Sample Category Title

Daily Pivots: (S1) 0.8326; (P) 0.8371; (R1) 0.8457; More...

EUR/GBP's break of 0.8421 resistance indicates that a short term bottom is at least formed at 0.8282, just ahead of 0.8276 long term support. Intraday bias is back on the upside for 0.8598 structural resistance next. For now, risk will stay on the upside as long as 0.8282 support holds, even in case of deep retreat.

In the bigger picture, price actions from 0.9499 (2020 high) are still see a corrective pattern that should be contained by 0.8276 long term support. Bullish convergence condition in daily MACD and break of 55 day EMA raises the chance that it might be completed. Break of 0.8598 and sustained trading above 55 week EMA (now at 0.8578) should confirm this case and turn outlook bullish for 0.9499 high again. However, sustained break of 0.8276 will argue that the long term trend has reversed.

Daily Pivots: (S1) 1.5890; (P) 1.5965; (R1) 1.6097; More...

EUR/AUD's choppy rise from 1.5559 is still in progress and further rally should be seen to retest 1.6168 resistance first. Firm break there will target 1.6434 resistance next. However, on the downside, break of 1.5776 support will turn bias back to the downside for 1.5559 support instead.

In the bigger picture, rise from 1.5354 is seen as the third leg of the corrective pattern from 1.5250 low. Further rise cannot be ruled out, but even in that case, strong resistance should be seen at 38.2% retracement of 1.9799 to 1.5250 at 1.6988. Larger down trend from 1.9799 is in favor to extend through 1.5250 at a later stage.

Daily Pivots: (S1) 1.0427; (P) 1.0485; (R1) 1.0587; More....

EUR/CHF's rebound from 1.0298 accelerates to as high as 1.0548 so far. The strong break of 1.0510 resistance argues that a medium term bottom was already formed at 1.0298, on bullish convergence condition in daily MACD. Intraday bias is now on the upside for 38.2% retracement of 1.1149 to 1.0298 at 1.0623 first. Sustained trading above there will raise the chance of trend reversal and target 61.8% retracement at 1.0824 next. For now, further rise will remain in favor as long as 1.0439 minor support holds, in case of retreat.

In the bigger picture, current development suggests that a medium term bottom is formed at 1.0298 on bullish convergence condition in daily MACD. Rebound from there is still tentatively viewed part of a corrective pattern. That is, larger down trend from 1.2004 (2018) could still extend through 1.0298 to 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. However, sustained trading above 55 week EMA (now at 1.0671) will argue that the down trend is over, and bring stronger rise back to 1.1149 next.

Euro remains in the spotlight in Asian session, as post-ECB rally is extending. Dollar is particularly in pressure as markets are awaiting disappointment from non-farm payroll job data. Yen is currently the second weakest for the week, following the greenback. Aussie is the second strongest, next to Euro, followed by Kiwi. Focuses will turn to non-farm payroll report from the US today, and the reactions from stocks, yields and currencies.

Technically, EUR/GBP's break of 0.8421 resistance, as well as 55 day EMA, now raises the chance of major bottoming at 0.8282, just ahead of 0.8276 key long term support. Further rally should at least be seen towards 0.8598 resistance to have a test on it. EUR/CHF's break of 1.0510 resistance also indicates medium term bottoming at 1.0298. Now, focus will be on 1.1482 resistance in EUR/USD. Firm break there will align with the bullish outlook in Euro.

In Asia, at the time of writing, Nikkei is up 0.76%. Hong Kong HSI is up 3.18%. China is still on holiday. Singapore Strait Times is up 0.20%. Japan 10-year yield is up 0.0259 at 0.206, back above 0.2 handle! Overnight, DOW dropped -1.45%. S&P 500 dropped -2.44%. NASDAQ dropped -3.74%. 10-year yield rose 0.061 to 1.827.

Fed Barkin: Interest rates at pre-pandemic levels are place to reassess

Richmond Fed President Thomas Barkin in a Reuters interview, "it is a straightforward call to say we ought to get rates back into better position. It does not feel to me like there is enough information to say holy cow we have to restrain the economy right now."

Barkin added that the federal funds rate should be raised back to where it was just before the pandemic, that is, a range of 1.50-1.75%. "Pre-pandemic levels are the place to reassess. Where we were pre-pandemic was under every member of the (Federal Open Market Committee's) assessment of where neutral was," he said.

