Happy New Year to our readers!

Aussie and Kiwi open the year mildly higher as lifted by China data. The Caixin PMI manufacturing for China rose to 51.9 in December, much better than expectation of being unchanged at 50.9. That's the best reading in three years since January 2013. Caixin noted that "a further rise in production at Chinese manufacturers supported the higher PMI reading in December. Notably, the rate of output growth accelerated to a 71-month high, with a number of panelists commenting on stronger underlying demand and new client wins." And, "data indicated that improved domestic demand was the key driver of new business growth, however, as new export sales were unchanged in December." Nonetheless, released earlier in the week, the official PMI manufacturing dropped to 51.4, down from 51.7 and below expectation of 51.6. Technically, AUD/USD just defended 0.7158 temporary low and more sideway trading would be seen above this level in near term.

Canadian Dollar is also firm today as WTI crude oil attempts to break recent resistance at 54.51. Nonetheless, WTI is losing some momentum after hitting 54.2. Strong rally in oil price was seen last year since November, driven by announcements of production cut by OPEC and non-OPEC producers. OPEC decided to cut its crude production by 1.2 million barrels, effective January, 2017, while non-OPEC producers, including Russia but not the US, would reduce output by around 0.6M bpd. While execution of OPEC/non-OPEC cuts remains highly uncertain, the Paris-based International Energy Agency (IEA) forecasts global oil surplus would start disappear in 1H17. The agency suggested that "OPEC, Russia, and other producers are looking to speed up the process" of rebalancing this year, adding that "the market is likely to move into deficit in the first half of 2017 by an estimated 600K barrels a day" if all the parties comply to the agreement.

Meanwhile, whether the post election strength in Dollar could sustain depends on incoming data as well as Donald Trump's policies. Currently, markets are pricing around 64% chance of another rate hike by Fed by June. FOMC members projected three rate hikes this year as seen in latest projections. However rally in Dollar, yields and stocks lost steam just before end of 2016. The string of data to be released this week will be closely watched, starting from ISM manufacturing index today, ISM services on Tuesday and non-farm payroll on Friday. FOMC minutes to be released tomorrow will also catch much attention.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7182; (P) 0.7214; (R1) 0.7233; More...

AUD/USD recovered ahead of 0.7158 temporary low and intraday bias stays neutral. More consolidations would be seen. In case of another recovery, upside should be limited by 0.7310 support turned resistance and bring fall resumption. As noted before, the whole corrective pattern from 0.6826 bottom should have finished. Break of 0.7144 support will likely extend the larger down trend through 0.6826.

In the bigger picture, AUD/USD is staying inside long term falling channel and it's likely that the down trend from 1.1079 is still in progress. Break of 0.6826 low will confirm this bearish case and target 61.8% projection of 0.9504 to 0.6826 from 0.7777 at 0.6122 next. We'll be looking for bottoming sign again as it approaches 0.6008 key support level. Meanwhile, sustained break of 0.7833 resistance will be a strong sign of medium term reversal.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

The British pound finally resumed indicated major downtrend from 1.7192 and broke below previous support at 1.3504 in mid-2016, indicated downside targets at 1.3500 and 1.3000 had been met, however, as cable found good support at 1.1476 and staged a rebound, suggesting initial consolidation above this level would be seen and recovery to 1.2500 and possibly 1.2775-80 cannot be ruled out but reckon upside would be limited to 1.3000 and resistance at 1.3445 should hold, bring another decline later. Below 1.2000 would bring weakness to 1.1700, then retest of 1.1476. Our preferred count remains that the rise from 1.0520 (Feb 1985) to 2.0100 (September 1992) is treated as wave (A), the decline to 1.3682 is labeled as (B) and (C) wave rally has ended at 2.1162 (9 Nov, 2007) which is also the top of larger degree circle wave B. The selloff from there is either a 5-waver with wave 3 ended 1.3504 and wave 4 has ended at 1.7192 or is another A-B-C decline (i.e. (A)-1.3500, (B)-1.7192, followed by a wave C selloff). In either case, bearishness remains for further fall, a break of 1.1476 support would extend weakness to 1.1200, then 1.1000 but reckon downside would be limited to 1.0500 and price should stay well above psychological support at 1.0000.

