added, "we do not see behaviour that would suggest inflation will remain above our target into the medium term."

As inflation will "settle below our target in 2023 and 2024", he added, "The criteria for moving interest rates up are therefore not in place. This remains our view."

On growth, Lane said that bottlenecks are "temporary factors" and the order book is very good. "Overall, in Europe we see a solid growth engine this year, next year and the year after that."

Full interview here.

EUR/USD

The sell-off of the EUR/USD was limited to the level at 1.1315 and the bulls took back control over the market. During the early hours of today`s trading, the European common currency is still recovering some of its losses against the dollar and the pair is headed for a test of the resistance zone at 1.1359. A successful breach here would strengthen the positive expectations for the future path of the pair and could lead to a rally towards the level at 1.1440. However, if the mentioned zone at 1.1359 withholds the bullish attack, then the bears could attempt a breach of the important support zone and the one at 1.1272. A violation of this level will most likely lead trading out of the range between 1.1272 and 1.1359 and deepen the decline towards the lower target at 1.1236. The ECB President Lagarde`s speech (today; 10:20 GMT), as well as the Fed Chair Powel’s testimony (today; 15:00 GMT) should lead to increased volatility.

USD/JPY

The dollar lost some ground against the yen and the currency pair moved towards the support level at 114.99. At the time of writing the analysis, the pair is consolidating above the mentioned zone, but if the bears gain enough momentum and breach it, then the drop will most likely accelerate towards the support at 114.28 and would easily lead to new losses for the Ninja. If the bulls re-enter the market and rally above the resistance at 116.16, then the USD/JPY could easily reach the levels at around 117.00.

GBP/USD

The British pound regained some of its recent losses against the dollar and, during the early hours of today`s trading, the pair is headed for a test of the resistance zone at 1.3596. Success for the bulls here could easily continue the rally towards the levels at 1.3620, followed by a move towards the resistance at 1.3700 that comes from higher time frames. The first target for the bears is still the support at 1.3555. A breach of the mentioned zone and a successful test of the lower level at 1.3507 would draw a more bearish picture for the Cable.

EUGERMANY40

The bears could not gain enough momentum for a successful breach of the support zone at 15711 and, at the moment, the German index is holding above the zone at 15835. If the bulls prevail, then their first target can be found at the level of 15962, followed by the upper resistance at 16080. If the bears re-enter the market, then a new attack on the level at 15835 will be the most probable scenario. A violation of this level would pave the way for a test of the lower support at 15711 and would strengthen the negative expectations for the EUGERMANY40.

US30

The attack on the support at 35899 was not successful and the U.S. index consolidated around the current level at 36095. If the bearish momentum fades, then the bulls could test the resistance zone at 36237. А breach of the aforementioned zone could easily lead to a rally towards 36532. If the sellers take over the market and breach the zone at 35899, then the sell-off will most likely deepen towards the level at 35445. Volatility will most likely rise during the events, mentioned in the EUR/USD analysis.

AUDUSD attempts rebound

The Australian dollar bounces back over strong retail sales in November. The pair saw bids near a previous trough (0.7130).

The RSI’s double-dip into the oversold area attracted some traders in taking up the bargain. A bullish RSI divergence suggests a deceleration in the downward momentum. And a jump above 0.7180 could be the first step towards a bounce.

The Aussie may surge to the daily resistance at 0.7360 if buyers succeed in lifting offers around 0.7270. Otherwise, the price could test the critical floor at 0.7080.

USDJPY tests support

The Japanese yen rose as risk appetite fades across markets.

A bullish MA cross on the daily chart indicates that the dollar’s rally gained traction. However, an overbought RSI means that a pullback could be an opportunity for the bulls to buy dips.

The dollar is testing the psychological level of 115.00, the origin of the rally above the November peak (115.50). An oversold RSI has brought in some buying interest. A bearish breakout could trigger a correction to 114.30. Then, the bulls will need to reclaim 115.90 in order to resume the uptrend.

US 30 continues to retreat

The Dow Jones tumbled as US Treasury yields hit a two-year high on hike bets.

A bearish RSI divergence foreshadowed the current sell-off. A drop below 36300 prompted leveraged positions to close out, driving up volatility as short-term sentiment deteriorated. Rebounds could be opportunities for the bears to sell into strength.

35700 is an area of interest, as it lies in a former supply zone and along the 30-day moving average. 35200 would be a second layer of support, while 36400 is the immediate resistance.

