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Personal income continued to grow robustly in December, rising by 0.4% month-over-month. Real disposable income, which excludes the impact of taxes and inflation, also edged higher, rising by 0.1% m/m.

Income gains continued to support consumer spending. Coming on the heeds of solid gains in the prior two months, nominal spending increased 0.7% in December. Stripping out inflation, the volume of spending also rose, increasing by 0.4% on the month and 3.1% from the year ago.

December marked another strong month of spending on goods (+0.7% m/m), led by durables (+1.1% m/m). The gain in services spending was more modest (+0.3%).

Inflationary pressures were little changed in December. The Fed's preferred inflation metric, the core PCE price deflator, rose 0.2% m/m, up slightly from the 0.1% increase seen in November. In year-over-year terms, core PCE inflation remained unchanged at 2.8%.

With spending outpacing income growth, the personal savings rate edged lower in December, declining to 3.8% down from 4.1% in November.

Key Implications

It appears that U.S. consumers were off to the races at the end of last year. Yesterday's GDP report had already telegraphed that consumer spending ended 2024 with bang, rising by 4.2% (annualized) in the fourth quarter. However, today's release provided additional color, showing that spending outpaced income growth yet again in December. In fact, this was the case in 9 out of 12 months of last year, coming at the expense consumers' ability to set money aside for the rainy day. As a result, personal saving rate declined from 5.5% at the start of 2024 to 3.8% last month.

Last year's strong consumer spending is even more impressive given that it happened alongside high interest rates and a cooler labor market. Some of the recent strength in spending on durable goods could be due to post-hurricanes replacement demand, and consumers racing to buy electric vehicles ahead of incentives being cancelled. We are still expecting real consumer spending to moderate closer to 2% this year, although the recent performance makes us wonder if U.S. consumers will once again surprise to the upside, helped by large stockpile of wealth they've accumulated since the pandemic.

Daily Pivots: (S1) 1.0363; (P) 1.0415; (R1) 1.0445; More...

No change in EUR/USD's outlook and intraday bias stays neutral at this point. On the downside, break of 1.0371 support will indicate rejection by 38.2% retracement of 1.1213 to 1.0176 at 1.0572 and retain near term bearishness. Retest of 1.0176 low should be seen next. On the upside, though, decisive break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, outlook is mixed as fall from 1.1274 (2023 high) could either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. Strong support from 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will favor the former case, and sustained break of 55 W EMA (now at 1.0722) will argue that the third leg might have started. However, sustained trading below 1.0199 will favor the latter case and bring retest of 0.9534 low.

Daily Pivots: (S1) 1.2391; (P) 1.2434; (R1) 1.2459; More...

Intraday bias in GBP/USD remains neutral for the moment. Rebound from 1.2099 is seen as a corrective move. While another rise cannot be ruled out, strong resistance could be seen 38.2% retracement of 1.3433 to 1.2099 at 1.2609 to limit upside. On the downside, below 1.2292 minor support will bring retest of 1.2099 low. However, sustained trading above 1.2609 will raise the chance of reversal and target 61.8% retracement at 1.2923.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

Daily Pivots: (S1) 153.59; (P) 154.48; (R1) 155.16; More...

USD/JPY is staying in range above 153.70 and intraday bias remains neutral. On the downside, firm break of 153.70 will resume the fall from 158.86 to 38.2% retracement of 139.57 to 158.86 at 151.49. Nevertheless, break of 156.74 resistance will indicate that fall from 158.86 has completed as a correction. Intraday bias will be back on the upside for 158.86 and above to resume the whole rally from 138.57.

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.

Canadian economic growth took a step back in November, falling 0.2% month-on-month (m/m). This was a tick below Statistics Canada's advanced guidance and consensus expectations. Early estimates from Statistics Canada point to a 0.2% m/m rebound for December GDP growth, due in part to increases in retail trade, manufacturing, and construction activity.

November's reading was broad-based, with output contracting in 13 of 20 industries. The goods sector fell by 0.6% m/m, while the services sector saw a more modest decline of -0.1% m/m.

A 3.4% m/m decline in oil sands dragged down the mining/quarrying/oil & gas sector. Meanwhile, utilities fell by a hefty 3.6% m/m. The construction sector buffered some of the goods-side shortfall, expanding for a fourth consecutive month (0.7% m/m).

On the services side, the Canada Post strike weighed on the transportation & warehousing sector (-1.3% m/m). Elsewhere, the finance & insurance sector slipped for a second consecutive month (-0.4% m/m). A decent lift in accommodation and food services (1.4% m/m) countered some of the services-sector downside.