"Then we can look around and say do you want to then start to move into the range ... where we are starting to restrain?"

BoJ Kuroda: Hard to see inflation sustainably reach target without wages rise

BoJ Governor Haruhiko Kuroda told the parliament today that inflation remains subdued in Japan because of the delay in recovery from pandemic, the public's deflationary mindset and firms' assumption that prices won't rice much.

"In Japan, nominal wages haven't risen much. It's hard to see inflation sustainably reach our 2 per cent target unless wages rise in tandem with prices," he said.

"It's important to maintain powerful monetary easing to support the economy, and help generate steady wage and price growth."

Dollar index shaky as NFP might disappoint

US non-farm payroll report is a major focus today. Markets are expecting 150k job growth in January. Unemployment rate is expected to stay unchanged at 3.90%. Average hourly earnings are expected to grow 0.50% mom.

Looking at related economic data, ADP private job was a big disappointment with -301k losses. ISM manufacturing employment ticked up from 53.9 to 54.5. ISM services employment dropped from 54.9 to 52.3. Four-week moving average of initial jobless claims rose from 205k to 255k. All in all, there are prospects of downside surprise in today's NFP readings, except wages growth.

Dollar index had a steep decline this week, thanks to the strong rebound in EUR/USD. The question now is on whether long term fibonacci level of 61.8% retracement of 102.99 to 89.20 at 97.72 is too much for DXY to overcome. Sustained break of trend line support at around 95.00 will argue that a medium term top was formed at 97.44, on bearish divergence condition in daily MACD. In this case, DXY would likely drop through 94.62 towards 93.43 resistance turned support before finding a bottom. Reactions to today's NFP could guidance the direction for the rest of the quarter.

Elsewhere

New Zealand building permits rose 0.6% mom in December. RBA monetary policy statement reiterated that the central bank will be patient on interest rates.

Germany factory orders, France industrial output, UK construction PMI and Eurozone retail sales will be released in European session.

Later in the day, Canada will release employment data and Ivey PMI while US will release non-farm payroll employment.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.0427; (P) 1.0485; (R1) 1.0587; More....

EUR/CHF's rebound from 1.0298 accelerates to as high as 1.0548 so far. The strong break of 1.0510 resistance argues that a medium term bottom was already formed at 1.0298, on bullish convergence condition in daily MACD. Intraday bias is now on the upside for 38.2% retracement of 1.1149 to 1.0298 at 1.0623 first. Sustained trading above there will raise the chance of trend reversal and target 61.8% retracement at 1.0824 next. For now, further rise will remain in favor as long as 1.0439 minor support holds, in case of retreat.

In the bigger picture, current development suggests that a medium term bottom is formed at 1.0298 on bullish convergence condition in daily MACD. Rebound from there is still tentatively viewed part of a corrective pattern. That is, larger down trend from 1.2004 (2018) could still extend through 1.0298 to 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. However, sustained trading above 55 week EMA (now at 1.0671) will argue that the down trend is over, and bring stronger rise back to 1.1149 next.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
21:45	NZD	Building Permits M/M Dec	0.60%		0.60%
00:30	AUD	RBA Monetary Policy Statement
07:00	EUR	Germany Factory Orders M/M Dec		0.50%	3.70%
07:45	EUR	France Industrial Output M/M Dec		0.50%	-0.40%
09:30	GBP	Construction PMI Jan		54.3	54.3
10:00	EUR	Eurozone Retail Sales M/M Dec		-0.50%	1.00%
13:30	USD	Nonfarm Payrolls Jan		150K	199K
13:30	USD	Unemployment Rate Jan		3.90%	3.90%
13:30	USD	Average Hourly Earnings M/M Jan		0.50%	0.60%
13:30	CAD	Net Change in Employment Jan		-121.5K	54.7K
13:30	CAD	Unemployment Rate Jan		6.00%	5.90%
15:00	CAD	Ivey PMI Jan		55.1	45

DXY:

On the weekly, prices are on bullish momentum and abiding to our ascending trendline. We see potential for prices to bounce from our 1st support at 94.804 in line with 38.2% Fibonacci retracement and 50% Fibonacci retracement towards our 1st resistance at 97.354 in line with 61.8% Fibonacci retracement. Prices are trading above our ichimoku cloud support, further supporting our bullish bias.

