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Australia Westpac-MI leading index dropped from -0.84% to -0.92% in November. Growth rate was, thus, in negative territory for the fourth consecutive month. The data is consistent with below trend growth well into 2023. Drivers of weakness are the RBA interest rate and commodity prices.

Westpac expects another 25bps rate hike by RBA in February, "give the outlook for wages; inflation and economic growth". It expects wages and inflation challenges to persist through early months of 2023, requiring "further increase of 25bps in both March and May.

Full release here.

Ranil Salgado, the IMF's mission chief to Japan, said that "with uncertainty around the inflation outlook, the Bank of Japan's adjustment of yield curve control settings is a sensible step including given concerns about bond market functioning."

"Providing clearer communications on the conditions for adjusting the monetary policy framework would help anchor market expectations and strengthen the credibility of the Bank of Japan's commitment to achieve its inflation target," he said.

BoJ announced to raise the cap on 10-year JGB yield from 0.25% to 0.50% yesterday, to " correct distortions in the yield curve".

Cycle from 10.13.2022 low in FTSE ended at 7600.11 on 12.1.2022 as wave (1). Subdivision of wave (1) unfolded as a 5 waves impulse structure. Up from 10.13.2020 low, wave 1 ended at 7017.4 and pullback in wave 2 ended at 6864.13. The Index extends higher again in wave 3 towards 7498.34, and pullback in wave 4 ended at 7420. Final leg wave 5 ended at 7599.70 which completed wave (1).

Wave (2) pullback is currently in progress as a zigzag Elliott Wave structure. Down from wave (1), wave (i) ended at 7429 and rally in wave (ii) ended at 7553.36. Index extends lower in wave (iii) towards 7305.72, rally in wave (iv) ended at 7385.38 and final leg lower wave (v) ended at 7302.82. This completed wave ((i)) of A. Index should now rally in wave ((ii)) of A to correct cycle from 12.1.2022 high before the decline resumes. Subdivision of wave ((ii)) is proposed to be in a zigzag in lesser degree. Up from wave ((i)), first leg wave (a) ended at 7389.92. Expect Index to pullback in wave (b), then extends higher again in wave (c) to complete wave ((ii)) before the decline resumes. Near term, as far as pivot at 7500.11 high stays intact, expect rally to fail in 3, 7, or 11 swing for further downside.
FTSE 60 Minutes Elliott Wave Chart

The latest stats on personal income and spending, as well as the all-important PCE inflation figures will hit the markets on Friday before traders abandon their desks for the long holiday weekend. The data could set the tone until the end of the year, with a negative surprise in the Fed’s favourite price indicator potentially boosting risk assets as investors continue to question the steepness of policymakers’ projected rate path. The US dollar, however, would be in danger of further erasing its year-to-date gains in such a scenario.

Inflationary pressures are easing 

Inflation by all measures in the United States appears to have finally entered a downward phase, including the core PCE price index, which the Fed puts more weight on for achieving its price stability goal. However, it’s probably also accurate to describe this turnaround as still being in its ‘infancy’. Moreover, with the annual growth in both the headline and core rates so elevated far above the 2% target, the Fed is not about to go easy with its tightening campaign.

But markets no longer seem to be ‘buying’ the Fed’s latest hawkish rhetoric, not so much because they don’t believe its resolve to tame inflation, but because they fear that the current path is already too aggressive and will push the US economy into recession, forcing a policy reversal. Should Friday’s set of numbers follow the recent trend and be on the soft side, investors are likely to be emboldened in their belief that the Fed will be compelled to begin cutting rates in the second half of 2023.

Hopes for further moderation in core PCE

According to the forecasts, there shouldn’t be any upticks in the incoming data. The core PCE price index is expected to have risen by 0.2% month-on-month in November, bringing the annual rate down to 4.7% from 5.0% in the prior month.

Looking at the personal income and spending numbers, the former likely expanded by 0.3% m/m, decelerating from 0.7% in October, while consumption is also expected to have slowed over the month, rising by 0.2% versus a prior 0.8% gain.

Other data will include durable goods orders, which are forecast to have dropped by 0.6% m/m during November after increasing by 1.1% previously.

Dollar at risk of suffering further losses

The US dollar could face renewed downside pressure if the figures are overall underwhelming or even badly miss expectations. Against the euro, the greenback could weaken towards levels last seen in late May.

At the moment, the euro is hovering around the $1.06 mark as it consolidates after hitting a six-month peak of $1.0735 last week. A leap towards the $1.0790-$1.0800 resistance area is possible if the data disappoint. The uptrend could extend further, towards $1.0945, which is the 50% Fibonacci retracement of the January 2021-September 2022 downtrend, should the core PCE print substantially fall short of the estimates.

However, with markets already on edge about how far the Fed will go in raising interest rates, any positive surprises in the PCE inflation readings might revive dollar bulls, pushing the euro lower towards its 200-day moving average around $1.0340.

Limited upside for the dollar

It’s important to note here, though, that even if the dollar were to get a short-term boost from a strong batch of data, it’s longer-term bullish outlook is increasingly under question. The Fed has potentially reached peak hawkishness, while some other major central banks may continue to hike rates well after the Fed pauses.

In addition, markets are less hopeful that the Fed will be able to achieve a soft landing for the US economy. Hence, the dollar appears to be losing some of the advantages that gave it the upper hand for much of 2021 and 2022.

