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Small bounce expected as shortened week draws to a close

We're expecting a mild bounce as we approach the European open on Friday, as investors continue to weigh up whether markets look vulnerable or cheap following a volatile start to the year.

This follows another aggressive sell-off a day earlier in the US, which came on the back of the news that Apple has lowered its revenue forecasts due to faster deceleration in China and the impact of a trade war with the US. This naturally feeds into investors deep-rooted fears about the global economy this year and so the impact of the warning stretched well beyond Apple and its suppliers and even, it would seem, into the FX market where the yen was heavily bid.

This has since settled down a little, with Asian markets performing relatively well overnight, the exception being the Nikkei which traded for the first time this year and therefore played catch-up with previous days negativity. It also had to contend with a much stronger yen - which has benefited greatly from this period of risk aversion – which has typically weighed heavily on the index.

Gold falls just shy of $1,300

Gold continues to perform well in these markets, with its safe haven status shielding it from the broader market declines at the start of the year – and before for that matter. A pullback in the dollar over the last few weeks has also supported gold prices, which fell just short of $1,300 before paring gains as the dollar edged higher. Gold continues to look bullish in the near-term, although we may see some profit taking now after a good run as it approaches an interesting technical level.

Of course, whether gold surpasses $1,300 today may well depend on the US data and the comments we get from Fed Chair Powell. The US jobs report is widely regarded as the most important economic release each month and offers insight into the world's largest economy at a time when slowdown fears are heightened. A weaker ISM manufacturing PMI yesterday further fuelled these fears although that could be quickly reversed if we see a strong report today.

Jobs report and Powell comments in focus

There has been pockets of softness in some US data in recent months, most notably housing, but also retail sales and manufacturing, but the jobs data overall is expected to remain strong. Unemployment is expected to remain at 3.7%, with jobs growth of around 177,000 and wage growth of around 3%. This doesn't exactly spell panic but I don't think it will calm investors who are also concerned about the prospect of more rate hikes, having completely priced one out this year.

That makes Powell's comments today all the more interesting, as he appears alongside his predecessors Janet Yellen and Ben Bernanke for a panel discussion. I doubt Powell will use this platform to announce any significant shift in Fed policy but he may address the sizeable difference between central bank and market expectations for the coming year.

Daily Pivots: (S1) 1.1192; (P) 1.1235; (R1) 1.1287; More...

No change in EUR/CHF's outlook. The choppy decline is still in progress for 1.1173 low. For now, we'd still expect strong support from 1.1154/98 support zone to contain downside to bring reversal. But break of 1.1348 resistance is needed to indicate near term bottoming first. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

Market movers today

This morning, we have published our updated economic outlook for the Nordic countries, the Nordic Outlook, which highlights local strengths amid global risks.

In the US, the payrolls report is due and we expect a rebound to 190,000 new jobs in December. But it is average hourly earnings that are key: we think this rose 0.25% m/m in December, which means a fall in the annual growth rate to 2.9% y/y from 3.1%.

In the euro area, flash HICP figures for December are due: we expect the headline figure to decline to 1.9% but with downside risk to this estimate, and we see core inflation jumping back to 1.1%, driven by higher services prices during the holiday season.

In the UK, the PMI services is expected to increase a tad from the previous 50.4 reading.

Fed chair Powell is set to join predecessors Yellen and Bernanke for a panel discussion at the American Economic Association annual meeting; this could make for some broader reflections on monetary and notably Fed policy more specifically. Yesterday, the Fed's Kaplan indicated openness to an earlier end to and/or slower balance sheet run-off.

In Norway, the monthly house price report is due to be released today, see page 2.

Selected market news

A significant drop in the US manufacturing ISM yesterday extended the risk-off move initiated on Wednesday by Apple's after-market revenue warning and the 'flash crash' in the JPY. The overall ISM manufacturing index saw a large drop to 54.1 (expected 57.5) from 59.3 previously, led especially by a sharp decrease in new orders. The report could deal another blow to President Trump in the trade dispute in suggesting that US businesses look increasingly to have been impaired by it. Notably, the ISM employment index also dropped somewhat, but at 56.2 it remains rather high, and, separately, yesterday's ADP report alluded to still healthy job gains in the US ahead of payrolls today.