On the daily, prices are on bearish momentum. We see potential for prices to dip from our 1st resistance at 95.265 which is a graphical overlap towards our 1st support at 94.495 in line with 38.2% Fibonacci retracement and 78.6% Fibonacci extension. RSI are at levels where dips previously occurred.

On the H4 timeframe, prices have reached a graphical overlap and on bullish momentum. We would expect a bounce from our 1st support at 95.249 in line with 100% Fibonacci extension and 23.6% Fibonacci retracement towards our 1st resistance at 96.251 in line with 50% Fibonacci retracement. RSI is at a level where bounces previously occurred and also ichimoku clouds are forecasting bullish momentum.

Areas of consideration:

• H4 time frame, 1st resistance at 96.251
• H4 time frame, 1st support at 95.249

XAU/USD (GOLD):

On the weekly, prices are consolidating in a triangle and have the potential to climb from our 1st support at 1813.845 which is a graphical overlap towards our 1st resistance at 1853.885 in line with 100% Fibonacci retracement. RSI is at levels where bounces previously occur.

On the daily, prices are consolidating in a triangle. We see potential for a bounce from our 1st support at 1806.42 in line with 38.2% Fibonacci retracement towards our 1st resistance at 1841.414 in line with 61.8% Fibonacci extension. Our bias is further supported by RSI at levels where bounces previously occurred.

On the H4 chart, prices areon bullish momentum and abiding to our ascending trendline support. We see potential for prices to bounce from our 1st support at 1805.545 towards our 1st resistance at 1810.814 in line with 61.8% Fibonacci extension. RSI are on bullish momentum.

Areas of consideration:

• 4h 1st support at 1805.545
• 4h 1st resistance at 1810.814

GBP/USD

On the weekly chart , price has recently bounced off the 1st support level of 1.31885 which is also 38.2% Fibonacci retracement and 61.8% Fibonacci projection. Price can potentially go to the 1st resistance level of 1.42498 which is also 100% Fibonacci projection and 50% Fibonacci retracement. Our bullish bias is supported by the ichimoku cloud indicator.

On the daily chart , price is abiding by a descending trendline and near the 1st resistance level of 1.36607 which is 78.6% Fibonacci retracement. Price can potentially dip to the 1st support level of 1.33598 which is also 61.8% Fibonacci projection and 78.6% Fibonacci retracement. Our bearish bias is supported by the stochastic indicator as it is near resistance level.

On the H4 chart, price is trading in an ascending channel and is near 1st resistance level of 1.36644 which is also 78.6% Fibonacci retracement. Price can potentially dip to the 1st support level of 1.34562 which is also 61.8% Fibonacci retracement and 61.8% Fibonacci projection. Our bearish bias is supported by a stochastic indicator as it is near resistance level.

Areas of consideration

• H4 1st support at 1.34562
• H4 1st resistance at 1.36644

USD/CHF:

On the weekly, prices are on bearish momentum and abiding to our descending trendline. We see the potential for a dip from our 1st resistance at 0.93206 in line with 78.6% Fibonacci extension towards our 1st support at 0.91845 in line with 61.8% Fibonacci retracement. RSI is showing bearish momentum. On the daily chart, prices are hovering in between 2 levels. We see the potential for a dip if prices approach our 1st resistance at 0.93720 in line with 100% Fibonacci extension towards our 1st support at 0.92713 which is a graphical overlap. RSI are at levels where dips previously occurred. Traders should wait for prices to swing higher or lower before entering.

On the H4 timeframe,price is abiding to the daily ascending channel signifying an overall bullish momentum. We can expect the price to bounce from 1st Support in line with 78.6% Fibonacci projection and 61.8% fibonacci retracement towards 1st Resistance in line with 61.8% Fibonacci projection and previous swing high. Our bullish bias is further supported by the RSI indicator where it is at the support level.

Areas of consideration:

• Watch 1st Support at 0.91750
• Watch 1st Resistance at 0.93175

EUR/USD :

On the weekly chart, price is near 1st resistance level of 1.14226 which is also 61.8% Fibonacci projection and 23.6% Fibonacci retracement. Price can potentially dip to the 1st support level of 1.06475 which is 78.6% Fibonacci projection. Our bearish bias is supported by the ichimoku cloud indicator as price is trading below it.