The Nasdaq 100 index sell-off persisted on Monday as US bond yields continued rallying. The tech-heavy index declined by over 300 points, pushing it to a correction territory. Other indices like the Dow Jones and S&P 500 declined as investors worried about the tightening by the Federal Reserve. Analysts believe that the Fed will start winding down its pandemic-era actions like low interest rates this quarter. Some of the worst performing tech companies were SoFi Technologies, Robinhood Markets, Bumble, Etsy, and PagerDuty among others.

The biggest announcement in corporate America came from Take Two Interactive, the company behind games like Grand Theft Auto and Midnight Suns. The firm announced that it would acquire Zynga, the company known for Farmville and Zynga Poker in a $12 billion deal. The purchase price is a 64% premium for the company. Activity in the game industry has been high recently. Microsoft acquired Doom in a $7.5 billion deal while Electronic Arts bought Glu Mobile. Later this week, focus will be on corporate earnings.

The US dollar index rose by 0.30% in the overnight session as investors continue assessing the recent economic data from the United States. Data showed that the labor market is still going strong in the country as the unemployment rate declined to 3.9%. Later today, the currency will react to a testimony by Jerome Powell, who will likely provide more guidance on the state of the economy and potential actions. Other Fed members who will speak include Loretta Mester and Esther George.

NAS100

The four-hour chart shows that the Nasdaq 100 index has been in a strong bearish trend in the past few weeks. Any attempts to buy the dips have all failed. The index also managed to move below the key support at $15,505, which was the lowest level on December 20th. It also slumped below the 25-day and 50-day moving averages. Also, the index moved to the lower side of the Bollinger Bands while the Average True Range (ATR) jumped to the highest level since December. Therefore, the index will likely keep falling this week.

EURUSD

The EURUSD pair declined to a low of 1.1285 as the US dollar index rose. That price was slightly below the lower side of the ascending trendline. It is along the 25-day moving average while the Relative Strength Index (RSI) is at a neutral level. The pair is also slightly above the green dots of the Parabolic SAR. Therefore, the pair will likely remain in this range today.

EURCHF

The EURCHF pair jumped to the highest level since November 26th after strong jobs numbers from the European Union. The pair rose to 1.0480, which was substantially higher than last month’s low of 1.0325. On the four-hour chart, it has moved above the 25-day moving average while the average true range has tilted higher. Therefore, the pair will likely keep rising today although a brief pullback cannot be ruled out.

Markets

Yesterday started with a continuation of last week’s trading dynamics but ended quite differently. European equities slipped about 1.5%. Wall Street in early trading recorded losses as deep as 2.7% for the Nasdaq before staging an impressive intraday turnaround. The tech-heavy index even managed a marginal green close of 0.05%. There were no specific triggers other than dip-buyers and core bond yields not really pushing through to the same extent. The US curve flattened with the short end adding >3 bps but the long end shedding up to 2.7 bps (30y). The 10y tested 1.77% resistance to reach an intraday high of 1.806% before closing at 1.76%. German yields fluctuated and finished with minor gains of 0.7-1.3 bps across the curve. The 10y variant (-0.034%) eked out another cycle high. The European 10y swap yield (0.38%) took another baby step towards the 0.40/42% resistance area. Japan’s yen came out victorious in FX space thanks to the fragile sentiment and lesser core bond yield momentum. EUR/JPY fell from 131.30 to 130.46. USD/JPY closed at 115.20, down from 115.66. Interesting to note: the Swiss franc was hammered. EUR/CHF in recent days edged higher from 1.034 to 1.05 yesterday. Some refer to fears that the central bank may start intervening in case the situation along Ukrainian borders sours further. Barring the yen, the dollar gained against major peers though finished in off intraday highs in most cases. EUR/USD edged lower from 1.136 to 1.133 after recovering from declining sub 1.13. EUR/GBP whipsawed in similar fashion and ended slightly lower at 0.834 (from 0.835).

Asian stocks again have little to trade on. Japan loses about 1% after being closed on Monday. Losses are similar for China and South Korea. Australia drops 0.75% even after stellar retail sales (see headline below). Yesterday’s FX gainers are today’s marginal losers. Both the JPY and USD lose within the range of 0.1-0.3%. Core bonds trade unchanged after erasing an early Asian uptick.

Today’s economic calendar is again vast emptiness. We mention Fed chair Powell’s hearing before the Senate on his nomination for a second term. According to his prepared remarks, released after market, Powell’s focus will be on preventing higher inflation from becoming entrenched. Regarding prices, there’s a new figure to be published tomorrow. Seeing yesterday’s dynamics, the rise in core/US bond yields ahead of the CPI print may therefore ease a bit in a daily perspective. EUR/USD trading will be sentiment and technically driven within the gentle upward sloping trend channel. In the UK, we’re keeping an eye at the politics, were (energy) inflation is becoming a major source of concern. It may add (implicit) pressure to the Bank of England to frontload policy normalization. EUR/GBP sticks to recent lows around 0.834.