On the upside, whilst initial upside bias is seen for the rebound from 1.1476 to bring retracement to 1.2500 and then 1.2775-80, reckon upside would be limited to 1.3000 and resistance at 1.3445 should hold, bring another decline. Only above previous support at 1.3836 would abort and suggest a temporary low is formed instead, bring a stronger rebound to 1.4000 and later towards 1.44-45 level but price should falter well below resistance at 1.5018, bring another selloff in late 2017.

Despite falling sharply to 0.7401 in early 2015, the subsequent quick and strong rebound retained our view that further consolidation above major low at 0.7069 (2011 low) would take place and mild upside bias remains for the erratic rise from there (wave v as well as larger degree wave (C) trough) to bring major correction of intermediate downtrend from 1.8222 (Wave (B) top), hence further gain to 1.0350, then 1.0500 would be seen, next upside target is 1.0620-30 (100% projection of 0.7069-1.0296 measuring from 0.7401), however, reckon upside would be limited to 1.0800 and 1.1000 should hold on first testing. Looking ahead, the greenback shall head towards 1.1320-30 (38.2% Fibonacci retracement of entire wave (B) from 1.8222-0.7069) but previous 4th at 1.1731 should remain intact.

On the downside, whilst initial pullback to 1.0100 and 1.0010-20 cannot be ruled out, reckon downside would be limited to 0.9900 and 0.9800 should hold, bring another rise to aforesaid upside targets. Below 0.9800 would defer and suggest a temporary top is formed instead, risk weakness to 0.9700 but only a sustained breach below support at 0.9550 would signal the corrective rise from 0.7069 low has ended and bring further fall to support at 0.9444, having said that, only a firm break below there would shift risk to the downside and further fall to 0.9300, then 0.9200 would follow but psychological support at 0.9000 should hold from here.

The greenback did retreat in H1 of 2016, adding credence to our view for further consolidation below 2015 high of 125.86 and indicated retracement targets at 116.16, 113.30, 112.00 and 110.00 had all met met, although the correction was a bit deeper than expected and pressed the pair to as low as 99.01 in mid-2016, dollar found renewed buying interest there and staged a strong rebound in Q4 2016, suggesting the correction from 125.86 has possibly ended at 99.01, hence consolidation with upside bias is seen for gain to 119.00 and 120.00, however, reckon 121.65-70 would hold on first testing. Only a break of resistance at 123.76 would confirm correction from 125.86 has ended, bring resumption of medium term rise from major low of 75.57 (formed back in 2011), then retest of 125.86 would follow. Looking ahead, a break above this level is needed to extend headway to 127.00, then 129-130.00 level but near term overbought condition should limit upside to 133.00 and price should falter below previous chart resistance at 135.18 (2002 high).

On the downside, whilst initial pullback to 115.00 cannot be ruled out, reckon downside would be limited to 112.90-00 and bring another rise later. Below 112.00 would bring pullback to 110.00 but downside should be limited to 107.00 and bring another rise later. Only a drop below 105.50-55 would defer and prolong choppy trading below 2015 high of 125.86, then weakness to 103.00 and then 102.00 would follow but still reckon downside would be limited to 101.00-10 and price should stay above said 2016 low of 99.01, bring another rise later. In the event dollar drops below 99.01 support, this would shift risk back to downside for the retreat from 125.86 to bring a stronger correction of the aforesaid rise from 75.57 low to 97.00 and possibly 95.80-85 but downside should be limited 94.75-80 (61.8% Fibonacci retracement of 75.57-125.86) and support at 93.79 should remain intact.

The single currency did spend most of 2016 within indicated established range of 1.0462-1.1714 and the pair met renewed selling interest at 1.1616 in mid-2016 then started to fall late last year, euro finally broke below 2015 low at 1.0462 last month in line with our bearish expectation, adding credence to our bearish count for an impulsive decline unfolding from 1.6040 top (2008 high), hence downside bias remains for further weakness to 1.0350, then 1.0200, however, a sustained breach below psychological support at 1.0000 is needed to signal wave 3 of larger degree wave III has commenced for further decline to 0.9945-50 (50% projection of 1.3993-1.0462 measuring from 1.1714). Our bearish count remains that the major wave C with circle ended at 1.6040 back in July 2008, the series of (I)(II), I II, 1-(1.2042) 2-(1.3993) impulsive wave structure from 1.6040 is unfolding, bearishness remains for further decline to 1.0300, then 1.0150 but reckon psychological support at 1.0000 would limit downside and 0.9945-50 (50% projection of 1.3993-1.0462 measuring from 1.1714) would hold on first testing. Eventual downside targets are pointing at 0.9530-35 (61.8% projection of 1.3993-1.0462 measuring from 1.1714) and later towards 0.9300-05 (1.618 times projection of 1.4940-1.2042 measuring from 1.3993) but next psychological support at 0.9000 should hold.