US equities were left in the 'red' with the main indices down 2.5-3.0% as yesterday's Apple warning took hold; Asia mixed with Japanese indices also markedly down following yesterday's JPY strength, while their Chinese counterparts fared much better, posting outright gains after China's Caixin services PMI rose to 53.9 (expected 53.0). JPY crosses stabilised after Thursday's 'flash crash', with the USD/JPY rising a little further to now trade above the 108 mark. US Treasuries remained supported and the 10Y yield briefly dipped below the 2.55% mark. Oil prices rose to USD56/bbl (Brent crude), while gold continues its uptick with USD1,300/tr oz now in sight. More broadly, central bank tightening continues to be pushed out in time, with markets now clearly betting central banks will have to rein in tightening: futures markets thus see the Fed as done hiking with a full 25bp cut now priced for H1 next year; similarly, a first 20bp ECB hike is now put no earlier than Q4 next year. While we look for Q1 to be challenging cyclically and risk-wise, we stress that Chinese easing and an eventual trade deal should help foster a global cyclical turn during H1

Daily Pivots: (S1) 0.6840; (P) 0.6930; (R1) 0.7096; More...

Intraday bias in AUD/USD remains neutral as consolidation continues. Upside of recovery should be limited by 0.7071 resistance to bring decline resumption. On the downside, below 0.6928 minor support will turn bias to the downside for 0.6722 first. Decisive break there will extend the larger down trend to 100% projection of 0.8135 to 0.7020 from 0.7393 at 0.6278 next. Nevertheless, break of 0.6928 will delay the bearish case and bring stronger rebound first.

In the bigger picture, medium term fall from 0.8135 is still in progress. Such decline is seen as part of the long term down trend from 1.1079 (2011 high). Sustained break of 0.6826 (2016 low) will pave the way to next key level tat 0.6008 (2008 low). In any case, break of 0.7393 resistance is needed to indicate medium term bottoming. Otherwise, outlook will remain bearish even in case of strong rebound.

Daily Pivots: (S1) 1.3418; (P) 1.3538; (R1) 1.3606; More...

USD/CAD's pull back from 1.3665 short term top is still in progress. Intraday bias stays on the downside for 38.2% retracement of 1.2781 to 1.3664 at 1.3327. We'd expect downside to be contained there, which is close to 55 day EMA, to bring rebound. On the upside, above 1.3566 minor resistance will turn bias neutral first. But after all, firm break of 1.3664 is now needed to confirm up trend resumption. Otherwise, risk will stay on the upside even in case of recovery.

In the bigger picture, up trend from 1.2061 (2017 low) is still in progress and should target 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685. At this point, the structure is not clearly impulsive yet. Hence, we'd be cautious on topping between 1.3685/3793. But in any case, medium term outlook will stay bullish as long as channel support (now at 1.2993) holds. Sustained break of 1.3793 will pave the way to retest 1.4689 (2015 high).

Daily Pivots: (S1) 1.1332; (P) 1.1371; (R1) 1.1434; More.....

EUR/USD is staying in range of 1.1270/1496 and intraday bias remains neutral. On the downside, break of 1.1270 revive the bearish case that down trend from 1.2555 is still in progress. EUR/USD should then target 1.1186 key fibonacci level next. On the upside, however, sustained break of 1.1496 will revive the case of near term reversal, on bullish convergence condition in daily MACD. Bias will be turned back to the upside for 1.1621 resistance first. Break will target 1.1814 key resistance next.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Daily Pivots: (S1) 1.2503; (P) 1.2575; (R1) 1.2711; More....

Intraday bias in GBP/USD is neutral for more consolidations. But outlook will stay bearish as long as 1.2814 resistance holds. On the downside, below 1.2550 minor support will turn bias to the downside for retesting 1.2391 first. Break will extend the down trend from 1.4376 and target 61.8% projection of 1.4376 to 1.2661 from 1.3174 at 1.2114 next.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend from 2.1161 (2007 high). And this will now remain the preferred case as long as 1.3174 structural resistance holds. GBP/USD should target a test on 1.1946 first. Decisive break there will confirm our bearish view.