On the daily chart, price has broken out of the descending trendline and is near 1st resistance level of 1.14666 which is also 100% Fibonacci projection and 61.8% Fibonacci retracement. Price can potentially go to the 2nd resistance level of 1.16931 which is 50% retracement and 100% projection. Our bullish bias is supported by the ichimoku cloud indicator as price is trading above the cloud.

On the H4 chart , price is near the 1st resistance level of 1.14820 which is the graphical swing high. Price can potentially dip to the 1st support level of 1.13692 which is also 23.6% Fibonacci retracement and 127.2% Fibonacci projection. Our bearish bias is supported by the stochastic indicator as it is near resistance level,

Areas of consideration

• H4 1st support at 1.13692
• H4 1st resistance at 1.14820

USD/JPY

On the weekly chart, price has broken out of the descending channel and near support level of 112.500 which is also 23.6% Fibonacci retracement and 100% Fibonacci projection. Price can potentially go to the 1st resistance level of 118.677 which is also 78.6% Fibonacci retracement. Our bullish bias is supported by the ichimoku cloud indicator as price is trading above it.

On the daily chart price is trading in an ascending channel and is between 1st resistance of 116.257 which is also 127.2% Fibonacci retracement , 78.6% Fibonacci projection and 1st support of 113.484 which is also 100% Fibonacci projection and 78.6% Fibonacci retracement. Our bullish bias is supported by the ichimoku cloud indicator as price is trading above it.

On the H4 chart,in reference to yesterday’s analysis, price indeed bounced at 1st Support. Price is trading in an ascending channel signifying an overall bullish momentumWe can expect price to bounce from 1st Support in line with 78.6% Fibonacci retracement and 100% Fibonacci projection towards 1st Resistance in line with 78.6% FIbonacci projection and previous swing high. Our bullish bias is further supported by the stochastic indicator where the %K line is at the support level. Traders should wait for price to swing higher or lower before entering.

Areas of consideration:

• H4 1st support at 114.025
• H4 1st resistance at 115.598

AUD/USD:

On the weekly, price is abiding to the descending trendline resistance , signifying an overall bearish momentum. However, the price bounced up at the horizontal support. We can expect price to reach 1st Resistance in line with 50% Fibonacci retracement and 100% Fibonacci projection. Traders can wait for price to swing higher or lower before entering.

On the Daily timeframe, price is abiding to the descending trendline , signifying an overall bearish momentum. We can expect the price to drop from 1st Resistance in line with 50% Fibonacci retracement and 61.8% Fibonacci projection towards 1st Support in line with horizontal support and 61.8% Fibonacci projection.

On the H4 timeframe, price is abiding to the descending channel, signifying an overall bearish momentum. We can expect price to drop from 1st Resistance in line with 50% Fibonacci retracement towards 1st Support in line with previous swing low and 78.6% Fibonacci projection. Our bearish bias is further supported by the stochastic indicator where the %K line is at the resistance level.

Areas of consideration:

• H4 1st Support level 0.69865
• H4 1st resistance level 0.71734

NZD/USD:

On the weekly, prices are on bearish momentum and abiding to a bearish triangle. We see potential for a dip from 1st resistance at 0.67747 in line with 61.8% Fibonacci retracement towards 1st support at 50% Fibonacci retracement. RSI is on bearish momentum.

On the daily, prices are on bearish momentum and consolidating in a bearish triangle. We see potential for prices to dip from our 1st resistance at 0.67094 in line with 23.6% Fibonacci retracement towards our 1st support at 0.65336 in line with 161.8% Fibonacci projection. RSI is at levels where dips previously occurred.

On the H4 timeframe, prices are approaching a Pivot and are on bearish momentum. We see potential for prices to dip from our 1st resistance at 0.67096 in line with 100% Fibonacci extension and 50% Fibonacci retracement towards our 1st support at 0.65946 in line with 161.8% Fibonacci Projection. Our bias is further supported by the Ichimoku Clouds forecasting bearish momentum and also RSI at a level where dips usually occur.

Areas of consideration:

• H4 time frame, 1st resistance at 0.67096
• H4 time frame, 1st support at 0.65946

USD/CAD:

On the Weekly, with price expected to reverse off the stochastics indicator, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 1.29626 in line horizontal graphical overlap and 61.8% Fibonacci retracement towards 1st support in line with horizontal swing low support at 1.23427. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 1.33505. Traders should wait for prices to swing higher or lower before entering.

