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Daily Pivots: (S1) 1.5506; (P) 1.5539; (R1) 1.5592; More...

Intraday bias in EUR/AUD remains neutral and outlook is unchanged. Another fall cannot be ruled out, but strong support could be seen from 38.2% retracement of 1.4281 to 1.5976 at 1.5329 to complete the correction from 1.5976. Firm break of 1.5614 minor resistance will turn bias back to the upside for retesting 1.5976. However, sustained trading below 1.5329 will carry larger bearish implication and target 61.8% retracement at 1.4928.

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) 1.0001; (P) 1.0023; (R1) 1.0047; More....

EUR/CHF is staying in consolidation below 1.0095 and intraday bias remains neutral. Downside of retreat should be contained by 0.9953 resistance turned support to bring another rally. On the upside, break of 1.0095 will resume the rise to 100% projection of 0.9407 to 0.9953 from 0.9720 at 1.0266 next.

In the bigger picture, break of 38.2% retracement of 1.1149 to 0.9407 at 1.0072 and 55 week EMA (now at 1.0041) is taken as an initial sign of long term bullish reversal. Further rally is expected as long as 55 days EMA (now at 0.9866) holds. Next target is 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484). Reactions from there should reveal long term momentum.

European stocks kick off the week on last week’s positive vibes, adding more gains to their best ever start to a year.

But sentiment in Asia was mixed; futures point at bearish start.

On the data front, China grew 3%, well below the government’s 5.5% target last year, but the Q4 rebound was well above market expectations. Retail sales contracted significantly less than expected as well, while unemployment unexpectedly fell.

Could the European stock rally extend? 

The DAX extended its advance above the 15000 mark, to the fresh highs since before the war in Ukraine started.

And the French CAC40 took over the 7000 resistance, and is only around 4% below the 2022 peak.

The recovery in European stocks is impressive, and coincides with the rebound of the euro against the US dollar since end of September – which makes the energy and raw material costs more affordable for European companies, and boosted by a mild start to the winter, which gave a broad comfort to the Europeans that the energy shortage will certainly not be on this winter’s agenda.

Could the European stock rally persist? It depends.

We expect a further recovery in the EURUSD throughout this year, but the looming interest rate hikes in Europe, and the base-case scenario that energy and raw material costs will rally – due to the Chinese reopening, hint that the recovery could meet some obstacles along the way.

And the rally in material costs is also not a given, as fear of global recession could also hinder rally at this end. In this sense, we see that oil prices have hard time picking up upside momentum since the China reopening news. The barrel of US crude is now above the 50-DMA for the third day, but appetite above the $80 level is decidedly limited.

Copper futures also took a 2% dive yesterday, as recession was the major topic in WEF.

Anyway, recession expectations – per se – are not bad news for the markets. Decline in profit expectations, as a result of recession, is. So, all eyes are on corporate earnings!

In the FX 

The US dollar was better bid yesterday, but the price recoveries in the dollar could be interesting opportunities to sell the tops, as the dollar is set to give back last year’s gains against most majors, due to the softening Fed expectations, that come along with the recession worries.

The dollar-yen, where some interesting FX action is expected to happen this week, is steady-ish around the 128 mark, with JPY bulls waiting in ambush to push the pair lower in case we hear a hawkish development from the Bank of Japan (BoJ) due tomorrow.

Elsewhere, the Canadian inflation – due today, is expected to have eased 0.5% month-on-month in December. A soft inflation read could weigh on the Loonie in the shorter run, but the USDCAD should continue trending lower on the back of a broadly softer US dollar, and a potential recovery in oil prices.

In December, UK payrolled employment rose 28k or 0.1% mom to 29.9m. That's a rise of 2.3% yoy or 676k over the 12-month period. ONS also noted that the number employees were rising in line with pre-pandemic trends. Median monthly pay rose 7.7% yoy to GBP 2194. Claimant count rose 19.7k.

In the three months November, unemployment rate was at 3.7%, 0.2% points higher than the previous three-month period, but 0.3% below pre-pandemic levels. Employment rate was unchanged at 75.6%. Economic inactivity rate was down -0.1% to 21.5%. Both average earnings including bonus and excluding bonus rose 6.4% 3moy.

Full release here.

Market movers today

Today's key data release will be the ZEW index from Germany. It will be interesting to see whether the recent rebound in leading indicators persists into Q1, which would give us a signal that recession in Europe could actually be milder and shorter than we have previously anticipated. We also get final December CPI figures from Germany.

In the UK, labour market data out today will together with inflation figures (out tomorrow) be of large interest ahead of the BoE meeting in the beginning of February. Wage growth is expected to take another step up to 6.2% y/y compared to 6.1% y/y in October and add further pressure on the BoE that in their November projections estimated wage growth at 5.75% during Q4. Unemployment rate out at the same time is estimated to be unchanged at 3.7%. Our forecast is for a 25 basis hike in February but higher wage growth and/or inflation figures could bring a March hike into play.

On central bank front, we have ECB's Centeno and Müller on the wires in the morning, while Fed's Williams will give a speech in the evening European time.