On the upside, whilst initial recovery to 1.0900 or even 1.1000 cannot be ruled out, upside should be limited and price should falter well below resistance at 1.1300, bring another decline to aforesaid downside targets. A sustained breach above 1.1300 would defer and suggest a minor wave v of 3 has ended instead and risk a stronger rebound to 1.1500 and then towards resistance at 1.1616 but still reckon resistance at 1.1714 would remain intact and bring another decline later. Only a firm break above 1.1714 resistance would defer and risk a stronger retracement of the fall from 1.3993 to 1.1800-10 and then towards 1.1900, however, reckon upside would be limited to previous support at 1.2042 (wave 1 trough) and bring another decline later.

Euro spiked higher in Asian session on ultra thin market condition but quickly retreated. EUR/USD hit as high as 1.0653 but is back at 1.0530 at the time of writing. The pair is also limited well below 1.0669 resistance so far which maintains near term bearishness. EUR/JPY jumped to 122.14 but failed to take out 124.08 near term resistance and is back at 122.70. EUR/JPY is still seen as engaging in sideway consolidation. The more important move is in EUR/GBP which took out 0.8577 resistance and is staying above for the moment. It's seen as a sign that recent pull back from 0.9304 is completed and we'd probably seen more upside in the cross soon. The development is in line with the outlook in EUR/AUD which suggests some near term bullishness. We'd be paying attention to whether Euro would gain additional momentum against Sterling and commodity currencies.

Dollar, on the other hand, continues to pull back on position rebalancing. The post election rally in the greenback was built on expectation of Donald Trump's expansive policies, including cutting tax and raising spending. Stocks surged with DJIA closing 20000 handle as the policies would be a boost to the economy. Yields jumped as the policies mean US would have to raise debts with a surge supply in bonds. And, Dollar rose on expectation that Fed would hike rate faster in 2017 due to better economy, higher yield and inflation. So, expectations on Trump's policies are high and eyes will be closely on what he will deliver in January.

Happy new year to our readers! We'll be back on January 3.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8513; (P) 0.8548; (R1) 0.8587; More...

EUR/GBP jumped to as high as 0.8666 and the break of 0.8577 resistance is seen as a sign of reversal. Recent decline from 0.9304 is seen as a corrective move and could have completed at 0.8303 after breaching 0.8332 support briefly. Intraday bias is back on the upside. Break of 38.2% retracement of 0.9304 to 0.8303 at 0.8685 will pave the way to 61.8% retracement at 0.8922 and above. On the downside, below 0.8488 minor support will likely extend the fall from 0.9304 through 0.8303. But in that case, we'd look for bottoming around 0.8116.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support around 55 weeks EMA (now at 0.8219) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Dollar stays soft in early US session but selling momentum is limited so far. Indeed, the greenback has pared back some losses against Yen, which is the relatively stronger one. Released from US, trade deficit widened to USD -65.3b in November, larger than expectation of USD -61.5b. Exports rose 1.0% to USD 121.7b while imports rose 1.2% to USD 187.0b. Initial jobless claims dropped 10k to 265k in the week ended December 24, below expectation of 277k. Continuing claims rose 63k to 2.1m in the week ended December 17.

Eurozone M3 money supply grew 4.8% yoy in November, much higher than expectation of 4.4% yoy. Meanwhile, leading to non-financial corporations rose 2.2% yoy, highest since mid-2009. Lending to households also grew 1.9%, highest since mid-2011. Staying in Eurozone, Italy finance minister Pier Carlo Padoan criticized ECB for not giving any detail sin the decision to request the troubled Banca Monte Dei Paschi Di Siena SpA to boost the balance sheet by EUR 8.8b. And he also said that ECB's demand didn't take into consideration of the decree passed by the Italian cabinet for its "capability and relevance".

