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• USDJPY reversed from key support level 156.35
• Likely to rise to resistance level 158.00

USDJPY currency pair recently reversed up from the key support level 156.35 (former resistance from November, acting as she support after it was broken last week).

The upward reversal from the support level 156.35 continues the active minor impulse waves iii and 3 – both of which belong to the intermediate impulse wave (3) from the start of December.

USDJPY currency pair can be expected to rise to the next resistance level 158.00, the breakout of which can lead to further gains toward 160.00.

• Nasdaq 100 reversed from strong support level 21000.00
• Likely to rise to resistance level 22000.00

Nasdaq 100 index recently reversed up from the strong support level 21000.00 (former resistance from the start of November), intersecting with the support trendline of the daily up channel from November and the 50% Fibonacci correction of the upward impulse from October.

The upward reversal from the support level 21000.00 created the daily Japanese candlesticks reversal pattern Long-legged Doji.

Given the clear daily uptrend, Nasdaq 100 index can be expected to rise to the next resistance level 22000.00, which stopped the previous impulse wave i.

Formally, inflation figures and lower-than-forecast expectations helped the market to find ground for a rebound. However, the declines of the previous days may have broken the backbone of the bull market. A couple of technical signals indicate this.

Primarily, there is a series of 11 sessions of declines in the Dow Jones. This is one of the most sustained selloffs in the history of the index. The decline has not been particularly intense most of the time, except on 18 December when markets were pressured by a change in expectations from the Fed. This acceleration in the decline coincided with the index falling below its 50-day moving average, from which the index had been bouncing since August. On this indication, we can talk about the breaking of the medium-term uptrend, opening the way to the 200-day. It passes through 40800 and aims upwards to 41000 by the end of the year.

The S&P500 is fighting for the 50-day moving average, remaining below the 6000 level. In this case, the upward trend is not broken yet, as the market reaction to the relatively positive news on Friday brought the index back to its trend curve.

A similar technical picture is even stronger in the Nasdaq100, which was approaching the 50-day MA at its lowest point but bounced back impressively on Friday.

The outlook is most concerning for the Russell2000. This index of small stock market companies has erased all gains since the Republican election victory, losing over 10.5% from a peak in early December to a bottom last Friday. As in the Dow Jones, a break below the 50-day moving average accelerated the sell-off. This index is approaching its 200-day average (now at 2175). It has been trading above this curve since last December, making it an important support level: buying intensified as it approached it.

On a positive note, the Fear and Greed Index fell into the extreme fear area late last week. This is deep enough to provide a reset for the markets, but it is important to understand whether this is the start of a bear market.

So far, the stock markets have been unimpressive, and we cannot say whether the bull or bear camp is dominant. But by the end of the year, the picture will become clearer.

US Conference Board Consumer Confidence dropped to 104.7 in December, falling short of expectations for 113.2 and down from 112.8 in November. Present Situation Index slipped by -1.2 points to 140.2. The more forward-looking Expectations Index plunged -12.6 points to 81.1, nearing the critical 80 threshold that often signals recession risks.

Dana M. Peterson, Chief Economist at The Conference Board, highlighted the nature of the decline: “The recent rebound in consumer confidence was not sustained in December.”

She attributed the drop primarily to weaker future expectations, adding, "Consumers in December were substantially less optimistic about future business conditions and incomes, with pessimism about employment prospects returning after brief optimism in October and November.”

Full US consumer confidence release here.

The Bottom Line:

Today's GDP report shows Canadian economic growth accelerated in October from September; however, the early estimate points to a contraction (-0.1%) in November, consistent with preliminary reports showing softer wholesale sales, declining manufacturing volumes, and flat retail sales.

The Bank of Canada's December messaging pointed to a more gradual approach on rate cuts going forward than the 50 bp reductions in each of October and December, but we continue to expect that interest rate cuts down to a net stimulative 2% overnight rate (below the BoC's estimated neutral range of 2.25% to 3.25%) will be warranted to allow economic growth to strengthen and prevent inflation from falling significantly below the central bank’s 2% target.

