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The Australian dollar stalled after GDP growth slowed in the fourth quarter. The price action seems to have gained a secure footing in the 0.6650-0.6700 demand zone near the December swing low. This is a major area for the bulls to fight back and safeguard the uptrend in the medium-term, as a bearish breakout could cause a reversal. 0.6840 is the first hurdle on the hourly chart and its breach would reduce the selling pressure. Further up, 0.6930 is the ceiling to lift before a broader recovery could take shape.

Markets

German inflation joined the French and Spanish example by surprising to the upside. It again was key for the European trading session with German yields surging another 4.4-7.6 bps across the curve to close at new cycle highs. In doing so, the 10y yield (2.71%) added conviction to Tuesday’s break above the 2.57% resistance level. European swap yields added 3.2-7.7 bps with the 10y reference leaving the neckline (3.20%) of the double bottom (troughs set at 2.5%) further behind. US yields shifted 3.8-8.1 bps in a similar fashion. The 10y yield tested the 4% barrier for the first time since November. The move higher followed the one in Europe initially and then went further autonomously after the US manufacturing ISM. The headline series came in slightly below consensus (47.7 vs 48) but nevertheless broke an 8-month long decline. In addition, the prices paid gauge ticked up more than expected, from 44.5 to 51.3, suggesting that prices in the sector are picking up again instead of vice versa. The yield advance on both sides of the Atlantic was driven by inflation expectations even though we had some hawkish comments from the likes of ECB’s Nagel and Villeroy and Fed’s Bostic (rates need to be raised above 5% and stay there “well into 2024”). Equities in Europe swapped 0.9% gains for a 0.5% loss (Euro Stoxx 50). WS finished with similar losses (S&P, Nasdaq). The dollar didn’t profit from the sentiment turnaround though. EUR/USD rebounded from 1.0576 to 1.0668 helped by a stronger euro too. The pair tested the 1.068 resistance. DXY retreated from north of 105 to 104.48. Sterling tanked amid UK gilt outperformance. EUR/GBP visited resistance located around 0.89 but closed at 0.887 eventually, up from 0.8798. Bank of England governor Bailey “would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more”. Given current market sentiment, his balanced tone stood out. At some point short-term gilt yields dived 11 bps lower. Damage in the end stayed limited to 3.1 bps at the front end of the curve.

We’re skipping a dull Asian trading session and go straight to the economic calendar for today. Central bank speeches and the ECB meeting minutes are worth their while but actual attention goes to European inflation number. The headline figure is expected to ease from 8.6% to 8.3% (0.5% m/m). Core inflation would equal January’s 5.3%. Giving the national prints earlier this week, risks are tilted to the upside. We expect core bonds to stay under pressure. From a technical perspective, German yields have little resistance to forge ahead. European swap yields with longer maturities have yet to surpass their previous cycle highs. In the 10y we keep a close eye at the 3.408% level (October intraday cycle high). Until now equities remain resilient as higher yields were at least partially driven by inflation expectations rather than real yields. If this changes, the dollar might again benefit. EUR/USD 1.0735 remains a meaningful resistance on the charts, followed by 1.0806.

News and views

The South Korean manufacturing PMI stabilized at 48.5 in February with details pointing to further contractions in both output (10th month in a row) and new orders (8th month in a row) amid dampened global economic conditions and sustained price pressures commonly linked to exchange rate weaknesses. Input price inflation nevertheless eased to its softest reading since November 2020. Backlogs of work fell at the sharpest pace in just over two-and-a-half years with the employment component back below the 50 breakeven mark. Inventories of finished items rose at the greatest extent since November 2017. On a bright note, confidence about the future strengthened across the sector amid hopes of improved domestic and international demand conditions. January South Korean industrial production data, released this morning as well, increased for the first time since June (2.9% M/M). In Y/Y-terms, production is down 12.7%.

The Australian Bureau of Statistics reported a 27.6% M/M decline (most on record) in total building approvals in January. Approvals for private sector houses fell by 13.8%, the fifth consecutive drop, to be the lowest result recorded since June 2012. High borrowing costs, surging construction costs (shortages of material and labour) and an unwinding of pandemic-related government subsidies are all at play. AUD is again somewhat weaker this morning with AUD/USD eyeing the recent low at 0.67.

Daily Pivots: (S1) 1.0593; (P) 1.0642; (R1) 1.0719; More...

Intraday bias in EUR/USD stays mildly on the upside for the moment. Corrective decline from 1.1032 should have completed with three waves down to 1.0532 already. Further rise should be seen to 1.0803 resistance first. Firm break there will pave the way to retest 1.1032 high. For now, risk will stay mildly on the upside as long as 1.0532 support holds, in case of retreat.

In the bigger picture, as long as 1.0482 support holds, rise from 0.9534 (2022 low) should continue to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. However, sustained break of 1.0482 will bring deeper fall to 61.8% retracement of 0.9534 to 1.1032 at 1.0106, even as a corrective pull back.

Daily Pivots: (S1) 1.1965; (P) 1.2027; (R1) 1.2089; More...