On the Daily, with price expected to break the ichimoku cloud, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 1.27690 in line horizontal graphical overlap and 61.8% Fibonacci retracement towards 1st support in line with horizontal overlap support ,50% Fibonacci retracement level at 1.26213. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 1.28643. Traders should wait for prices to swing higher or lower before entering.

On the H4, with prices moving above the ichimoku cloud, we see the potential for a bounce from our 1st support at 1.26490 in line with horizontal swing low support and 61.8% Fibonacci retracement towards our 1st resistance at 1.27966 in line with horizontal swing high resistance and 61.8% Fibonacci retracement. Alternatively, price may break 1st support structure and head for 2nd support at 1.25771, in line with 61.8% Fibonacci retracement and horizontal swing low support.

Areas of consideration:

• H4 time frame, 1st support at 1.26490
• H4 time frame, 1st resistance at 1.27966

OIL:

On the Weekly, with price expected to reverse off the stochastics indicator, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 92.95 in line horizontal swing high overlap and 127.2% Fibonacci extension towards 1st support in line with horizontal overlap support ,161.8% Fibonacci extension level at 86.84. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 99.62. Traders should wait for prices to swing higher or lower before entering.

On the Daily, with price expected to reverse off the stochastics indicator, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 92.14 in line horizontal swing high overlap and 127.2% Fibonacci extension towards 1st support in line with horizontal overlap support ,23.6% Fibonacci retracement level at 85.05. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 99.13. Traders should wait for prices to swing higher or lower before entering.

On the H4, with price expected to reverse off the stochastics indicator, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 91.56 in line horizontal graphical overlap and 78.6% Fibonacci retracement towards 1st support in line with horizontal overlap support ,61.8% Fibonacci retracement level at 88.13. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 92.79. Traders should wait for prices to swing higher or lower before entering.

Areas of consideration:

• H4 time frame, 1st resistance of 91.56
• H4 time frame, 1st support of 88.13

Dow Jones Industrial Average:

On the Weekly, with price moving above the ichimoku cloud, signifying an overall bullish momentum. We can expect price to rise to our 1st resistance at 36579 in line horizontal graphical swing high resistance and 161.8% Fibonacci extension from our 1st support in line with horizontal overlap support and 78.6% Fibonacci retracement level at 33753. Alternatively, price may break 1st support structure and head for 2nd support, which coincides with 127.2% Fibonacci extension level at 32286.

On the Daily, with price moving below the ichimoku cloud, signifying an overall bearish momentum. We can expect price to drop from our 1st resistance at 36452 in line horizontal graphical swing high resistance and 78.6% Fibonacci retracement towards 1st support in line with horizontal overlap support ,50% Fibonacci retracement level at 34737. Alternatively, price may break 1st resistance structure and head for 2nd resistance, which coincides with the horizontal swing high resistance at 36452. Traders should wait for prices to swing higher or lower before entering.

On the H4, with price moving above the ichimoku cloud, signifying an overall bullish momentum. We can expect price to rise to our 1st resistance at 35728 in line horizontal graphical swing high resistance and 78.6% Fibonacci retracement from our 1st support in line with horizontal overlap support and 23.6% Fibonacci retracement level at 35028. Alternatively, price may break 1st support structure and head for 2nd support, which coincides with 50% Fibonacci retracement level at 34430.

Areas of consideration:

• H4 time frame, 1st resistance of 35728
• H4 time frame, 1st support of 35028

US non-farm payroll report is a major focus today. Markets are expecting 150k job growth in January. Unemployment rate is expected to stay unchanged at 3.90%. Average hourly earnings are expected to grow 0.50% mom.

Looking at related economic data, ADP private job was a big disappointment with -301k losses. ISM manufacturing employment ticked up from 53.9 to 54.5. ISM services employment dropped from 54.9 to 52.3. Four-week moving average of initial jobless claims rose from 205k to 255k. All in all, there are prospects of downside surprise in today's NFP readings, except wages growth.

Dollar index had a steep decline this week, thanks to the strong rebound in EUR/USD. The question now is on whether long term fibonacci level of 61.8% retracement of 102.99 to 89.20 at 97.72 is too much for DXY to overcome.