News headlines

Czech National Bank member Michl expects Czech inflation to accelerate further and possibly reach 10% Y/Y (!) in January. December data will be released tomorrow with Bloomberg consensus ‘only’ expecting an increase from 6% Y/Y in November to 6.6% Y/Y. Despite this double digit inflation prediction, Michl remains opposed to further rate hikes together with his CNB colleague Dedek. One of Michl’s main arguments is that the wide interest-rate differential risks attracting inflows of speculative capital. Ever since the 1 ppt rate hike in December (to 3.75%), the Czech koruna has been rallying without looking back. EUR/CZK currently changes hands near 24.35. Next support (2012) stands at 24.28. Czech money markets expect the policy rate peak later this year to be around 5%.

Australian retail sales rose by a whopping 7.3% M/M in November after an already strong October month (+4.9% M/M). Details showed that apparel and department stores sales rose by 38.2% M/M and by 26% M/M respectively. The end of local lockdowns is responsible for the huge surge. Sales in the state of Victoria soared for example by 20% M/M. Local financial markets don’t really react to the data. AUD/USD trades a tad higher near 0.7180.

Daily Pivots: (S1) 0.7148; (P) 0.7176; (R1) 0.7202; More...

Intraday bias in AUD/USD remains neutral as range trading continues. On the downside, break of 0.7081 support will indicate that corrective rebound from 0.6992 has completed with three waves up to 0.7277, after hitting 55 day EMA. Intraday bias will be back on the downside for retesting 0.6991/2 key support zone. Firm break there will resume larger down trend from 0.8006. On the upside, though, break of 0.7277 will turn bias to the upside to resume the rebound.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 1.2623; (P) 1.2661; (R1) 1.2711; More...

Intraday bias in USD/CAD stays neutral and outlook is unchanged. On the downside, firm break of 1.2619 support will complete a head and should top pattern (ls: 1.2852, h: 1.2963, rs: 1.2812). That would also argue that whole pattern from 1.2005 has completed with three waves to 1.2963. Intraday bias will be back to the downside for 1.2286 support, and possibly further to 1.2005 low. On the upside, though, break of 1.2812 resistance will retain near term bullishness, and target 1.2963 and then 1.3022 fibonacci level.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. On the downside, however, break of 1.2286 will turn focus back to 1.2005 low again.

Daily Pivots: (S1) 155.82; (P) 156.60; (R1) 157.24; More...

Intraday bias in GBP/JPY stays neutral, but further rally is expected as long as 154.86 support holds. Decisive break of 158.19 high will resume larger up trend to 167.93 long term fibonacci level. On the downside, below 154.86 minor support will turn intraday bias back to the downside for deeper pull back.

In the bigger picture, strong rebound from 148.93 key structural support retains medium term bullishness. Firm break of 158.19 high will resume whole up trend from 123.94 (2020 low), to 61.8% retracement of 195.86 to 122.75 at 167.93. Nevertheless, firm break of 148.93 will bring deeper correction to 38.2% retracement of 123.94 to 158.19 at 145.10, and possibly further lower, as a correction to up trend from 123.94 at least.

Daily Pivots: (S1) 130.00; (P) 130.69; (R1) 131.21; More....

Intraday bias in EUR/JPY remains neutral for the moment, but further rally is expected as long as 130.01 support holds. Whole consolidation from 134.11 could have completed with three waves down to 127.36, ahead of 126.58 medium term fibonacci level. Break of 131.59 will target a test on 133.44/134.11 resistance zone. On the downside, break of 130.01 minor support will turn bias bias to the downside for retesting 127.36 low instead.

In the bigger picture, as long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of medium term bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.

Daily Pivots: (S1) 0.8328; (P) 0.8346; (R1) 0.8361; More...

EUR/GBP is trying to resume near term decline, but downside momentum is unconvincing. In any case, outlook will stay bearish as long as 0.8417 resistance holds. Current down trend should target 0.8276 key long term support. On the upside, above 0.8417 minor resistance will turn bias back to the upside for stronger rebound.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8598 resistance holds, towards long term support at 0.8276. We'd look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8598 will now be an early sign of medium term bottoming and bring stronger rebound. However, sustained break of 0.8276 will argue that the long term trend has reversed.