Key Highlights

• Gold price started a fresh increase above the $1,780 resistance.
• A major bullish trend line is forming with support near $1,785 on the 4-hours chart.
• USD/JPY declined heavily and the Japanese yen gained against most its peers.
• Canada’s CPI could increase 7.4% in Nov 2022 (YoY), up from 6.9%.

Gold Price Technical Analysis

Gold price formed a base above the $1,770 level against the US Dollar. The price started a steady increase above the $1,778 and $1,780 levels.

The 4-hours chart of XAU/USD indicates that the price gained pace above the $1,785 resistance zone. The price even moved above the $1,800 level and settled well above the 100 simple moving average (red, 4-hours) plus the 200 simple moving average (green, 4-hours).

There was a clear move above the 50% Fib retracement level of the downward move from the $1,824 swing high to $1,773 low. On the upside, the price might face sellers near the $1,812 level.

The next major resistance is near the $1,825 level. Any more gains might send the price towards the $1,840 resistance level, above which gold price might revisit the $1,850 resistance.

On the downside, an initial support is near the $1,790 level. There is also a major bullish trend line forming with support near $1,785 on the same chart.

The next major support is near the $1,780 level. The main support is near $1,772, below which gold price might struggle to stay above the $1,760 zone.

Looking at USD/JPY, there was a sharp decline below the 135.00 support and it seems like the Japanese yen buyers are aiming more downsides in the near term.

Economic Releases to Watch Today

• Canadian Consumer Price Index for Nov 2022 (MoM) – Forecast +0.4%, versus +0.7% previous.
• Canadian Consumer Price Index for Nov 2022 (YoY) – Forecast +7.4%, versus +6.9% previous.
• US Existing Home Sales for Nov 2022 (MoM) - Forecast 0%, versus -5.9% previous.

In this technical blog, we will look at the past performance of the 1-hour Elliott Wave Charts of USDCAD. In, the rally from 15 November 2022 low unfolded in a corrective sequence but provided an extreme trading opportunity. In this case, the pullback managed to reach the equal legs area & provided a buying opportunity. So, we advised members not to sell it but to buy the equal legs area for a minimum reaction higher to happen. We will explain the structure & forecast below:

USDCAD 1-Hour Elliott Wave Chart From 12.13.2022

Here’s the Elliott wave Chart from the 12/13/2022 Asia update. In which, the rally to $1.3700 high ended the wave (W) & made a pullback in wave (X). The internals of that pullback unfolded as Elliott wave flat structure where wave A ended at $1.3558 low. Then a bounce to $1.3691 high ended wave B & started the next leg lower in wave C towards $1.3549- $1.3461 equal legs area. From there, buyers were expected to appear looking for new highs ideally or for a 3-wave bounce minimum.

USDCAD 1-Hour Elliott Wave Chart From 12.17.2022

Above is the Elliott wave Chart from the 12/17/2022 Weekend update. In which the pair is showing a reaction higher taking place from the equal legs area. Right after ending the zigzag correction. Allowed members to create a risk-free position shortly after taking a long position. Since then the pair has managed to make a new high above $1.3700 high confirming the next extension higher.

• NZDCAD reversed from major resistance level 0.8760
• Likely to fall to support level 0.8500

NZDCAD recently reversed down from the major resistance level 0.8760 (which has been reversing the pair from last December, as can be seen below).

The downward reversal from the resistance level 0.8760 started the active short-term correction 4.

NZDCAD can be expected to fall further toward the next support level 0.8500 (forecast price for the completion of the active short-term correction 4).

The Australian dollar has posted sharp losses on Tuesday.  AUD/USD is trading at 0.6647 in the North American session, down 0.77%.

Minutes – RBA considered pause

The markets were hoping that the RBA minutes would provide clues as to when the RBA might wind up its tightening cycle, and the RBA appeared to deliver the goods. The minutes indicated that the central bank considered pausing its tightening in December, although in the end board members voted for a third-straight hike of 25 basis points. This marked the first time since the tightening cycle started in May that board members made a case for no change and indicates that the current cycle may be close to its end. The minutes noted that according to the Bank’s forecasts, inflation would not return to the 2% to 3% target for several years, and members also stated that no other central bank had yet paused.

The RBA is being careful not to show its hand, with the minutes stating that there was “considerable uncertainty” in the economic outlook and that rate hikes were “not on a pre-set path”. With the next rate meeting not until late February, it’s wait-and-see time for the RBA. Inflation remains the RBA’s number one priority, but policy makers are aware of the pain that high inflation and rising interest rates are causing to businesses and households. The RBA would love to pause, but it will need to first see evidence that inflation is definitely on the way down. If the RBA ends tightening too early, there is the danger of a price-wage spiral, which would greatly complicate the battle against inflation.

AUD/USD Technical

• AUD/USD has support at 0.6611 and 0.6535
• There is resistance at 0.6752 and 0.6828

Daily Pivots: (S1) 1.0569; (P) 1.0614; (R1) 1.0651; More...

Intraday bias in EUR/USD stays neutral and outlook is unchanged. Further rally is expected as long as 1.0481 resistance turned support holds. Firm break of 61.8% projection of 0.9729 to 1.0481 from 1.0289 at 1.0754 will pave the way to 100% projection at 1.1041. However, firm break of 1.0481 will confirm short term topping and bring deeper fall to 1.0289 support.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.