Daily Pivots: (S1) 0.9833; (P) 0.9880; (R1) 0.9914; More...

USD/CHF is staying in range of 0.9789/9963 and intraday bias remains neutral for the moment. With 0.9963 resistance intact, another decline is mildly in favor. Below 0.9789 will target 0.9765/8 (61.8% retracement of 0.9541 to 1.0128 at 0.9765, 38.2% retracement of 0.9186 to 1.0128 at 0.9768). We'll look for bottoming signal again there. On the upside, break of 0.9963 will suggests that the pull back from 1.0128 has completed and will turn bias back to the upside for this resistance.

In the bigger picture, the deeper than expected fall form 1.0128 argues that medium term rally from 0.9186 might have completed at 1.0128 already, on bearish divergence condition in daily and weekly MACD. Break of 0.9541 key support will confirm this bearish case. More importantly, the corrective three wave structure will in turn argue that long term corrective pattern from 1.0342 (2016 high) is extending. In that case, 0.9186 will be the next target.

General Trend:

• Japan markets decline in return from 4-day holiday
• Tech and Marine Transportation names weigh on the Nikkei; Fast Retailing declines over 6% in catchup selling
• Chinese equities rebound after lowest open since late 2014, property index rises
• Big banks gain in Shanghai; Ping An Bank rises on guidance
• Pharma names in Hong Kong trade broadly higher
• Financial and Resources sectors lead declines in Australia
• Apple suppliers in Asia remain under pressure: Largan Precision declines over 4%
• JGB Futures rise in first day of trading in 2019; 10-yr JGB yield remains negative
• Gold Futures test $1,300/oz amid recent FX volatility
• China Caixin Services PMI rises to 6-month high after manufacturing index moved into contraction
• Yen declines after gains on Thursday; AUD/JPY outperforms
• Partial US government shutdown entered its 13th day as of Thursday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.6%
• (AU) Australia Dec Final CBA PMI Services: 52.7 v 52.2 prior; PMI Composite: 52.9 v 52.4 prior

China/Hong Kong

• Shanghai Composite opened -0.7%, Hang Seng -0.5%
• (CN) CHINA DEC CAIXIN PMI SERVICES: 53.9 V 53.0E (6-month high)
• (CN) China Premier Li: To step up countercyclical adjustments of macro policies; To make 'full use' of RRR and targeted RRR tools
• (CN) China Commerce Ministry (MOFCOM): Confirms China and US to hold vice ministerial level trade talks on Jan 7-8th (Mon-Tues)
• (US) White House Economic Advisor Hassett: China economy slowing, could be a recession – press
• (CN) China PBoC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY60B injected in 7 and 14-day reverse repos prior; Net: CNY160B drain v CNY90B drain prior
• (CN) China PBoC sets yuan reference rate: 6.8586 v 6.8631 prior
• (CA) Canada govt official: 13 Canadians have been detained in China since Huawei exec arrest - Globe & Mail

Japan

• Nikkei 225 opened -1.8%
• (JP) Japan Finance Ministry (MOF) Currency Head Asakawa comments on Thursday's FX volatility: Speculative moves were seen in thin markets
• (JP) Japan Fin Min Aso: True corporate conditions are 'extremely good' [referring to decline in stock prices]
• (JP) Japan Finance Ministry (MOF), FSA and Bank of Japan (BOJ) to hold meeting on markets at 1 pm local time (11 PM EST)
• (JP) Reportedly BoJ will consider trimming inflation outlook for next 2 years – Nikkei
• (JP) BoJ Gov Kuroda: Markets 'somewhat rough', impacted by unexpected overseas developments: Reiterates important to take consistent policy 'patiently and persistently' towards beating deflation
• (JP) BoJ announcement related to daily bond buying operation: unchanged
• (JP) Japan PM Abe: Not intending to dissolve Japan Lower House

