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Eurozone PMI Manufacturing rose from 47.8 to 48.8 in January, above expectation of 48.1. PMI services rose from 49.8 to 50.7, above expectation of of 49.4, and back in expansion. PMI Composite rose from 49.3 to 50.2, a 7-month high.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

"A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession.... The region is by no means out of the woods yet, however, as demand continues to fall – merely dropping at a reduced rate... The case for higher interest rates is fuelled further by the upturn in employment growth recorded during the month and signs of higher wages driving the latest upturn in price pressures.

"A case for policy caution is supported by the survey merely indicating a stagnation of the eurozone economy, hinting that a renewed slide into contraction should not be ruled out as borrowing costs rise, but the survey undoubtedly brings welcome good news to suggest that any downturn is likely to be far less severe than previously feared and that a recession may well be avoided altogether."

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Asian shares rose on Tuesday, following the positive cues from Wall Street overnight as growth stocks looked enticing ahead of major tech earnings. Mounting expectations over a less aggressive Federal Reserve stimulated appetite for risk, magnetising investors towards the equity space. However, markets in mainland China and Taiwan remain closed for the Lunar New Year holiday and reopen for trading on January 30. European futures are pointing to a positive open this morning after finishing higher in the previous session, and this could trickle back down to Wall Street later today.

In the currency space, the dollar ticked lower while the euro is lingering below 1.09 after yesterday’s attempted breakout. Oil bulls seem to be drawing strength from rising demand hopes as China’s economy reopens, while gold remains supported by US recession fears and bets of slower rate hikes in 2023.

The next few days promise to be eventful for equity markets thanks to corporate earnings, with Microsoft reporting its results after the bell today and Tesla releasing its earnings late Wednesday. It is also a data-heavy week with economic reports from Europe and the United States in sharp focus, including PMI surveys today and US fourth quarter GDP on Thursday. Regarding central bank meetings, all eyes will be on the Bank of Canada rate decision tomorrow which is expected to conclude with a 25-basis point rate hike.

EURUSD gearing up for a breakout?

This could be a volatile week for EURUSD thanks to key economic data and speeches from financial heavyweights.

The discussions around monetary policy among officials at the Federal Reserve and European Central Bank continue, with focus increasingly drawn to their policy meetings next week. On one side of the coin, the euro continues to draw strength from a weaker dollar, high inflation in the Eurozone, and a hawkish ECB. On the other side, repeated signs of easing inflation in the US have fueled speculation around a less aggressive Fed. The narrowing monetary policy divergence between the Fed and ECB could translate to further upside for the already bullish EURUSD.

Much attention will be directed towards not only the pending Eurozone and US January PMIs today, but also ECB President Lagarde’s speech which may influence the currency pair. Regarding the technical picture, prices remain bullish on the daily charts with resistance found at 1.09. A solid breakout and daily close above this point could signal a move toward the next key level of interest at 1.12.

Currency spotlight – GBPUSD

Yesterday was a choppy affair for the GBPUSD as prices bounced within a range just below 1.24. Nevertheless, the outlook remains bullish on the daily charts due to the recent series of consistent higher highs and higher lows. There could be some action on the GBPUSD this morning thanks to the UK and US January PMIs. However, bulls remain in a position of power with support found just above 1.23. If the currency pair has the strength to advance decisively beyond 1.24, an incline toward the 1.26 region could become reality. Should the upside lose steam and dip below 1.23, prices could sink back towards 1.2170.

Commodity spotlight – Gold

Gold bulls continue to draw confidence from US recession fears and expectations around a less aggressive Federal Reserve. The precious metal certainly remains on a roll, securing five consecutive weekly gains, and could push higher if the fundamental drivers remain unchanged. A weaker dollar and soft US economic data could further sweeten appetite for gold over the next few days. Looking at the technical picture, prices remain bullish making fresh 9-month highs this morning and could test $1950 and beyond.

The Dow Jones 30 popped higher driven by hopes that US inflation has peaked. On the daily chart, the index is consolidating within 32500 and 34800 after clearing the mid-August high of 34200. This provides a wide swing range on the hourly chart as bulls and bears wrestle for control. The base of the January take-off 32900 is a key support and triggered traders’ ‘buy-the-dips’ instinct. 33300 is a fresh support and renewed buying interest would pave the way for a recovery to 34000 where selling pressure could start to reappear.