Intraday bias in GBP/USD stays neutral as range trading continues. On the downside, break of 1.1914 will resume the decline from 1.2446 for 1.1840 support and possibly below. On the upside, break of 1.2146 resistance will turn bias back to the upside for further rebound to 1.2269 and above.

In the bigger picture,as long as 1.1840 support holds, rise from 1.0351 medium term bottom (2022 low) should still continue to 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. However, decisive break of 1.1840 will complete a double top pattern (1.2445, 1.2446) after rejection by 55 week EMA (now at 1.2251). Deeper decline should be seen back to 38.2% retracement of 1.0351 to 1.2445 at 1.1645.

Daily Pivots: (S1) 0.9356; (P) 0.9392; (R1) 0.9434; More...

USD/CHF's rally resumed after brief consolidations. Intraday bias is back on the upside for 38.2% retracement of 1.0146 to 0.9058 at 0.9474. Strong resistance could be seen there to complete the rebound from 0.9058. Break of 0.9340 minor support will now turn bias back to the downside. However, decisive break of 0.9474 will carry larger bullish implications and target 61.8% retracement at 0.9730.

In the bigger picture, decline from 1.0146 is seen as part of a long term sideway pattern. As long as 38.2% retracement of 1.0146 to 0.9058 at 0.9474 holds, another fall is in favor through 0.9058. However, sustained trading above 0.9474 will indicate that the medium term trend has reversed, and open up further rally to 61.8% retracement at 0.9730 and above.

Daily Pivots: (S1) 135.48; (P) 135.98; (R1) 136.69; More...

Intraday bias in USD/JPY remains neutral for the moment. Focus is staying on 38.2% retracement of 151.93 to 127.20 at 136.64. Rejection by this fibonacci level, followed by break of 134.04 support, will argue that rebound from 127.20 has completed, and turn bias back to the downside. However, sustained trading above 136.64 will indicate that fall from 151.93 has completed, and bring further rally to 61.8% retracement at 142.48.

In the bigger picture, focus is now on 38.2% retracement of 151.93 to 127.20 at 136.64. Sustained break there will indicate that price actions from 151.93 medium term are merely a corrective pattern. Such development will maintain long term bullishness. Rejection by 136.64 will, on the downside, extend the fall from 151.93 to 61.8% retracement of 102.58 to 151.93 at 121.43 at a later stage.

Daily Pivots: (S1) 0.6708; (P) 0.6746; (R1) 0.6797; More...

Intraday bias in AUD/USD remains neutral for the moment. Deeper decline is expected as long as 0.6854 support turned resistance holds. Break of 0.6693 will resume the fall from 0.7156 to 161.8% projection of of 0.6854 to 0.7028 from 0.6854 at 0.6539. Nevertheless, firm break of 0.6854 will argue that such decline is finished, and revive near term bullishness.

In the bigger picture, focus is now on 0.6721 structural support. Sustained break there will argue that whole rise from 0.6169 (2022 low) has completed at 0.7156, after rejection by 55 month EMA (now at 0.7179). Deeper decline would then be see back to 61.8% retracement of 0.6169 to 0.7156 at 0.6546, even as a corrective fall. Nevertheless, strong rebound from current level will retain medium term bullishness for another rise through 0.7156 later.

Daily Pivots: (S1) 1.3564; (P) 1.3611; (R1) 1.3639; More....

USD/CAD is extending the consolidation from 1.3664 and intraday bias stays neutral first. Further rally is in favor as long as 1.3474 resistance turned support holds. Break of 1.3664 will resume the rise from 1.3261. Sustained trading above 1.3684 will confirm that corrective pattern from 1.3976 has completed, and bring retest of this high.

In the bigger picture, outlook stays bullish with 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) intact. Break of 1.3976 resistance will resume larger up trend from 1.2005 (2021 low) to 61.8% projection of 1.2401 to 1.3976 from 1.3261 at 1.4234.

Daily Pivots: (S1) 162.95; (P) 163.74; (R1) 164.60; More...

Intraday bias in GBP/JPY remains neutral for consolidation below 165.99. Further rally is still expected as long as 161.18 support holds. As noted before, corrective fall from 172.11 should have completed at 155.33 already. Break of 165.99 will target 169.26 resistance first, and then 172.11 high.

In the bigger picture, corrective decline from 172.11 medium term should have completed at 155.33. With 38.2% retracement of 123.94 (2020 low) to 172.11 (2022 high) at 153.70 intact, medium term bullishness is retained. That is, larger up trend from 123.94 (2020 low) is still in progress. Break of 172.11 high to resume such up trend is expected at a later stage.

Daily Pivots: (S1) 144.39; (P) 144.88; (R1) 145.79; More....

EUR/JPY's rally resumed after brief retreat and intraday bias is back on the upside. Corrective fall from 148.38 has completed at 137.37 already. Rise from there should target 146.71 resistance and then 148.38 high. On the downside, below 143.86 will turn intraday bias neutral again. But outlook will stay cautiously bullish as long as 142.13 support holds.

In the bigger picture, as long as 55 week EMA (now at 139.42) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.