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Daily Pivots: (S1) 147.05; (P) 147.70; (R1) 148.14; More...

USD/JPY is still bounded in consolidation from 148.79 and intraday bias remains neutral. With 145.97 resistance turned support intact, further rally is in favor. As noted before, corrective fall from 151.89 should have completed at 140.25 already. Break of 148.79 will resume the rise from there for retesting 151.89/93 key resistance zone.

In the bigger picture, stronger than expected rebound from 140.25 dampened the original bearish review. Strong support from 55 W EMA (now at 142.33) is also a medium term bullish sign. Fall from 151.89 could be a correction to rise from 127.20 only. Decisive break of 151.89/93 will confirm resumption of long term up trend. This will now be the favored case as long as 140.25 support holds.

Daily Pivots: (S1) 1.6340; (P) 1.6423; (R1) 1.6470; More...

Intraday bias in EUR/AUD is turned neutral first with today's strong recovery. On the upside, break of 1.6512 minor resistance will argue that pull back from 1.6671 has completed, and revive near term bullishness. Intraday bias will be back on the upside for 1.6671 resistance. On the downside, break of 1.6348 will resume the fall to 1.6127 support.

In the bigger picture, fall from 1.7062 medium term top is seen as correction to the up trend from 1.4281 (2022 low). Break of 1.6844 resistance will argue that this up trend is ready to resume through 1.7062 high. In case of another fall, strong support should be seen around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound.

Daily Pivots: (S1) 0.8510; (P) 0.8527; (R1) 0.8542; More...

Intraday bias in EUR/GBP is turned neutral first with today's strong recovery. Immediate focus is now on 0.8563 minor resistance. Firm break there will suggest short term bottoming, on bullish convergence condition in 4H MACD. Intraday bias will be turned to the upside for stronger rebound to 55 D EMA (now at 0.8613). On the downside, break of 0.8512 will resume the fall from 0.8764 to retest 0.8491 support instead.

In the bigger picture, fall from 0.8764 is seen as another leg in the whole down trend from 0.9267 (2022 high). Outlook will stay bearish as long as 0.8713 resistance holds. Break of 0.8491 will target 61.8% projection of 0.8977 to 0.8491 from 0.8764 at 0.8464.

Euro recovers broadly today, as lifted by GDP data that indicated the Eurozone economy has narrowly averted a technical recession. This positive development has also led to a notable rebound in Germany's benchmark treasury yields. Meanwhile selling pressure has shifted Sterling and Swiss Franc, both of which are ceding some of their recent gains against Euro. The upcoming CPI flash release on Thursday is now set to the next focal point for the common currency.

In contrast, Australian Dollar faces notable weakness today amid the steep pullback in the stock markets of China and Hong Kong. The initial optimism surrounding rescue package by the Chinese government for the markets seems to be waning, with analysts suggesting that more action is needed to restore confidence. Additionally, Aussie traders are also adopting a cautious stance ahead of the upcoming release of quarterly CPI data and PMI reports from China.

In other currency market developments, Japanese Yen and Dollar are following Euro as the second and third strongest currencies of the day so far, respectively. Swiss Franc and Sterling find themselves on the weaker end, with Canadian and New Zealand Dollar showing mixed performances.

Technically, AUD/JPY demands attention in the upcoming Asian session. Rebound from 93.70 continued to lose momentum as seen in 4H MACD. Such rebound is seen as the second leg of the pattern from 98.56. While another rise cannot be ruled out, upside should be limited by 98.56. Decisive break of 96.89 support will argue that the third leg has already started, back towards 93.70 support.

In Europe, at the time of writing, FTSE is up 0.57%. DAX is up 0.09%. CAC is up 0.33%. UK 10-year yield is up 0.009 at 3.884. Germany 10-year yield is up 0.026 at 2.265. Earlier in Asia, Nikkei rose 0.11%. Hong Kong HSI fell -2.32%. China Shanghai SSE fell -1.83%. Singapore Strait Times rose 0.31%. Japan 10-year yield fell -0.0139 to 0.712.