Sustained break of trend line support at around 95.00 will argue that a medium term top was formed at 97.44, on bearish divergence condition in daily MACD. In this case, DXY would likely drop through 94.62 towards 93.43 resistance turned support before finding a bottom. Reactions to today's NFP could guidance the direction for the rest of the quarter.

BoJ Governor Haruhiko Kuroda told the parliament today that inflation remains subdued in Japan because of the delay in recovery from pandemic, the public's deflationary mindset and firms' assumption that prices won't rice much.

"In Japan, nominal wages haven't risen much. It's hard to see inflation sustainably reach our 2 per cent target unless wages rise in tandem with prices," he said.

"It's important to maintain powerful monetary easing to support the economy, and help generate steady wage and price growth."

Richmond Fed President Thomas Barkin in a Reuters interview, "it is a straightforward call to say we ought to get rates back into better position. It does not feel to me like there is enough information to say holy cow we have to restrain the economy right now."

Barkin added that the federal funds rate should be raised back to where it was just before the pandemic, that is, a range of 1.50-1.75%. "Pre-pandemic levels are the place to reassess. Where we were pre-pandemic was under every member of the (Federal Open Market Committee's) assessment of where neutral was," he said.

"Then we can look around and say do you want to then start to move into the range ... where we are starting to restrain?"

Key insights from the week that was.

The first week of February has been acutely focused on monetary policy, with last week’s US FOMC meeting followed by the RBA, BoE and ECB.

Beginning with the RBA, their February meeting was largely as expected, with asset purchases brought to an end and an assessment of the reinvestment of maturing bond proceeds scheduled for the May Board meeting. As outlined by Chief Economist Bill Evans after the decision, the RBA has revised down its growth view for 2022 and 2023 (from 5.5% and 2.5% to 4.25% and 2.0% respectively) as a result of the impact of omicron at the beginning of 2022 and arguably for 2023 given the market cash rate profile, an input for their forecasts, has lifted materially since November. Their view on underlying inflation has also been revised up materially to 3.25% in 2022 and 2.75% in 2023 as a result of the recent strength in prices seen globally. However, the Governor’s statement made clear the RBA’s view that while “inflation has picked up, it is too early to conclude that it is sustainably within the target band.”

This view stems from “uncertainties about the outlook for supply side problems” and as “it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target.” Governor Lowe delved deeper into these key themes in a subsequent speech to the National Press Club. Most notable for the policy outlook in the speech and Q&A is that Governor Lowe set out a more flexible approach to assessing wage pressures. Currently, their forecast for the Wage Price Index is 2.75% in 2022 and 3.00% in 2023, below the “3%+” guidance previously given as necessary for sustained ‘at target’ inflation. However, in this speech, he also made clear that the RBA recognised the WPI was slow moving and limited in the wage pressures it picks up – overlooking gains from bonuses and promotions. Chief Economist Bill Evans consequently discussed the significance of this broader assessment of wage pressures for the outlook for policy, affirming our call for a first move in August. Also called out in this piece is that the RBA does not see a need for a quick or aggressive policy pivot as is the case in the US. There, CPI inflation around 7.0%yr and wages growth above 4.0%yr justifies the four hikes (100bps of tightening) Westpac has forecast for 2022. This contrast to two hikes in Australia before year end, a cumulative 40bps.

Note, a full view of the RBA’s forecasts and their assessment of risks will be provided today in their February Statement on Monetary Policy. Westpac Economics’ own take on the domestic scene, global economy and financial markets will also be detailed in our latest edition of Market Outlook, which can be accessed through Westpac IQ.

Before moving offshore, a quick take on this week’s domestic data which has largely been focused on the consumer and housing. Housing finance approvals showed that delta related disruptions are now behind us, with total approvals up 4.4% in December and 11% since October’s delta lows to be 0.8% above the May 2021 peak. Owner-occupier demand remains the primary driver of loan growth and, combined with investors’ appetite, is continuing to push house prices higher, capital city home prices gaining 0.8% in January, 21%yr, according to CoreLogic. The dwelling approval data meanwhile remained noisy into year end, gaining 8.2% in December on the back of narrow strength in unit approvals. Looking through the month-to-month volatility, the existing pipeline of projects and delays related to COVID-19 is expected to see strength in construction through most of 2022, though growth will abate by year end. In addition to the bulletins on key data releases, this week also saw the release of Westpac Economics’ latest edition of the Red Book, our in-depth assessment of the Australian consumer.