The New Zealand dollar inched higher as risk appetite gained traction across the board. On the daily chart, a bullish MA cross following a brief consolidation suggests that the rally may have picked up speed again. The previous swing low was contained within the demand zone 0.6330-0.6370, helping the bulls retain control of the price action. A break above the recent high of 0.6520 could trigger a runaway rally above 0.6600. 0.6420 is the immediate support in case the kiwi needs to build a stronger base.

The US dollar continues downward as the market rules out a 50 basis point hike next month. The pair has recouped most of the losses from last week’s sell-off after bouncing off 0.6870 which coincides with the 20-day moving average. This is a sign that the directional bias has remained upward despite a speed bump. Momentum buyers may double down if the aussie closes above 0.7060, putting the August high of 0.7130 in the crosshairs. As the RSI retraces into neutral territory, 0.6950 is a fresh level to expect follow-up bids.

Daily Pivots: (S1) 0.9991; (P) 1.0013; (R1) 1.0042; More....

Intraday bias in EUR/CHF stays mildly on the upside at this point. Rebound from 0.9873 is in progress for retesting 1.0095 resistance. On the downside, though, break of 0.9952 minor support will turn bias back to the downside to resume the correction to 38.2% retracement of 0.9407 to 1.0095 at 0.9832.

In the bigger picture, the initial rejection by 55 week EMA (now at 1.0039) mixed up the outlook. On the upside, sustained trading above 55 week EMA will raise the chance of bullish trend reversal. Rise form 0.9407 should then target 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484). However, firm break of 0.9832 support will revive medium term bearishness and bring retest of 0.9407 low instead.

Daily Pivots: (S1) 0.8752; (P) 0.8784; (R1) 0.8813; More...

EUR/GBP recovered to 0.8813 but quickly retreated. Intraday bias stays neutral first. On the downside, below 0.8720 will resume the fall from 0.8896 to 61.8% retracement of 0.8545 to 0.8896 at 0.8679. Sustained break there will pave the way back to retest 0.8545 low. On the upside, though, above 0.8813 will bring retest of 0.8896 resistance.

In the bigger picture, current development argues that rebound from 0.8545 is merely a correction to fall from 0.9267. Sustained trading below 55 day EMA (now at 0.8748) will affirm this bearish case and target 0.8545 and below. Nevertheless, strong rebound from current level will retain near term bullishness for another rise through 0.8896 later.

Daily Pivots: (S1) 1.5392; (P) 1.5517; (R1) 1.5592; More...

Intraday bias stays neutral in EUR/AUD first. While deeper fall cannot be ruled out, strong support could be seen from 38.2% retracement of 1.4281 to 1.5976 at 1.5329 to bring rebound. On the upside, above 1.5749 will resume the rise from 1.5376 for retesting 1.5976 high.

In the bigger picture, it's still early to confirm if rise from 1.4281 represents bullish trend reversal. But as long as 1.5271 support holds, such rally is in favor to continue. Break of 1.5976 will target 1.6434 key resistance next. On the other hand, firm break of 1.5271 will retain medium term bearishness instead.

Daily Pivots: (S1) 141.00; (P) 141.54; (R1) 142.61; More....

Intraday bias in EUR/JPY remains neutral as range trading continues. On the downside, break of 137.37 will resume the whole decline from 148.38 to 135.40 fibonacci level next. However, firm break of 142.84 will argue that the correction from 148.38 has completed, and bring stronger rise back to 146.71 resistance.

In the bigger picture, as long as 55 week EMA (now at 138.62) 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.

Daily Pivots: (S1) 160.83; (P) 161.32; (R1) 162.27; More...

Intraday bias in GBP/JPY is back on the upside with break of 161.51 resistance. Sustained trading above 55 day EMA (now at 162.09) should pave the way to 169.26/172.11 resistance zone. On the downside, though, below 159.17 minor support will turn intraday bias neutral again.

In the bigger picture, as long as 163.02 support turned resistance holds, decline from 172.11 medium term top is expected to continue to 38.2% retracement of 123.94 to 172.11 at 153.70. Sustained break there will raise the change of trend reversal and target 61.8% retracement at 142.34. Nevertheless, break of 163.02 support turned resistance will argue that the decline has completed, and retain medium term bullishness.