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Daily Pivots: (S1) 1.6512; (P) 1.6556; (R1) 1.6627; More...

EUR/AUD is still bounded in consolidation from 1.6800 and intraday bias remains neutral. Strong support is expected from 38.2% retracement of 1.5963 to 1.6800 at 1.6480 to contain downside. Firm break of 1.6800 will resume the rally from 1.5963. However, sustained break of 1.6480 will bring deeper correction 61.8% retracement at 1.6283 instead.

In the bigger picture, EUR/AUD is holding on to 1.5996 key support despite brief breach. Larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5995 will indicate that such up trend has completed and deeper decline would be seen.

Eurozone inflation was finalized at to 2.4% yoy in December, up from November's 2.2% yoy. Core CPI, which excludes energy, food, alcohol, and tobacco, held steady at 2.7% yoy. Services made the largest contribution to the annual headline inflation rate (+1.78 percentage points), followed by food, alcohol, and tobacco (+0.51 pp), non-energy industrial goods (+0.13 pp), and energy (+0.01 pp).

In the broader EU, inflation was finalized at 2.7% yoy, up from 2.5% yoy in November. Ireland recorded the lowest annual inflation rate at 1.0%, followed by Italy at 1.4%, with Luxembourg, Finland, and Sweden at 1.6% each. On the other end, Romania (5.5%), Hungary (4.8%), and Croatia (4.5%) posted the highest inflation rates.

Across the EU, annual inflation rose in 19 member states, remained unchanged in one, and fell in seven compared to the previous month.

Full Eurozone CPI final release here.

• Japan’s overnight swap rates have indicated rising odds of a BoJ interest rate hike next week.
• JPY crosses have lost upside momentum in the last four weeks; the weakest among the G-10 is the GBP/JPY.
• A potential looming medium-term downtrend phase has kickstarted for GBP/JPY.

In the run-up to next Friday, 24 January, the Bank of Japan (BoJ) monetary policy meeting outcome where the consensus is now expecting the BoJ to resume its normalization stance and hike its short-term policy rate by 25 basis points (bps) to bring it higher to 0.50%.

Next week BoJ’s monetary policy meeting is now “live”

Fig 1: Japan overnight indexed swap rates medium-term trends as of 13 Jan 2025 (Source: MacroMicro, click to enlarge chart)

The spread of the 3-month and 6-month Japan overnight indexed swap rates have started to widen again since 25 December 2024 over the 1-month swap rate. The 3-month and 6-month swap rates have risen to 0.36% and 0.42% respectively, above the 1-month swap rate at 0.31% as of 13 January (see Fig 1).

The widening of the 3-month and 6-month Japan overnight indexed swap rates over its 1-month counterpart suggests an increased odds of an incoming BoJ interest rate hike.

JPY carry trades are losing upside momentum

Fig 2: 1-month rolling performances of G-10 JPY crosses as of 17 Jan 2025 (Source: TradingView, click to enlarge chart)

The Japanese yen has not just strengthened against the US dollar but also against other major currencies. Based on a one-month rolling performance as of 17 January, the GBP/JPY is the weakest among the G-10 yen cross pairs with a loss of 3% (the yen has strengthened the most against the pound sterling) (see Fig 2).

Bearish change of medium-term trend for GBP/JPY

Fig 3: GBP/JPY medium-term trend as of 17 Jan 2025 (Source: TradingView, click to enlarge chart)

This week price actions of GBP/JPY have staged a bearish breakdown below a four-month plus range configuration in place since the 5 August 2024 low.

Through the lens of technical analysis, the GBP/JPY is likely to have kickstarted a medium-term (multi-week) downtrend phase that is similar to the prior down move from the 11 July 2024 high of 208.12 to 5 August 2024 low of 180.10 (see Fig 3).

In addition, the daily MACD trend indicator has continued to inch lower below its centreline after the bearish breakdown of its former key parallel ascending trendline support on 16 January, in turn, reinforces the potential start of a new medium-term downtrend phase for the GBP/JPY.