Then to offshore. Firstly in New Zealand, the Q4 labour force survey re-enforced that the labour market remains very tight, with the unemployment rate falling to 3.2% in Q4, a new historic low back to 1986. At 0.8% in the quarter and 2.6%yr, wage gains are clearly robust, but not rapid, allowing the RBNZ to continue tightening at a measured pace. A full view of the New Zealand labour market and the implications was provided by our New Zealand economics team in their Q4 review.

Then to the main events of the global calendar, the Bank of England and ECB February meetings. Both proved more hawkish than the market had anticipated, the BoE most obviously so. The BoE Monetary Policy Committee was finely balanced 5-to-4 in favour of a 25bp hike to 0.50% instead of a 50bp move to 0.75%. The Committee also agreed to cease re-investment of the proceeds from maturing bonds, setting up the rundown of its balance sheet through 2022 and beyond. The franking of market pricing of a move up in the Bank Rate to around 1.50% by mid-2023 (1.00% in November) was also a vote of confidence in the economy’s strength and recognition that inflation and wage risks are increasing as the labour market continues to tighten. It is notable however that the press conference made clear the Committee has incorporate more persistent price pressures from energy than the market has priced and, despite this, inflation is seen back below target by the end of the forecast period at the beginning of 2025. On these forecasts, the Bank of England terminal rate will be below that of the FOMC after a similarly timed hiking cycle.

Finally to the ECB, while the outcome of their February meeting was as expected, the post-meeting communications caught the market by surprise. During the press conference, President Lagarde focused attention on recent upside surprises to inflation and that price pressures were likely to prove more persistent in 2022 than previously anticipated. Further, with respect to policy, President Lagarde noted that the “situation has changed” and hence there was need to carefully assess updated staff forecasts, due next ahead of the March meeting. Still, it remains the case that the ECB require inflation to be sustainably at target to justify a rate hike and, before a hike, asset purchases need to have ceased. To get a hike in 2022 will therefore require more concern over inflation and confidence in activity and financial conditions than was seen pre-pandemic. This seems unlikely.

Key Highlights

• USD/JPY started a decent increase from the 113.50 zone.
• It broke a crucial bearish trend line with resistance near 114.20 on the 4-hours chart.
• EUR/USD surged above 1.1350, and GBP/USD spiked above 1.3600.
• The US nonfarm payrolls could increase 150K in Jan 2022.

USD/JPY Technical Analysis

The US Dollar saw a major decline from the 116.35 zone against the Japanese Yen. USD/JPY traded below the 115.00 support to move into a bearish zone before the bulls appeared.

Looking at the 4-hours chart, the pair found support near the 113.50 zone. It seems like a double bottom pattern was formed near 113.50. The pair was able to climb above the 114.20 and 114.50 resistance levels.

There was also a break above a crucial bearish trend line with resistance near 114.20 on the same chart. The pair stabilized above the 114.50 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

An immediate resistance is near the 115.10 level. The first major resistance is near the 115.50 zone. A clear move above the 115.50 level might start a major increase in the coming sessions.

If there is no upside break above 115.50, the pair could start another decline. An immediate support is near the 114.50 level. The next major support is near the 114.10 level, below which the bears might aim a test of the 113.50 zone.

Fundamentally, the US ISM Services Index for Jan 2022 was released yesterday by the Institute for Supply Management (ISM). The market was looking for a decline from 62.0 to 59.5 in Jan 2022.

The actual result was near the forecast, as there was a drop in the US ISM Services Index to 59.9. The last reading was revised up from 62.0 to 62.3.

Looking at EUR/USD, the pair gained bullish momentum for a move above 1.1350. Similarly, GBP/USD was able to rally above the 1.3600 level.

Economic Releases

• US nonfarm payrolls for Jan 2022 – Forecast 150K, versus 199K previous.
• US Unemployment Rate for Jan 2022 - Forecast 3.9%, versus 3.9% previous.
• Canada’s Employment Change for Jan 2022– Forecast -117.5K, versus 54.7K previous.
• Canada’s Unemployment Rate for Jan 2022- Forecast 6.2%, versus 5.9% previous.