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• EURJPY broke support zone
• Likely to fall to support level 158.00

EURJPY currency pair recently broke the support zone located between the key support level 160.200, (which has been reversing the pair from December) and the 50% Fibonacci correction of the upward ABC correction 2 from last month.

The breakout of this support zone accelerated the active short-term impulse wave iii of the higher impulse waves 3 and (3).

Given the strong bullish yen sentiment, EURJPY currency pair can be expected to fall to the next support level 158.00, the target price for the completion of the active impulse wave iii.

• GBPCAD reversed from strong support level 1.7490
• Likely to rise to resistance level 1.7700

GBPCAD currency pair recently reversed up with the daily Japanese candlesticks reversal pattern Hammer from the strong support level 1.7490, which has been steadily reversing this currency pair from the start of August.

The support level 1.7490 was strengthened by the lower daily Bollinger Band and by the 61.8% Fibonacci correction of the upward impulse from last April.

Given the strong daily uptrend, GBPCAD currency pair can be expected to rise to the next resistance level 1.7700.

Fed Governor Christopher Waller expressed optimism about the US inflation outlook during an interview with CNBC, signaling that rate cuts may be on the table sooner than previously anticipated.

Waller highlighted the positive inflation data released yesterday, describing it as “very good.” He suggested that, if this trend continues, “it’s reasonable to think rate cuts could happen in the first half of the year.”

Waller noted that Fed's median estimate of the neutral policy rate indicates the potential for three or four rate cuts in 2025, contingent on the evolution of economic data.

However, he tempered this with caution, stating, “If the data doesn’t cooperate, then you’re going to be back to two, maybe even one if we just get a lot of sticky inflation.”

On the labor market, Waller described conditions as stable rather than overheated. He pointed out that indicators like hiring rates, quit rates, and wage growth remain restrained, which aligns with Fed's restrictive policy stance.

Fundamental Analysis

The British Pound faces bearish pressure against the Dollar and Euro, driven by weak UK economic data and expectations of looser monetary policy from the Bank of England (BoE). UK GDP rose only 0.1% in November, below the 0.2% forecast, while industrial and manufacturing production contracted.

This economic weakness has fueled bets on a 25-basis-point rate cut in February, with up to four cuts expected in 2024, according to a Reuters poll. Meanwhile, UK gilt yields have eased from recent highs, further reducing the Pound's appeal.

Upcoming U.S. employment and retail sales data will play a key role in shaping the Dollar's trajectory, while BoE expectations remain the primary driver for Sterling.

Technical Analysis

GBPUSD, H2

Supply Zone (Sell): 1.23
Demand Zone (Buy): 1.2140

The intraday bullish correction is consolidating, with volume clustering around 1.22, aligning with yesterday’s POC (Point of Control). This demand zone could support buying toward the daily open at 1.2235, or even attempt a broader rally toward 1.23.

The last validated intraday resistance of the bearish trend is at 1.2322. As long as this level holds, the trend remains intact. A moderate rally below the daily open may pave the way for another drop toward the key correction support at 1.2155, yesterday’s low. A break of this level would signal further downside toward 1.2133, 1.21, and October/March 2023 supports in the coming days.

Technical Summary:

Bearish Scenario: Sell below 1.2235 or earlier at 1.2190, targeting 1.2155, 1.2133, 1.21, and 1.2070 in the short term.

Bullish Scenario: Buy above 1.2245, targeting 1.23, with extended targets at 1.2360 and 1.2370 only after a decisive break above 1.2322.

Always wait for a *Reversal/Exhaustion Pattern (REP) on M5 as taught here https://t.me/spanishfbs/2258 before entering trades in the key zones indicated.

*POC Explained: The Point of Control (POC) is the level or zone with the highest volume concentration. If followed by a bearish move, it acts as a resistance zone. If followed by a bullish move, it acts as a support zone, often near lows.

WTI crude oil prices dropped to around $78.50 per barrel on Thursday after hitting a six-month high of $79.37 the day before. This decline comes despite concerns over tight supplies and falling US oil stockpiles, now at their lowest levels since April 2022, following an eight-week streak of inventory declines.

Adding to supply worries, the US expanded sanctions on Russian oil producers and tankers, forcing Russia's buyers to look for new suppliers and pushing shipping costs. However, the US Energy Information Administration (EIA) expects oil prices to face pressure in the coming years as global production is predicted to grow faster than demand. Analysts also forecast an oversupply in the oil market by 2025, driven by slowing demand growth in significant energy consumers like the US and China.