ECB's Vujcic emphasizes gradual transition in monetary policy, downplays recession risks

ECB Governing Council member Boris Vujcic emphasizing that a "smooth transition" in monetary policy is more important then the timing of the first rate cut. Also, he'd prefer to move in smaller steps.

"April or June doesn't really make much of a difference for the economy," he stated, "I think it's more important that we achieve a kind of smooth transition."

Vujcic also expressed a preference for gradual rate adjustments, favoring 25 basis point moves as opposed to larger steps. Additionally, there would be some "pauses" in between every rate move.

Regarding the economy, Vujcic said, "the risk of a recession in the euro zone is getting smaller and smaller", projecting an upcoming phase characterized by modest economic growth coupled with further disinflation.

Eurozone GDP stable in Q4, avoids contraction

Eurozone GDP was stable in Q4, better than expectation of -0.1% qoq contraction. Compared with the same quarter of the previous year, GDP increased by 0.1% yoy. EU GDP was also stable in Q4, and increased 0.2% yoy.

Among the Member States for which data are available, Portugal (+0.8%) recorded the highest increase compared to the previous quarter, followed by Spain (+0.6%), Belgium and Latvia (both +0.4%). Declines were recorded in Ireland (-0.7%), Germany and Lithuania (both -0.3%). The year on year growth rates were positive for six countries and negative for five.

Ifo: German economy to contract -0.2% in Q1, restrictive monetary policy taking full effect

Germany's economy is bracing for a challenging first quarter, with ifo Institute projecting a contraction in GDP by -0.2%. Timo Wollmershäuser, Head of Forecasts at ifo, indicated that this decline would "tip the German economy into recession."

Wollmershäuser explained, "Companies in almost all sectors of the economy are complaining about falling demand". In the manufacturing and construction sectors, where once robust order backlogs have significantly "melted away". A concerning trend of decreasing incoming orders has been observed for several months, with residential construction experiencing a notable surge in cancellations.

"It appears that restrictive monetary policy in Europe and North America, with its aim of stabilizing prices through sharp rises in key interest rates, is now taking full effect," Wollmershäuser added

Unique factors further aggravate the situation. Wollmershäuser notes, "High illness levels, rail strikes at Deutsche Bahn, and an unusually cold and snowy January," are additional burdens on the economy. Despite these factors, he finds a silver lining in private consumption, which shows some positive trends.

Swiss KOF rises to 101.5, signaling imminent economic recovery

Swiss KOF Economic Barometer rose from 98.0 to 101.5 in January, above expectation of 98.2. That was the third consecutive month of increase, and the first instance since March of the previous year that the barometer has exceeded its medium-term average. This development is being interpreted as "increasing signs that the Swiss economy will soon recover".

The improvement is particularly noticeable in the accommodation industry and other service sectors. The combined indicators for manufacturing, construction, and foreign demand are also "develop slightly positive". Consumer demand, however, is "virtually unchanged". The only sector that appears to be facing challenges is the financial and insurance activities, where the outlook has deteriorated.

RBNZ's Conway: We still have a way to go on inflation

RBNZ Chief Economist Paul Conway struck a hawkish tone in a speech today, tempering market expectations for imminent policy easing. Conway acknowledged the effectiveness of current monetary policy in slowing the economy and reducing inflation. But he emphasized noted that the journey to achieving the target midpoint is far from over. His remarks also indicated that recent weaker GDP data would not automatically lead to a dovish shift in RBNZ's approach.

Conway stated, "Monetary policy is working, with the economy slowing and inflation falling. But we still have a way to go to get inflation back to the target midpoint." He added that the upcoming February Statement would offer more insights, grounded in comprehensive data analysis.

Furthermore, Conway pointed out recent GDP revisions don't necessarily imply a significant reduction in the economy's capacity pressures. He highlighted that private demand, which is more responsive to interest rate changes, has seen upward revisions, particularly in consumption and business investment.

Conway also pointed out that annual non-tradable inflation at 5.9% was higher than RBNZ's forecasts, even though headline CPI slowed to 4.7% in Q4 while core inflation have also fallen.

