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• Persistent underperformance of the EUR against GBP as the EUR/GBP cross pair reintegrated below the 200-day moving average.
• The hourly RSI momentum indicator of EUR/GBP has flashed out a bearish momentum condition.
• Watch the 0.8615 key short-term resistance with intermediate supports coming in at 0.8550 and 0.8500.

In the long term, the EUR/GBP cross pair is still evolving within a major downtrend phase as depicted by its price actions’ oscillations within a descending channel in place since the 3 February 2023 swing high of 0.8979 (see Fig 1)

The major downtrend phase has remained intact since 3 February 2023

Fig 1:  EUR/GBP medium-term trend as of 9 Jan 2024 (Source: TradingView, click to enlarge chart)

Short-term downside momentum has resurfaced

Fig 2:  EUR/GBP minor short-term trend as of 9 Jan 2024 (Source: TradingView, click to enlarge chart)

Recent price actions have staged a bearish breakdown below its 200-day moving average at the start of 2024 on 3 January.

On the hourly chart, the price actions have taken the form of a minor descending channel with a bearish momentum reading seen in the hourly RSI momentum indicator as it staged a bearish reaction right below its parallel resistance at the 50 level.

These observations suggest that the EUR/GBP is likely to be staging a potential bearish impulsive downmove sequence within its major descending channel.

Watch the 0.8615 key short-term pivotal resistance with the next intermediate supports coming in at 0.8550 and 0.8500 (psychological & the swing low areas of 11 July/23 August 2023) next.

On the other hand, a clearance above 0.8615 negates the bearish tone for a minor corrective bounce to see the next intermediate resistance coming in at 0.8650 (also the 200-day moving average).

Eurozone unemployment rate fell from 6.5% to 6.4% in November, below expectation of 6.5%. EU unemployment rate fell from 6.0% to 5.9%.

According to Eurostat, total number of unemployed individuals in EU stood at approximately 12.954m, with around 10.970m of in Eurozone. This figure represents a decrease of -144k unemployed persons in EU and -99k in Eurozone compared to October.

Full Eurozone unemployment release here.

• EURUSD rebounds off 1.0875
• 50- and 200-SMAs post golden cross
• Price is still well above uptrend line

EURUSD is rising somewhat after the pullback off the 1.0875 support level and has been battling with the 20-day simple moving average (SMA) over the last four sessions.

It is worth mentioning that the 50- and the 200-day SMAs posted a golden crossover suggesting more gains in the next few sessions, while the technical oscillators are contradicting each other. The RSI is pointing slightly up above the neutral level of 50; however, the MACD is holding beneath its trigger line and above the zero level, indicating that the bearish correction from 1.1150 may continue.

If the bulls continue to have control, then the market could touch the 1.1150 barrier, taken from the previous peak ahead of the 17-month high of 1.1275, registered back in July 2023.

Alternatively, a potential drop below the immediate 20-day SMA and the 1.0875 barricade could send the market until the important 200-day SMA at 1.0840 ahead of the medium-term ascending trend line near the 1.0825 support. Penetration of these lines may change the outlook to bearish, leading the price towards the 1.0720-1.0755 restrictive region.

All in all, EURUSD is looking bullish in the medium-term outlook and only a fall below the uptrend line may switch the outlook to negative.  

• GBPUSD returns above key support trendline, reduces negative risks
• Technical signals are encouraging for a continuation to 1.2850-1.2900

GBPUSD stepped on the 20-day simple moving average (SMA) and climbed back above the broken short-term support trendline from October at 1.2720, reviving hopes that the soft four-day bullish wave could gain extra legs in the coming sessions.

The positive trajectory in the RSI and the stochastic oscillator is endorsing the bullish case, increasing the odds for a bounce towards the 1.2850-1.2900 resistance region. Note that the short-term ascending line from November 2023 is passing through this area. Hence, a decisive close above it could encourage a direct flight towards the 1.3000 psychological mark and the tentative ascending line, which connects the highs from October and November.

On the downside, the 20-day SMA will remain under the spotlight at 1.2686. A break below that line is expected to see a test near the crucial floor of 1.2610. If the bears drive below that base, confirming a negative head and shoulders pattern, the price could tumble towards its 50- and 200-day SMAs, which are currently trying to complete a golden cross around 1.2532. Additional declines from there might last till the 2020 upward-sloping trendline at 1.2400, unless the 1.2460 barrier blocks the way down.

All in all, GBPUSD has restored some optimism in the short-term picture after the close above the 1.2720 bar. Overall, the outlook may not deteriorate unless the 1.2610 floor cracks.

Short-term Elliott Wave View in Dow Futures (YM) suggests that the rally to $38115 high has ended the cycle from the 10.27.2023 low in wave (3) as 5 wave impulse structure. Down from there, the index is doing a corrective pullback in wave (4) against the October 2023 low cycle. And is expected to find buyers in 3, 7, or 11 swings looking for more upside. We will explain the forecast in 30 Minutes chart below:

Down from $38115 high the index is doing a corrective pullback when the initial decline to $37664 low ended wave (w) in a lesser degree 3 wave. Then a bounce to $37985 high ended wave (x) in another 3 waves. Below from there, the (y) leg lower ended at $37504 low after reaching the extreme area at $37534- $37427 area. Thus completed wave ((w)) as a double correction. Since then, the index is doing a short-term bounce in wave ((x)) as the Elliott wave expanded flat correction. Whereas small wave (a) ended at $37882 high. Wave (b) ended at $37470 low and wave (c) is expected to fail against $38115 high.