XTIUSD – D1 Timeframe

The daily timeframe price action chart of XTIUSD shows the price inching closer to the confluence area of the trendline resistance, 88% Fibonacci retracement level, and the rally-base-drop supply zone. Based on the number of confluence factors, the odds largely favor the bears.

XTIUSD – H4 Timeframe

As the price approaches the daily timeframe trendline resistance, we see a steady constriction within the confines of a rising wedge, further increasing the chances of a bearish outcome. Considering this happens close to the 88% Fibonacci retracement level, another crucial nod favoring the bears.

Analyst's Expectations:

• Direction: Bearish
• Target: 69.29
• Invalidation: 84.21

Oil prices dipped slightly on Thursday after reaching multi-month highs the previous day. Brent crude dropped to $81.66 per barrel, while U.S. WTI crude fell to $79.69. These declines followed substantial gains on Wednesday due to falling U.S. crude stockpiles and new U.S. sanctions on Russian oil. The U.S. Energy Information Administration reported a larger-than-expected two million-barrel drop in crude stocks, tightening the global supply outlook as Russia’s key customers scramble for alternatives.

The Biden administration introduced more sanctions targeting Russia, increasing shipping rates and supply concerns. However, OPEC+ will likely stay cautious about raising output despite recent price hikes, as they’ve faced challenges maintaining stable optimism over the past year. On the demand side, global oil consumption grew slightly at the start of 2025, supported by increased travel for festivals in India and Lunar New Year celebrations in China. Some investors also watch for possible U.S. interest rate cuts in 2025, boosting economic activity and energy demand.

XBRUSD – D1 Timeframe

A basic understanding of market structure teaches that a break of structure is often followed by a retracement—a scenario that is obviously playing out at the moment on the daily timeframe chart of XBRUSD. The retracement move approaches a key Fibonacci retracement level, with the confluence from the trendline resistance and the Fair Value Gap (FVG).

XBRUSD – H4 Timeframe

On the 4-hour timeframe, we see price trading within the range of a rising channel as it climbs towards the supply zone, trendline resistance, and Fibonacci retracement level confluence. The expected reaction from the confluence zone is bearish; however, waiting for a break below the trendline support of the channel provides much safer entry criteria.

Analyst’s Expectations:

• Direction: Bearish
• Target: 71.32
• Invalidation: 87.64

Markets

Marginally softer than expected US CPI yesterday caused markets to leave a bond short-positioning that had been built since early December. The release also muted a developing market debate as to whether the Fed at some point could be forced to consider rate hikes again. The market again moved toward December guidance from the Fed dots, considering two additional 25 bps rate cuts this year rather than just one that was discounted after Friday’s strong US payrolls. Today, the next reality check came from the state of US domestic demand, with the December US retail sales. At 0.4% M/M for the headline figure (from an upwardly revised 0.8%) and control group sales at 0.7% M/M, the report was close to expectations suggesting ongoing solid consumer demand at the end of the year. Other data evidence showed a massive beat in the Philly Fed business outlook (44.3 from -10.9) while US weekly jobless claims left recent low readings, rising from 203k to 217k. US yields before the US data release tentatively tried to reverse part of yesterday’s decline, but this move was blocked. US yields currently add 2-3 bps across the curve. German/EMU yields are trading between unchanged at the short end, but the long end resumes its steepening bias (+3bps 30-y Germany). The account of the December 11-12 ECB policy meeting confirmed that the MPC sees room for gradually further easing as the disinflation process remains well on track, with also less inflationary pressures seen from wages and profit margins. UK gilts outperform with yields declining up to 4 bps (2-y). After softer than expected UK December inflation data yesterday, lackluster monthly December output data (industrial production -0.4% M/M) are convincing markets that the BoE has an ever stronger case to reduce policy restriction already at the early February meeting. European equites are extending yesterday’s rebound (EurosStoxx 50 +1.3%). For now, the goldilocks combination of softer CPI and ongoing solid demand/retail sales hardly helps further gains in US equities (S&P 500 +0.1%). Brent oil is holding most of yesterday’s jump higher ($81.9/b).