Australia's retail sales falls -2.7% mom, spending remains subdued

Australia retail sales turnover fell -2.7% mom to AUD 35.19B in December, worst than expectation of -1.9% mom. Annually, sales fell -0.8% yoy.

Ben Dorber, ABS head of retail statistics, said: "The large fall in retail turnover in December was caused by a fall in discretionary spending. Consumers brought forward some of their usual December spending to November to take advantage of Black Friday sales.

"While there was a large seasonally adjusted fall in December, retail turnover rose 0.1 per cent in trend terms. This shows that underlying retail spending remains subdued when we look through the volatile movements over recent months in the lead up to Christmas."

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8510; (P) 0.8527; (R1) 0.8542; More...

Intraday bias in EUR/GBP is turned neutral first with today's strong recovery. Immediate focus is now on 0.8563 minor resistance. Firm break there will suggest short term bottoming, on bullish convergence condition in 4H MACD. Intraday bias will be turned to the upside for stronger rebound to 55 D EMA (now at 0.8613). On the downside, break of 0.8512 will resume the fall from 0.8764 to retest 0.8491 support instead.

In the bigger picture, fall from 0.8764 is seen as another leg in the whole down trend from 0.9267 (2022 high). Outlook will stay bearish as long as 0.8713 resistance holds. Break of 0.8491 will target 61.8% projection of 0.8977 to 0.8491 from 0.8764 at 0.8464.

Economic Indicators Update

ECB Governing Council member Boris Vujcic emphasizing that a "smooth transition" in monetary policy is more important then the timing of the first rate cut. Also, he'd prefer to move in smaller steps.

"April or June doesn't really make much of a difference for the economy," he stated, "I think it's more important that we achieve a kind of smooth transition."

Vujcic also expressed a preference for gradual rate adjustments, favoring 25 basis point moves as opposed to larger steps. Additionally, there would be some "pauses" in between every rate move.

Regarding the economy, Vujcic said, "the risk of a recession in the euro zone is getting smaller and smaller", projecting an upcoming phase characterized by modest economic growth coupled with further disinflation.

• EURJPY trims January’s gains within bullish channel

• Short-term risk skewed to the downside

EURJPY started a new bearish cycle within a short-term upward-sloping channel, pulling from a one-and-a-half month high of 161.85 to reach a low of 159.20 on Tuesday.

• EURGBP slides but finds support at the lower end of a range
• A break below that support may turn the outlook bearish
• Both the MACD and the RSI detect downside momentum

EURGBP entered a sliding mode on December 28, after hitting resistance slightly above 0.8700, the upper boundary of the broader sideways range that’s been containing most of the price action since the beginning of May 2023. That said, the slide was paused yesterday near the lower end of the range at around 0.8520, and today the pair is recovering somewhat.

The move confirming that the bears have regained full control and that the bigger picture has darkened, could be a decisive close below the 0.8520 barrier, which offered support on several occasions last year. Such a dip may allow declines all the way down to the 0.8405 zone, marked by the low of August 24, the break of which could aim for the low of August 2 at around 0.8340.

Both our daily oscillators detect bearish momentum, supporting the notion that, at some point soon, this pair may exit the range to the downside. The MACD lies below both its zero and trigger lines, while the RSI runs below 50, slightly above 30. However, the RSI shows signs of bottoming near 30, which implies that some further recovery may be in the works before the next leg south.

On the upside, a clear break above 0.8555 could signal that traders want to keep the pair range bound for a while longer. They may be willing to pull the price up to the 0.8650 zone, where another break could aim for the range’s upper end at around 0.8700.

To sum up, EURGBP lost notable ground during the first month of the new year, but all the losses were contained within a broader sideways range between 0.8520 and 0.8700. For the outlook to turn negative, a decisive dip below 0.8520 may be needed.

Gold rose to $2,040 per troy ounce on Tuesday morning, a two-week high. The positive momentum is being driven by risk appetite on global platforms. One of the reasons for the increase in demand for the metal could be the strength of the Chinese stock market.