Overnight, we will get rate decision by the Bank of Japan. Consensus expects no changes in monetary policy, but after December's surprise move to expand the band for the 10-year yield target from +-25bp to +-50bp, a similar decision would not be as shocking this time. The markets are pricing in the first rate hike by summer.

The 60 second overview

China: GDP in China grew 3% last year, topping consensus expectations of a 2.7% growth but falling short of the initial government target of 5.5%. Despite stalling in the last quarter (0.0% q/q) economic performance was better than expected (-1.1% q/q). On a year-on-year basis, GDP grew 2.9% compared to consensus expectations of 1.6%. Activity was weak in December but not as bad as feared. Industrial output grew 1.3% from previous year (cons. 0.1%) while retail sales shrank 1.8% compared to a predicted decline of 9.0%. Fixed asset investment increased by 5.1% y/y, slightly better than expected, and the urban jobless rate unexpectedly fell to 5.5% from 5.7% in November. All in all, the data implies a solid starting point for the economy in 2023, and we expect activity to rebound in February-March once the epidemic has peaked.

Longer term, the Chinese economy faces some of the same challenges that most western economies do. While last year's GDP print was the second weakest since the 1970s, the local demographics also give reason for concern. According to the NBS, last year, the Chinese population shrank for the first time in six decades. In future, slower population growth implies shrinking labour force, weaker growth in domestic demand and rising pressure on the country's pension system. Many businesses are already re-assessing their risks and exposure to China from a geopolitical perspective, and aging of the Chinese population adds to these considerations. In an era of rising geopolitical tensions and growing shortages of skilled labour, outsourcing is not necessarily the similar low hanging fruit as it used to be.

FI: It was a relatively quiet day in European rates markets yesterday with US closed. European yields ended marginally higher. Bund spreads remained stable after the 2bp tightening on Friday to 58bp. 10y German yields stand at 2.17%.

FX: Yesterday was relatively quiet, as the US was out for holiday. Over night we have seen strong macro data out of China, but thus far the market reaction has been rather muted. We are also seeing broad-based, albeit limited yen weakening in anticipation of tomorrow's BoJ meeting. EUR/USD is unchanged on the day, but Scandies are somewhat weaker compared to where we started the week.

Credit: The primary Credit market in Europe got off to another good start this week with new issues exceeding EUR8bn in total on Monday. iTraxx Xover was flat at 415bp and Main was also unchanged at 79bp.

Daily Pivots: (S1) 1.0791; (P) 1.0833; (R1) 1.0863; More...

Intraday bias in EUR/USD remains neutral for consolidation below 1.0874 temporary top. Further rally is expected as long as 1.0482 support holds. On the upside, break of 1.0873 will resume larger rally from 0.9534 to 61.8% projection of 0.9630 to 1.0733 from 1.0482 at 1.1164 next.

In the bigger picture, current development suggests that the rally from 0.9534 low (2022 low) is a medium term up trend rather than a correction. Further rally is in favor to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the favored case as long as 1.0482 support holds.

Daily Pivots: (S1) 1.2150; (P) 1.2219; (R1) 1.2267; More...

Intraday bias in GBP/USD remains neutral for the moment. On the upside, above 1.2288 will resume the rebound from 1.1840 to retest 1.2445 high. Decisive break there will resume whole rally from 1.0351 to 1.2759 fibonacci level. On the downside, break of 1.2086 minor support will turn intraday bias back to the downside for 1.1840 support instead.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Daily Pivots: (S1) 0.9225; (P) 0.9257; (R1) 0.9295; More...

Range trading continues in USD/CHF and intraday bias remains neutral first. Outlook stays bearish as long as 0.9407 resistance holds. Break of 0.9165 will resume whole fall from 1.0146. However, firm break of 0.9407 will turn bias back to the upside for stronger rebound.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 should be a medium term down trend itself. Next target is a test on 0.8756 low. Strong support should be seen there to bring rebound. Still, further decline will now be expected as long as 0.9407 resistance holds, in any case.

Daily Pivots: (S1) 127.54; (P) 128.21; (R1) 129.18; More...

Intraday bias in USD/JPY stays neutral for consolidation above 127.20. Further decline will remains in favor as long as 134.76 resistance holds. Break of 127.20 will resume the fall from 151.93 to 121.43 fibonacci level next. Nevertheless, firm break of 134.76 will confirm short term bottoming and turn bias back to the upside.

In the bigger picture, the firm break of 55 week EMA (now at 131.59) raises the chance of medium term bearish reversal, but that's not confirmed yet. Strong support could be seen around 61.8% retracement of 102.58 to 151.93 at 121.43 and 38.2% retracement of 38.2% retracement of 75.56 to 151.93 at 122.75 to bring rebound. But break of 134.76 resistance is needed to indicate bottoming first. Otherwise further fall will remain in favor.

Daily Pivots: (S1) 0.6924; (P) 0.6972; (R1) 0.7002; More...

A temporary top was formed at 0.7018 with current retreat. Intraday bias in AUD/USD is turned neutral for consolidations first. But outlook will stay bullish as long as 0.6721 support holds. Break of 0.7018 will resume larger rise from 0.6169 to 61.8% projection of 0.6169 to 0.6892 from 0.6721 at 0.7168.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.7304. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.