After holding up well despite the sharp decline in US yields yesterday, the dollar also shows resilient today. DXY gains from 109 to 109.25. EUR/USD declines, albeit modestly, to 1.0275. The yen this morning outperformed on headlines that the BoJ might be moving ever closer to a rate hike next week. USD/JPY briefly dropped to the 155.25 area, but the pair again trades near 156 on USD strength currently. After a relief rebound on global market easing yesterday, sterling today incurs further losses with EUR/GBP rebounding higher (0.843) and cable returning below 1.22. Sterling interest rate support might narrow sooner and faster than expected before yesterday.

News & Views

The Bank of England published its quarterly Bank liabilities and its Credit condition surveys today. The BLS showed lenders reporting increasing total funding volumes in the three months to end-November, but those were expected to decrease again in the current quarter. This hides the divergence between higher retail funding and lower “other” funding. The cost of funding of both increased and are expected to continue doing so. The credit conditions survey pointed out that the availability of (un)secured credit to households and the overall availability to the corporate sector all increased and is expected to increase further. Lenders also reported better demand for secured lending for house purchases, for unsecured lending and for corporate lending from SME’s. Overall unsecured lending spreads were the only ones that widened in Q4. Only default rates on secured loans for households increased slightly.

The National Bank of Poland kept its policy rate as expected unchanged at 5.75%. The policy statement will be released later today with NBP governor Glapinski delivering his press conference tomorrow. Earlier today, the NBP published its own core CPI series. Underlying price pressures unexpectedly weakened in December (-0.1% M/M) with the annual figure dipping from 4.3% to 4% instead of the forecasted 4.2%. CPI excluding administered prices stabilized at 3.2% Y/Y with CPI excluding the most volatile prices ticking lower from 5.3% to 5.2%. The Polish zloty loses marginally ground today at 4.2675, with data strengthening the 4.25 technical support area.

U.S. retail and food services sales rose 0.4% month-on-month (m/m) in December, down from the upwardly revised 0.8% increase seen in November (previously 0.7%), and slightly below the consensus forecast calling for a 0.6% gain.

A drop in food services sales weighed on the headline (-0.3% m/m). On a year-over-year basis, growth decelerated rapidly last year, slowing to 2.4% down from 11.4% in December of 2023. Excluding the services category, retail sales were up 0.6% on the month.

December brought another sizeable increase in sales of vehicles and parts, which rose 0.7% m/m. Sales at gasoline stations advanced by 1.5%, due to higher prices at the pump. Sales at building materials and equipment stores declined by 2% - a third consecutive monthly decline.

Sales in the "control group", which the excludes volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose by a robust 0.7% m/m, an acceleration from the 0.4% gain in November.

Sales across most other brick and mortar retailers were also higher on the month, with the strongest gains seen in miscellaneous store retails (+4.3%), retailers selling sporting and hobby items (+2.6%) and furniture and home furnishings stores (+2.3%).

Non-store retailers edged higher by only 0.2%, following a sizeable gain the prior month.

Key Implications

Despite the headline retail sales figure coming in below expectations, growth in core sales remained very healthy in December, suggesting U.S. consumers ended 2024 on a high note. It’s easy to see why. The labor market remained strong, continuing to add jobs through the end of the year, while inflation has subsided (particularly in the goods category), and household wealth remains elevated. Even with recent volatility in the equity market, the S&P 500 is still up 25% from a year ago. Anecdotally, the Fed’s latest Beige Book reaffirmed robust consumer spending at the end of last year, noting that “consumer spending has moved up moderately, with most districts reporting strong holiday sales that exceeded expectations.” For the fourth quarter as a whole, we expect inflation-adjusted consumer spending to rise somewhere in 3%-3.5% range, in line with the third quarter.

Looking ahead, we anticipate that consumer spending will remain healthy, although growth is likely to moderate closer to 2%, alongside some moderation in job growth. The risk of higher-than-expected inflation—and consequently higher interest rates—amid a series of anticipated policy changes under the incoming administration could pose some downside risk to the consumer spending outlook.

Daily Pivots: (S1) 155.56; (P) 156.85; (R1) 157.75; More...

Intraday bias in USD/JPY remains mildly on the downside for the moment. Fall from 158.86 short term top is in progress for 55 D EMA (now at 154.44). Firm break there will target 38.2% retracement of 139.57 to 158.86 at 151.49 next. For now, risk will stay on the downside as long as 158.86 resistance holds, in case of recovery.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.