Dow Futures (YM) 30 Minutes Elliott Wave Chart

Dow Futures (YM) Elliott Wave Video

https://www.youtube.com/watch?v=QGlJhYmsES4

Markets

The recent core bond yield recovery ran into resistance yesterday and that had knock-on effects on other markets. Equity markets in particular enjoyed a nice run. The EuroStoxx50 ended about 0.5% higher but that followed a 1% intraday rise. The tech-heavy Nasdaq on Wall Street posted 2% gains. As for yields, they finished 1-2.7 bps lower in the US. They were down as much as 8 bps earlier on the day though, hitting the low point in the wake of the NY Fed’s consumer inflation expectations survey. The one-year ahead gauge fell to a 3-year low of 3.01% while the three-year forward looking indicator eased from 3% to 2.62%. Other subsets point at relative confidence in the US labour market (mean probability of leaving a job voluntarily rises) but the proportion expecting to miss out on a debt payment rose towards the previous post-pandemic high. German Bund yields missed out on the US bottoming out process that followed but finished no more than 3 bps lower. Addressing the economic outlook, Fed’s Bostic said inflation has eased more than expected but added he is comfortable with the current restrictive stance. He repeated his call for only 50 bps of rate reductions this year, starting in Q3. Lowering the pace of QT is an open question, Bostic added. And according to Fed’s Bowman, we’re not at the point yet where rate cuts are appropriate. Instead she warned that easing financial conditions – as seen in November and December – risk fueling inflation. The dollar lagged major peers with minor gains for EUR/USD (to 1.0950) & losses for the DXY (102.20) and USD/JPY (144.23). Sterling was once again among the better performers. It broke sub EUR/GBP 0.86 support. Norway’s krone underperformed on sliding oil prices (-3.5% for Brent). The Saudi’s cutting prices sharply for its Middle Eastern supplies underscored tepid physical demand, including (and perhaps especially) in China. Turning to Asian dealings this morning, Japan reopens after a long weekend. Bond yields ease a few bps. Tokyo inflation for December matched expectations almost perfectly. Headline prices rose 2.4% while core gauges came in at 2.1% (ex. fresh food) and 3.5% (ex. fresh food & energy). All of them marked a slight deceleration from the November readings. Initial yen gains after the BoJ indicated a cut in monthly long-term bond purchases were pared in the meantime. The dollar and euro keep each other balanced in a quiet trading session. Unfortunately, the economic calendar today again has not that much to offer. We do keep a close eye at the start of the US’ monthly refinancing with a $52bn 3-year auction. Belgium’s 10-y OLO benchmark syndication as well as Italy’s 7-y launch further add to the typical January wall of bond supply, which we in general consider to be an important driver for yields going forward but perhaps also today. We assume their downside nevertheless is well protected after the recent decline. EUR/USD for the time being remains a technical/risk sentiment trade without a clear direction.

News & Views

The British Retail Consortium (BRC) published its December retail sales monitor. Many retailers faced a disappointing December with sales growth only up 1.7% on 2022. The festive period failed to make amends for a challenging year of sluggish retail sales growth, as weak consumer confidence continued to hold back spending. Households remain cautious about making larger purchases. BRC CEO Dickinson warns that 2024 looks to be another challenging year for retailers and their customers and spending will continue to be constrained by high living costs. The rise to business rates this April is another big challenge.

The speaker of Slovak parliament and leader of the Hlas-party which joined the Smer-led coalition under PM Fico after October elections last year, Peter Pelligrini, said that he would formally announce his candidacy to run for president on January 19. Presidential elections will be held on March 23 with a potential second round on April 6 if none of the candidates gets an absolute majority. A Pelligrini victory would cement the recent (eurosceptic) power shift as the Slovak president holds more than a symbolic role. The current pro-European Slovak president, Caputova unexpectedly called new presidential elections for personal reasons.

Daily Pivots: (S1) 183.18; (P) 183.72; (R1) 184.41; More...

Intraday bias in GBP/JPY remains neutral for the moment. On the upside, sustained break of 184.15 resistance will argue that whole pull back from 188.63 has completed and bring further rally to retest this high. However, break of 181.73 minor support will indicate rejection by 184.15, and retain near term bearishness. Intraday bias will be back on the downside for 178.71 support instead.

In the bigger picture, price actions from 188.63 medium term top are seen as a correction to the up trend from 148.93 (2022 low) only. As long as 172.11 resistance turned support holds, larger up trend from 123.94 (2020 low) is still in favor to resume through 188.63 at a later stage.

Daily Pivots: (S1) 157.59; (P) 158.04; (R1) 158.38; More...

Intraday bias in EUR/JPY remains neutral for the moment. Risk will stay on the upside as long as 155.06 support holds. On the upside, above 158.97 will resume the rebound from 153.15 to 100% projection of 153.15 to 158.55 from 155.06 at 160.46.

In the bigger picture, price actions from 164.29 medium term top are tentatively seen as a correction to rise from 139.05 for now. As long as 148.48 resistance turned support holds (2022 high), larger up trend from 114.42 (2020 low) could still resume through 164.29 at a later stage.

Daily Pivots: (S1) 0.8579; (P) 0.8600; (R1) 0.8611; More...

EUR/GBP's fall from 0.8713 is still in progress and intraday bias stays on the downside for retesting 0.8548 support. Firm break there will target 0.8491 low next. On the upside, above 0.8638 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.8713 resistance holds, in case of recovery.

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 0.8764 resistance holds. Break of 0.8491 will target 61.8% projection of 0.8977 to 0.8491 from 0.8764 at 0.8464.

Daily Pivots: (S1) 1.6238; (P) 1.6320; (R1) 1.6377; More...

Further rally remains mildly in favor in EUR/AUD, as rebound from 1.6127 short term bottom would target 1.6478 resistance. Firm break there will argue that whole correction from 1.7062 has completed, and target 1.6844 resistance for confirmation. Nevertheless, break of 1.6127 will resume the corrective fall to 1.6000 fibonacci level.

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