BoJ governor Haruhiko Kuroda said today that "both the global and Japan's economies are moving in a positive and more desirable direction." In particular, "Japan's exports and production are picking up, and private consumption is showing signs of strengthening". And, " the excessive strength in the yen is being corrected". Though, he also emphasized that "uncertainties remain over what policies Trump will actually pursue, how Europe's political landscape could change given a number of upcoming elections there, or whether emerging economies and resource-based countries can continue accelerating their growth."

USD/JPY Daily Outlook

Daily Pivots: (S1) 116.92; (P) 117.37; (R1) 117.69; More...

USD/JPY's consolidation from 118.65 is still in progress and intraday bias stays neutral. In case of deeper fall, downside of retreat should be contained by 114.76 minor support and bring another rise. Above 118.65 will extend the current rally from 98.97 to test 125.854 high. We'd be cautious on topping at 125.85 on first attempt.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the corrective is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

US equities closed lower overnight as DJIA suffered the second triple digit loss since presidential election. DJIA closed down -111.36 pts, or -0.56%, at 19833.68. S&P 500 lost -18.96 pts, or -0.84%, to close at 2249.92. NASDAQ also dropped -48.88 pts, or -0.89%, to close at 5438.56. While a day of decline in thin holiday trading is not enough to warrant reversal in trend, the synchronous move with other markets suggest that the markets overall is turning into a consolidation phase. To be more specific, 10 year yield closed down -0.057 to 2.506. 30 year yield also lost -0.055 to close at 3.084. Dollar index is back at 102.90 after edging higher to 103.63. Gold breaches 1150 again, comparing to recent low at 1124.3. We'd probably see more consolidative trading ahead, at least before US non-farm payroll to be released on January 6.

10 year yield's sharp fall now raises the chance of short term topping at 2.621, on bearish divergence condition in daily MACD. Focus is back on 2.424 near term support. As long as 2.424 holds, price actions from 2.621 are viewed as a brief consolidation and recent up trend should resume soon. Break of 2.621 will extend recent rise to next key resistance level at 3.036. However, break of 2.424 will confirm topping and bring pull back to 55 day EMA, now at 2.221, or even further to 38% retracement from 1.336 to 2.621 at 2.130.

S&P 500 could have also topped at 2277.53 after hitting medium term channel resistance. Focus in back on 2248.44 near term support level. Sustained break there would at least bring pull back to 55 day EMA (now at 2205.57) or even further lower to channel support. Nonetheless, firm break of 2277.53 will accelerate recent trend to 61.8% projection of 1074.77 to 2134.71 from 1810.10 at 2465.14.

Pull back in stocks and yield could drag down the Dollar in near term. The dollar index is having a similar technical picture, with bearish divergence condition seen in daily MACD. Near term focus is on 102.52 support. Break there would open up deeper pull back towards 55 day EMA (now at 100.55). Nonetheless, firm break of near term high at 103.65 will re-accelerate near term up trend to next projection target at 105.19.

As for today, Eurozone will release M3 money supply in European session. US will release trade balance and jobless claims.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3530; (P) 1.3564; (R1) 1.3590; More...

USD/CAD breached 1.3588 briefly to 1.3598 but failed to sustain. Intraday bias is turned neutral first. We'd stay cautious on strong resistance from 1.3588 to limit upside and bring near term reversal. Break of 1.3471 support should confirm near term topping, with bearish divergence condition in 4 hours MACD. In that case, intraday bias will be turned back to the downside for 1.3080 support. Sustained break of 1.3588, though, will target next fibonacci level at 1.3838. Overall, price actions from 1.2460 low are still viewed as a corrective move.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3588 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3005 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Trading in financial markets are generally subdued in holiday mood. DJIA closed up 11.23 pts, or 0.06%, overnight at 19945.04, still struggling to take out 20000 handle. S&P 500 also closed up 5.09 pts, or 0.22%, at 2268.88, but stays in recent range. Asian markets are mixed with little movements. US yields closed higher with 10 year yield up 0.02 to 2.563 but like others, stayed in tight range. Notable strength is seen in gold this week, hitting as high as 1151.7, comparing to recent low at 1124.3. There is prospect of a stronger rebound in gold in near term. WTI crude oil also strengthened mildly this week and breached 54 handle. But recent price actions suggest that it's staying in consolidation since hitting 54.51 and more sideway trading is in favor.