Watch the 194.70 key medium-term pivotal resistance (also the 50-day and 200-day moving averages) with the medium-term support coming at 180.10 (also the long-term secular ascending trendline from the March 2020 low). A break with a daily close below 180.10 increases the odds of the materialization of the medium-term downtrend phase to expose the next support zone at 175.50/172.10 in the first step.

On the flip side, a clearance above 194.70 invalidates the bearish scenario for a squeeze up to retest the 30 October 2024 range resistance of 199.70/80.

The British pound is lower on Friday. In the European session, GBP/USD is currently trading at 1.2201, down 0.27% on the day. The pound can’t find its footing and is down 2.5% in January and a massive 8.8% since October 1.

UK retail sales miss expectations

UK retail sales ended the week on a disappointing note. December retail sales declined 0.3% m/m, down from a downwardly revised 0.1% gain in November and shy of the forecast of 0.4%. Quarterly, retail sales fell 0.8% in the fourth quarter.

The weak retail data indicates that the UK consumer held tight on the purse strings during the crucial Christmas season. Consumers remain cautious over inflation worries and expectations that interest rates will stay high. Consumer spending is a key engine of economic growth, and the decrease is retail sales has raised fears of stagflation, a toxic mix of high inflation and low growth which will further hurt businesses and households. The UK economy posted negligible growth of just 0.1% in November, after back-to-back months of no growth.

Finance Minister Rachel Reeves could not have been pleased with the soft GDP and retail sales numbers. Reeves delivered a “tax and spend” budget in October 2024 and has admitted that she needs the economy to show stronger growth in order to increase tax revenue and carry out her spending plans. If the weak economy does not turn around soon, Reeves could find herself on the hot seat.

In the US, retail sales gained 0.4% m/m in December after an upwardly revised gain of 0.8% in November and below the forecast of 0.6%. Annually, retail sales rose 3.9%, below a downwardly revised 4.1% gain in November and above the forecast of 4.0%. The numbers show that consumer spending remains solid and the Federal Reserve isn’t under pressure to lower interest rates anytime soon.

GBP/USD Technical

• GBP/USD is testing support at 1.2225. Below, there is support at 1.2188
• 1.2274 and 1.2311 are the next resistance lines

• USD/CAD stays supported around 20-EMA.
• Bullish trend continuation likely; eyes on the 1.4465 top.

USD/CAD found solid footing near its 20-day exponential moving average (EMA) around 1.4340 for the second time this month, sparking optimism that the ongoing sideways move could give way to an upward move. Note that the 20-day EMA has been an important pivotal point since November.

In other encouraging signs, the RSI has turned up above its 50 neutral mark, and the stochastic oscillator has also posted a positive cross, both suggesting increasing buying interest.

If buyers manage to break the short horizontal trajectory above the 1.4465-1.4500 ceiling, the resistance trendline at 1.4585 could add some pressure ahead of the 2020 and 2016 highs registered within the 1.4665-1.4689 zone. More gains from there could stall near the 1.4800 barrier taken from 2003.

On the flip side, if sellers squeeze the price below the 1.4340 base, the 23.6% Fibonacci retracement of the September-December upleg could come to the rescue along with the 50-day EMA at 1.4218. A step lower could retest the former constraining line at 1.4100 and perhaps the 38.2% Fibonacci mark of 1.4065. Then, the spotlight could shift to the 50% Fibonacci of 1.3940.

All in all, USDCAD seems to have set the stage for a bullish breakout. Traders could wait for a close above the top of 1.4465 before expecting further upward price movement.

As shown on the chart of the UK stock index FTSE 100 (UK 100 on FXOpen):

→ It has risen by over 3% in three days;

→ It is near the record high set in May last year and may reach the psychological level of 8500 points.

Bullish sentiment has been supported by yesterday's news of GDP recovery – according to media reports, the economy grew by 0.1% in November 2024 (compared to a previous decline of 0.1%), primarily driven by the dominant services sector.

Technical analysis of the FTSE 100 (UK 100 on FXOpen) chart shows that since mid-2024, the index has predominantly fluctuated within the 8000–8400 range, only briefly moving beyond it, which was accompanied by spikes in the RSI indicator.