The three main US indices, the S&P500, the Dow Jones Industrial Average and the Nasdaq100, closed at all-time highs on Monday, continuing a run of almost two weeks of gains after a minor correction at the start of the year. The rally was fuelled by reports that the US Treasury had reduced its bond borrowing plans for the coming months. This means that more money that would have been used to buy bonds can be used to buy stocks and commodities.

We are also paying attention to signals from a WSJ journalist who covers Fed policy. He is widely acknowledged to be effective at conveying and interpreting signals that the FOMC can no longer give in the ‘week of silence’ before the meeting. In a recent article, he noted that the ‘sharp drop’ in inflation poses a new risk for the Fed. It’s a sharp reversal from the inflation threat of the past two years. It is a return to the narrative that prevailed after the 2008 crisis when the world’s major central banks worked to raise inflation rather than contain it.

This return of an old theme is reminiscent of gold’s rally from $720 to $1,900 an ounce in 2008-2011 when there was a shift to a zero interest rate policy and the start of QEs.

At the same time, the Chinese market continues to lose investor confidence as a result of the Evergrande bankruptcy and the unimpressive measures taken by regulators to support the markets and the economy. Hong Kong and mainland Chinese stock indices have halted the recovery that began last week and are losing ground for the second trading session, trading near multi-year lows. In this environment, and particularly in China, gold is once again enjoying the status of a defensive asset.

On the other hand, gold has been in a downtrend since the beginning of the year, although it usually starts the year strong. In years where we see early weakness in the first few weeks, the pressure soon builds. And we expect this trend to manifest itself as early as this week.

The price of the troy ounce could correct as low as $1,960, approaching the 200-day moving average, where the battle for the trend will likely intensify. If the bullish scenario comes to fruition, a move above $2,050 by the end of this week will significantly increase the chances of gold testing its all-time highs in the coming weeks.

The Australian dollar showed little reaction to the release of Australian retail sales earlier today. In the European session, AUD/USD is trading at 0.6600, down o.15%.

Australia’s retail sales sink in December

The markets were braced for a soft December retail sales but the damage was worse than expected. Retail sales fell by 2.7% m/m, following a downwardly revised 1.6% gain in November and much weaker than the consensus estimate of -1%.

This was the steepest decline in retail sales since August 2020, as consumers did their Christmas shopping early and took advantage of Black Friday sales in November. Any hopes that Boxing Day sales in December would ease the pain were dashed, as the November gain came at the expense of December. Retail sales posted a weak gain of 0.8% y/y, the lowest since August 2021. A recession may not be far away and the Reserve Bank of Australia is expected to hold rates at the February 6 meeting. The markets have priced in a 70% probability of a rate cut in August.

The RBA has stressed that upcoming rate decisions will be data-dependent, and Wednesday’s quarterly inflation will be critical. Inflation has been falling and the consensus estimate for the fourth quarter stands at 4.6% y/y, compared to 5.4% in the third quarter. Goods and services inflation and the core inflation rate are moving lower but remain well above the RBA’s target band of 2%-3%. If the inflation rate misses the estimate, the Australian dollar could show volatility.

The US releases key employment data this week, starting with the ADP employment report, which is expected to drop from 164,000 to 145,000. The nonfarm payrolls report will be released on Friday and is expected to decline to 180,000 in December, down from 216,000.

AUD/USD Technical

• AUD/USD is testing support at 0.6599. Next, there is support at 0.6582
• There is resistance at 0.6628 and 0.6645

Eurozone GDP was stable in Q4, better than expectation of -0.1% qoq contraction. Compared with the same quarter of the previous year, GDP increased by 0.1% yoy. EU GDP was also stable in Q4, and increased 0.2% yoy.

Among the Member States for which data are available, Portugal (+0.8%) recorded the highest increase compared to the previous quarter, followed by Spain (+0.6%), Belgium and Latvia (both +0.4%). Declines were recorded in Ireland (-0.7%), Germany and Lithuania (both -0.3%). The year on year growth rates were positive for six countries and negative for five.

Full Eurozone GDP release here.