In the currency market, Canadian Dollar is notably weaker than others, expect Yen, despite mild strength in oil price. USD/CAD is set to take on key near term resistance at 1.3588. While Canadian dollar outperformed other commodity currencies this month, there is prospect of a pull back in near term. Daily MACD in the AUD/CAD chart has turned above signal line, indicating short term bottoming at 0.9677. Rebound from there would now extend higher towards 55 days EMA (now at 0.9912). However, we'd expect strong resistance from 38.2% retracement of 1.0396 to 0.9677 at 0.9952. Fall from 1.0396 is expected to extend to medium term channel support at a later stage.

A short term bottom was also formed in EUR/CAD at 1.3817. Rebound from there is expected to extend to 55 days EMA (now at 1.4278). We'd be cautious on strong resistance from 38.2% retracement of 1.5279 to 1.3817 at 1.4375 to limit upside and bring another decline next medium term support at 1.3019. However, bullish convergence is seen in daily MACD. Sustained trading above 1.4375 fibonacci level will raise the chance of reversal. That is, whole corrective pattern from 1.6103 has completed and will turn focus back to trend line resistance (now at 1.5166).

On the data front, Japan industrial production rose 1.5% mom in November, below expectation of 1.8% yoy. Japan retail sales rose 1.7% yoy in November, above expectation of 0.9% yoy. Swiss UBS consumption indicator, UK BBA mortgage approvals will be released in European session. US will release pending home sales.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3532; (P) 1.3556; (R1) 1.3598; More...

USD/CAD's rally continues to as high as 1.3579 so far. We'd stay cautious on strong resistance from 1.3588 to limit upside and bring near term reversal. Break of 1.3471 support should confirm near term topping, likely with bearish divergence condition in 4 hours MACD. In that case, intraday bias will be turned back to the downside for 1.3080 support. Sustained break of 1.3588, though, will target next fibonacci level at 1.3838. Overall, price actions from 1.2460 low are still viewed as a corrective move.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3588 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3005 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

The Japanese Yen edges mildly lower in very quiet holiday trading today. A bunch of weak economic data is weighing slightly on the currency. Japan national CPI core dropped -0.4% yoy in November, unchanged from October's reading and missed expedition of -0.3% yoy. That's also the ninth straight month of decline in prices. Tokyo CPI core dropped -0.6% yoy, worsened from October's reading of -0.4% yoy and missed expectation of -0.4% yoy. Nonetheless, it's hopeful that the sharp depreciation in Yen since November would eventually provide some inflationary effect on prices that help lift the burden from BoJ for additional stimulus. Also from Japan, unemployment rate rose to 3.1% in November, above expectation of 3.0%. Household spending dropped -1.5% yoy in November, much worse than expectation of 0.2% yoy rise. Housing starts rose 6.7% yoy in November, much lower than expectation of 9.6% yoy.

Yen remains the weakest major currency this month, followed by Euro. NZD/JPY's breach of 83.36 resistance is seen as an indication that medium term decline from 94.01 has completed at 68.88. NZD/JPY received strong support from 50% retracement of 44.19 to 94.01 at 69.10. Further rise would stay in favor as long as 77.68 support holds. Sustained trading above 83.36 would pave the way to retest 94.01. We're not anticipating a break there on first attempt. Meanwhile, break of 77.68 will argue that the cross is developing into range trading between 68.88 and 83.36 instead.

On the other hand, Dollar remains the second strongest major currency for the month, next to Sterling. The greenback has been boosted by expectation of Donald Trumps's expansive policies, surging yield and FOMC's forecast of fast rate hike in 2017. Trump is scheduled to take office as the 45th president of US on January 20, 2017. And Dollar's fate will depend on what policies would Trump actually deliver. Dollar index turned into sideway consolidation after hitting 103.65. But near term outlook will stay bullish as long as 102.05 resistance turned support holds. The index is expected to target 61.8% projection of 78.90 to 100.39 from 91.91 at 105.1.9 next.

USD/JPY Daily Outlook

Daily Pivots: (S1) 117.24; (P) 117.55; (R1) 117.85; More...

USD/JPY is still bounded in consolidation from 118.65 and intraday bias stays neutral for sideway trading. In case of deeper fall, downside of retreat should be contained by 114.76 minor support and bring another rise. Above 118.65 will extend the current rally from 98.97 to test 125.854 high. We'd be cautious on topping at 125.85 on first attempt.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the corrective is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box