Key Implications

It's steady as she goes for domestic growth developments, as recent data comes in more or less in line with expectations. With November GDP data and December guidance, growth in the fourth quarter is tracking on point with the Bank of Canada's (BoC) most recent projections (1.8% q/q annualized). This would mark a decent acceleration from Q3's more meager gain of just 1% and provides a decent handoff into 2025, especially given looming uncertainties.

The BoC has its work cut out for them. After slashing interest rates this week, they will now wait for further details about Trump's tariff implementation plan, which will come as early as tomorrow. The Bank acknowledged that past interest rate cuts are starting to boost the economy while inflation is expected to be stable at 2%. However, future policy setting is subject to higher-than-usual uncertainties. While we think the Bank will step to the sidelines at their March meeting, expedited rate cuts may be in the cards should a worst-case trade war ensue.

Daily Pivots: (S1) 0.9069; (P) 0.9087; (R1) 0.9114; More…

Intraday bias in USD/CHF stays mildly on the upside for the moment. Correction from 0.9200 could have completed at 0.8964 already. Further rise should be seen to retest 0.9200 and then 0.9223 key resistance. On the downside, below 0.9058 minor support will turn intraday bias neutral first. Further break of 0.8964 will resume the fall from 0.9200 to 38.2% retracement of 0.8374 to 0.9200 at 0.8884 next.

In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

Forex markets remain largely subdued today, with Canadian Dollar being the exception as volatility rises ahead of the implementation of US tariffs tomorrow. Canada is reportedly well prepared to respond with retaliatory measures on US imports worth up to CAD 150B. This comes at a time when Canada’s economy is already under pressure, with November’s GDP data showing a larger-than-expected contraction. However, despite the looming economic strain, Loonie’s selloff remains contained for now, as traders assess the full impact of trade retaliation.

Meanwhile, Dollar shrugged off the latest PCE inflation data, which showed an uptick in the headline rate while core inflation remained at elevated levels. Fed Governor Michelle Bowman noted at an event that while rate cuts are still expected, their timing will depend on incoming data, given persistent inflation risks. The latest data reinforces Fed’s cautious approach, suggesting that policymakers are unlikely to act at least until Q2.

For the week, the broader currency market picture remains unchanged. Yen continues to lead as the strongest performer, followed by Dollar and Swiss Franc. Aussie remains the weakest, followed by Kiwi and Euro. British Pound and Loonie sit in the middle.

Technically, as Gold is extending its record run, Silver is also picking up momentum. Immediate focus is now on 32.30 resistance in Silver. Firm break there should confirm that corrective fall from 34.84 has completed with three waves down to 28.74. While it may be early to confirm larger up trend resumption, in this case, further rally should at least be seen to retest 34.84 high.

US PCE inflation rises to 2.6% in Dec, core PCE unchanged at 2.8%

In December in the US, headline PCE price index rose 0.3% mom while core PCE price index rose 0.2% mom, both matched expectations.

In the 12-month period, PCE price index accelerated from 2.4% yoy to 2.6% yoy. Core PCE price index (Excluding food and energy) was unchanged at 2.8% yoy. Both matched expectations.

Personal income rose 0.4% mom or USD 92.0B, matched expectations. Personal spending rose 0.7% mom or USD 133.6B, stronger than expected 0.5% mom.

Canada’s GDP contracts -0.2% mom in Nov, but Dec outlook improves

Canada’s economy shrank by -0.2% mom in November, marking the largest contraction since December 2023 and coming in weaker than expectations of -0.1% mom decline. The downturn was broad-based, with 13 of 20 sectors reporting declines, underscoring underlying weakness across multiple industries.

Goods-producing industries led the slowdown, contracting by -0.6% after a strong 0.9% expansion in October. Services sector, which had posted steady gains in previous months, also slipped by -0.1%, marking its first decline in six months.

Advance estimates suggest that real GDP expanded by 0.2% mom in December, pointing to a rebound. Growth was driven by gains in retail trade, manufacturing, and construction, though this was partially offset by weakness in transportation, real estate, and wholesale trade.

Tokyo inflation accelerates, keeping BoJ hikes alive

Japan’s inflationary pressures picked up in January, with Tokyo’s core CPI (excluding fresh food) rising to 2.5% yoy from 2.4%, marking its fastest pace in nearly a year. Core-core measure (excluding food and energy) also edged higher to 1.9% from 1.8%. Meanwhile, headline CPI surged to 3.4% from 3.0%, its highest level in nearly two years, largely driven by rising prices for vegetables and rice.