Korea

• Kospi opened -0.1%
• (KR) South Korea Finance Ministry: Held meeting after [recent] US stock decline, global stock market 'instability' may continue for 'a while'
• (KR) Bank of Korea (BOK): To closely monitor financial market movement
• (KR) South Korea Dec Foreign Reserves: $403.7B v $403B prior

Other

• (ID) Indonesia Central Bank: To hold auction in domestic NDF market, to hold auction at 'fixed rate' at 8:30 AM (local time)
• (MY) Malaysia Nov Trade Balance (MYR): 7.6B v 11.0Be; Exports to the US -3.6% y/y, China +3.9%
• (PH) PHILIPPINES DEC CPI M/M: -0.4% V -0.3% PRIOR; Y/Y: 5.1% V 5.6%E

North America

• US equity markets ended lower: Dow -2.8%, S&P500 -2.5%, Nasdaq -3.0%, Russell 2000 -1.3%
• (US) DEC ISM MANUFACTURING: 54.1 V 57.5E; PRICES PAID: 54.9 V 57.7E (biggest drop in Manufacturing activity since Oct 2008); New Orders Index: 51.1 v 62.1 prior
• (US) US Democrat controlled House votes 241to 190 to pass spending package to reopen the government, without border wall funds (as expected); White House has said it would veto any measure that did not include funding for border wall
• ((US) House Leader Pelosi (D): Reiterates 'we are not doing a wall'
• (US) US Senate Minority Leader Schumer (D): To attend Friday's meeting at the White House on the government shutdown
• (US) Reminder: Fed Chair Powell is expected to speak during Friday morning (around 10:15 AM ET) at the American Economic Association in Atlanta, expected to address monetary policy
• (US) Former Fed Vice Chair Kohn suggested Fed officials need to change how they communicate in order to improve the understanding of investors and the public - financial press
• (US) Weekly API Oil Inventories: Crude: -4.5M v +6.9M prior

Europe

• (UK) UK Brexit Min Barclay: Reiterates second referendum would cause yet more division in the UK
• (UK) Telegraph poll shows most Tories would select 'No-deal' Brexit
• (UK) UK Dec BRC Shop Price Index Y/Y: 0.3% v 0.1% prior (highest since April 2013)
• Banca Carige [CRGI.IT]: Malacalza family (main investor) said to have suggested support for a recapitalization of the company - FT

Levels as of 01:00ET

• Nikkei 225, -2.7%, ASX 200 -0.3%, Hang Seng 1.6%; Shanghai Composite 1.6%; Kospi 0.7%
• Equity Futures: S&P500 +0.5%; Nasdaq100 +0.7%, Dax +0.6%; FTSE100 +0.4%
• EUR 1.1412-1.1386 ; JPY 108.44-107.46 ; AUD 0.7031-0.6993 ;NZD 0.6708-0.6675
• Feb Gold +0.1% at $1,297/oz; Feb Crude Oil +0.4% at $47.27/brl; Feb Copper +0.7% at $2.595/lb

Elliott Wave view in EURAUD shows that the decline to 1.5337 low ended wave b. Rally from there unfolded as a 5 waves impulsive Elliott Wave structure. Up from 1.5337 low, Wave (1) ended at 1.5886, wave (2) ended at 1.566, wave (3) ended at 1.6453, wave (4) ended at 1.6184, and wave (5) ended at 1.6794. The 5 waves move from 1.5337 low ended wave ((1)) of a higher degree.

Pair is currently in wave ((2)) pullback to correct the rally from 12.3.2018 low (1.5337). The correction is expected to unfold in 3, 7, or 11 swing and potential area is 1.568 – 1.6069 (50 – 76.4% Fibonacci Retracement). While the dips stay above 1.5337, pair should then resume higher again. The move to 1.5337 also broke the previous high at 10.11.2018 (1.6357), therefore creating a bullish sequence from 2.22.2017 low favoring further upside.

EURAUD 4 Hour Asia Elliott Wave Chart