The Details:

Canadian GDP expanded 0.3% in October following a revised 0.2% increase in September (upgraded from an initial reading of 0.08% to 0.24%). October's growth exceeded Statistics Canada's preliminary estimate of 0.1%.

The advance estimate pointed to a 0.1% contraction in November. These preliminary figures are typically subject to significant revision, but the pullback in November is consistent with softer looking wholesale and manufacturing sale advance estimates for the month, and a pullback in consumer spending in our own tracking of card transactions.

At current trajectory, Q4 GDP growth appears to be tracking closer to, but still slightly below, the Bank of Canada's 2% forecast.

The goods-producing sector registered its strongest performance since January 2023, expanding 0.9% in October. This growth was primarily driven by the mining, quarrying, and oil and gas extraction sector, which surged 2.4%.

Other goods sectors also showed improvement. Mining support activities rose 1.3% in October, partially reversing declines from the previous two months. Manufacturing output increased 0.3%, breaking a four-month streak of weak readings. StatsCan reported that non-durable manufacturing posted particularly strong growth (+1.2%), boosted by petroleum refineries resuming operations following scheduled maintenance.

Growth in the services sector moderated to 0.1% from September's 0.4% pace. While retail trade output remained flat, wholesale trade advanced 0.5%. The real estate sector maintained its strong momentum (+6.3%), supported by robust home resale activity during the month.

Canadian economic growth jumped 0.3% month-on-month (m/m) in October, ahead of Statistics Canada's advanced guidance and consensus expectations. Early estimates from Statistics Canada point to a slight pullback in November GDP (-0.1% m/m).

October's reading was broad-based, with output expanding in 12 of 20 industries. The goods sector grew by a hefty 0.8% m/m, while the services sector added a modest assist of 0.1% m/m to October's GDP growth.

On a weighted basis, the mining/oil & gas sector posted the biggest tailwind for October activity, gaining 2.4% m/m, with oil & gas extraction (+3.1% m/m) accounted for most of the gain. Elsewhere, the manufacturing sector advanced for a second consecutive month (0.3% m/m), while construction grew by 0.4% m/m.

On the services side, the real estate sector saw its biggest monthly gain so far in 2024, up by 0.5% m/m on the back of a rise in national home sales. Wholesale trade (0.5% m/m) and the transportation sector (0.2% m/m) also recorded gains despite coinciding with the Canada Post strike.

The advanced reading of a slight pullback in growth in November is due in part to a moderation in the oil and gas sector as well as finance and insurance.

Key Implications

Solid October GDP growth combined with upward revisions to the month prior put Canada's economic activity on decent footing to end the year. Early tracking for fourth-quarter GDP suggests trend-like growth (~1.7%), an uptick relative to Q3's more meager gain of just 1%.

The Bank of Canada has cut interest rates by 100 basis points (bps) over their last two meetings. Today's data should assuage fears of excessive downside to Canadian growth in the near-term, which should see the Bank move back to a more measured 25 bps cut at their next policy meeting in January. Looking ahead, more cuts are on the way, with the focus now shifting back to upcoming labour market updates.

Daily Pivots: (S1) 1.0365; (P) 1.0407; (R1) 1.0470; More....

EUR/USD is staying in consolidation above 1.0330 and intraday bias stays neutral for the moment. While stronger recovery cannot be ruled out, outlook will remain bearish as long as 1.0629 resistance holds. Firm break of 1.0330 will confirm decline resumption and target 61.8% projection of 1.0936 to 10330 from 1.0629 at 1.0254, and then 100% projection at 1.0023.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2491; (P) 1.2553; (R1) 1.2630; More...

GBP/USD is staying in consolidations above 1.2474 temporary low and intraday bias remains neutral. Outlook will stay bearish as long as 1.2810 resistance holds. On the downside, break of 1.2474 will resume the fall from 1.3433 to 1.2298 cluster support zone.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.

Daily Pivots: (S1) 155.64; (P) 156.78; (R1) 157.61; More...

USD/JPY is staying in consolidation below 157.91 temporary top and intraday bias stays neutral. Deeper pull back cannot be ruled out, but outlook will stay bullish as long as 153.15 support holds. On the upside, break of 157.91 will resume the rally from 139.57 to 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25 next.

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.