The data reinforces expectations that inflation in Japan could continue rising toward 3% in the coming months, as persistently weak yen drives up import costs. Some analysts see room for one or two more rate hikes by BoJ this year, particularly if inflation remains sticky and real wage growth improves. However, with Tokyo services inflation slowing to 0.6% yoy from 1.0% yoy, concerns remain about the sustainability of domestic price pressures.

On the production side, industrial output rose 0.3% mom in December, matching forecasts. The Ministry of Economy retained its cautious assessment, stating that production "fluctuates indecisively," though manufacturers expect a 1.0% rise in January and a further 1.2% increase in February.

Retail sales, however, showed resilience, climbing 3.7% yoy, exceeding expectations of 2.9%. This suggests that consumer demand remains strong despite higher living costs.

BoJ’s Ueda reaffirms support for economy while keeping rate hikes on the table

BoJ Governor Kazuo Ueda reiterated the central bank’s is aiming for "gradual pickup" in prices, supported by a "solid increase in wages." He emphasized that maintaining easy monetary conditions remains necessary to "support economic activity" and ensure that underlying inflation continues rising toward the 2% target.

However, he also made it clear that BoJ’s stance remains unchanged, noting that it will "continue raising interest rates" and adjust monetary support if the economy and prices "move in line with our forecasts."

At the same parliamentary session, Prime Minister Shigeru reinforced the government’s priority of achieving sustainable inflation alongside wage growth. He highlighted that while stable price increases are important, "we must aim for wage growth higher than inflation while prices rise stably." He also warned against the perception that falling prices are beneficial, arguing that such views prolonged Japan’s deflationary struggles in the past.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9069; (P) 0.9087; (R1) 0.9114; More…

Intraday bias in USD/CHF stays mildly on the upside for the moment. Correction from 0.9200 could have completed at 0.8964 already. Further rise should be seen to retest 0.9200 and then 0.9223 key resistance. On the downside, below 0.9058 minor support will turn intraday bias neutral first. Further break of 0.8964 will resume the fall from 0.9200 to 38.2% retracement of 0.8374 to 0.9200 at 0.8884 next.

In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

In December in the US, headline PCE price index rose 0.3% mom while core PCE price index rose 0.2% mom, both matched expectations.

In the 12-month period, PCE price index accelerated from 2.4% yoy to 2.6% yoy. core PCE price index (Excluding food and energy) was unchanged at 2.8% yoy. Both matched expectations.

Personal income rose 0.4% mom or USD 92.0B, matched expectations. Personal spending rose 0.7% mom or USD 133.6B, stronger than expected 0.5% mom.

Full US personal income and outlays release here.

Canada’s economy shrank by -0.2% mom in November, marking the largest contraction since December 2023 and coming in weaker than expectations of -0.1% mom decline. The downturn was broad-based, with 13 of 20 sectors reporting declines, underscoring underlying weakness across multiple industries.

Goods-producing industries led the slowdown, contracting by -0.6% after a strong 0.9% expansion in October. Services sector, which had posted steady gains in previous months, also slipped by -0.1%, marking its first decline in six months.

Advance estimates suggest that real GDP expanded by 0.2% mom in December, pointing to a rebound. Growth was driven by gains in retail trade, manufacturing, and construction, though this was partially offset by weakness in transportation, real estate, and wholesale trade.

Full Canada GDP release here.

Gold price posted new record high on Friday, following a probe through psychological $2800 barrier, in extension of Thursday’s 1.3% advance.

The bullion benefited from fresh safe haven demand on renewed tariff threats from President Trump that the US would impose 25% duty on imports from Canada and Mexico, while still considering tariffs on imports of goods from China.

Weaker than expected US economic growth in the last three months of 2024 and elevated inflation, also contribute to increased demand, along with rising demand for physical gold, mainly from the central banks.

Technical picture remains bullish on all larger timeframes and underpins the action, with clear break of $2800 trigger to open way towards projected targets at $2850, $2890 and $2946 and unmask psychological $3000 barrier, which I pointed as a target in my comments last year.

Gold is on track for a monthly gain of over 6% in January (the biggest monthly advance since March 2024) and would also register the fifth consecutive bullish weekly close.

However, $2800 marks significant resistance and accompanied by overbought conditions, may keep the price in extended and likely shallow consolidation, before larger bulls resume.

Former top at $2790 marks immediate support, followed by $2770 (5DMA) and $2758 (rising 10DMA) which should contain potential deeper dips.

Res: 2801; 2850; 2890; 2946.
Sup: 2790; 2785; 2770; 2758.