The current RSI level indicates strong overbought conditions, making the FTSE 100 (UK 100 on FXOpen) vulnerable to a pullback. Should this occur, it will provide important insights into the strength of demand. This could be assessed by the index’s ability to remain above the 8333 support level and the lower boundary of the ascending channel (marked in blue).

Potential challenges for bulls are highlighted by MT Newswires, which report that analysts forecast higher inflation and weaker growth in 2025, amid expectations of a significant rise in labour costs.

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Daily Pivots: (S1) 0.8404; (P) 0.8421; (R1) 0.8435; More...

Intraday bias in EUR/GBP remains neutral first with focus on 0.8446 resistance. Decisive break there will resume the rally from 0.8221 to 0.8624 cluster resistance zone. On the downside, however, break of 0.8403 minor support will indicate rejection by 0.8446, and turn bias back to the downside for 55 D EMA (now at 0.8332).

In the bigger picture, considering bullish convergence condition in D MACD, decisive break of 0.8446 resistance and 55 W EMA (now at 0.8446) should confirm medium term bottoming at 0.8221, just ahead of 0.8201 key support (2022 low). Further rally should be seen towards 0.8624 key resistance, even as a correction to the down trend from 0.9267 (2022 high). Overall, however, medium term outlook will be neutral at best until decisive break of 0.8624 cluster zone (38.2% retracement of 0.9267 to 0.8221 at 0.8621). Risk will stay on the downside even in case of strong rebound.

Sterling continues to trade under pressure following a week of disappointing UK economic data, with weak December retail sales completing a trio of negative reports that also included lower-than-expected GDP growth and CPI readings. The data has reinforced market expectations that BoE would ease monetary policy in 2025, as the economy struggles under the new measures of the government's Autumn Budget.

Current interest rate futures are pricing in just two 25bps rate cuts for the year, but a recent Reuters poll (January 10–15) suggests greater dovish sentiment among economists. Of the 63 surveyed, 38 anticipate four rate cuts in 2025, which would bring the Bank Rate down to 3.75%. Immediate action is expected at the February 6 policy meeting, with all 65 participants in the survey forecasting a 25 bps cut.

However, elevated core inflation, which remains stubbornly high at 3.2%, limits BoE's room to signal further easing ahead. This hesitation risks limiting both business confidence and broader economic morale, even on a psychological level.

In Asia, the market reaction to China's 2024 GDP report has been notably subdued. The data showed that China's economy met its official growth target of 5%, despite skepticism from analysts over the credibility of the figure. Yet, stocks in both China and Hong Kong posted only modest gains, reflecting tepid investor sentiment. Australian and New Zealand Dollars remained range-bound, with the latter under particular strain following weak manufacturing data.

In the currency markets, Pound ranks as the week's worst performer for the week so far, trailed by Dollar and Canadian Dollar. The greenback is consolidation recent gains ahead of the inauguration of US President-elect Donald Trump on Monday. In contrast, Yen is the strongest currency, buoyed by increasing speculation of rate hike from BoJ next week. Australian and New Zealand Dollars follow, recovering slightly from earlier losses in the month, while Euro and Swiss Franc are stuck in middle positions.

Technically, NZD/JPY is still struggling to break through 86.71 support despite trying to break through twice. Yet, outlook is staying bearish with clear rejection by 55 D EMA. Fall from 92.45 could be the second leg of the sideway pattern from 83.02, based on current momentum. Firm break of 86.71 will bring deeper decline to 83.02, where strong support is expected to contain downside and bring near term reversal.

UK retail sales fall -0.3% mom in Dec, down -0.8% qoq in Q4

UK retail sales volumes declined by -0.3% mom in December, significantly missing expectations for 0.4% mom increase. The drop was primarily driven by reduced supermarket sales, partially offset by a rebound in non-food stores such as clothing retailers, which saw recovery after recent declines.

On a quarterly basis, sales volumes in Q4 fell -0.8% qoq compared with Q3, highlighting a slowdown in consumer activity. However, year-on-year, Q4 sales volumes rose 1.9% compared to the same period in 2023.

China's Q4 GDP growth surpasses expectations, full-year growth hits 5% target

China’s economy ended 2024 on a strong note, with GDP expanding by 5.4% yoy in Q4, beating market expectations of 5.0%. This marked a significant acceleration from 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1. The robust Q4 performance pushed full-year GDP growth to 5.0%, aligning with the government’s target of “around 5%.”

December's economic indicators also showed positive momentum. Industrial production surged 6.2% yoy, exceeding the forecast of 5.4%. Retail sales grew by 3.7% yoy, marginally beating expectations of 3.5%. However, fixed asset investment lagged, rising only 3.2% year-to-date, just below the 3.3% forecast.

Despite the upbeat data, concerns remain. Statistics Bureau spokesperson Fu Linghui acknowledged lingering weakness in consumer spending and cautioned that in 2025, the “unfavorable impact of external factors may deepen.”

BNZ PMI at 45.9: NZ manufacturing completes 2024 fully in contraction

New Zealand's BNZ Performance of Manufacturing Index rose marginally in December, increasing from 45.2 to 45.9. While this marks a slight improvement, the sector remains in a prolonged contraction, far below the long-term average of 52.5 since the survey's inception. December also marked the 22nd consecutive month of contraction, a record-breaking trend for the PMI.

Catherine Beard, Director of Advocacy at BusinessNZ, noted that 2024 was unprecedented, as it was the first year in the survey’s history with all 12 months in contraction. By comparison, the next closest period was 2008 during the Global Financial Crisis, which saw nine months of contraction.

Breaking down the December data, production dropped further, slipping from 42.3 to 41.9. Employment showed modest improvement, rising from 46.9 to 47.6, while new orders also edged up from 44.5 to 46.5. However, finished stocks fell significantly, declining from 49.2 to 45.9, and deliveries dipped slightly below the neutral 50 mark, moving from 50.0 to 49.8.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8404; (P) 0.8421; (R1) 0.8435; More...

Intraday bias in EUR/GBP remains neutral first with focus on 0.8446 resistance. Decisive break there will resume the rally from 0.8221 to 0.8624 cluster resistance zone. On the downside, however, break of 0.8403 minor support will indicate rejection by 0.8446, and turn bias back to the downside for 55 D EMA (now at 0.8332).

In the bigger picture, considering bullish convergence condition in D MACD, decisive break of 0.8446 resistance and 55 W EMA (now at 0.8446) should confirm medium term bottoming at 0.8221, just ahead of 0.8201 key support (2022 low). Further rally should be seen towards 0.8624 key resistance, even as a correction to the down trend from 0.9267 (2022 high). Overall, however, medium term outlook will be neutral at best until decisive break of 0.8624 cluster zone (38.2% retracement of 0.9267 to 0.8221 at 0.8621). Risk will stay on the downside even in case of strong rebound.

UK retail sales volumes declined by -0.3% mom in December, significantly missing expectations for 0.4% mom increase. The drop was primarily driven by reduced supermarket sales, partially offset by a rebound in non-food stores such as clothing retailers, which saw recovery after recent declines.

On a quarterly basis, sales volumes in Q4 fell -0.8% qoq compared with Q3, highlighting a slowdown in consumer activity. However, year-on-year, Q4 sales volumes rose 1.9% compared to the same period in 2023.

Full UK retail sales release here.

China’s economy ended 2024 on a strong note, with GDP expanding by 5.4% yoy in Q4, beating market expectations of 5.0%. This marked a significant acceleration from 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1. The robust Q4 performance pushed full-year GDP growth to 5.0%, aligning with the government’s target of “around 5%.”

December's economic indicators also showed positive momentum. Industrial production surged 6.2% yoy, exceeding the forecast of 5.4%. Retail sales grew by 3.7% yoy, marginally beating expectations of 3.5%. However, fixed asset investment lagged, rising only 3.2% year-to-date, just below the 3.3% forecast.

Despite the upbeat data, concerns remain. Statistics Bureau spokesperson Fu Linghui acknowledged lingering weakness in consumer spending and cautioned that in 2025, the “unfavorable impact of external factors may deepen.”