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EUR/USD is starting the final week of January with a decline towards 1.1320. The American currency is in demand due to investors’ interest in “safe haven” assets: the external background is looking rather pessimistic.

This week, market players will focus their attention on the US Fed session. It would be hard to overestimate the importance of this event. The entire financial world is expecting the American regulator to provide any hints at what the Fed is planning to do in March: raise the benchmark interest rate, announce the number of rate hikes in 2022, speak about the time of its balance reduction.

One may assume that in anticipation of the Fed’s comments and decisions investors will save their strengths and remain calm.

In the H4 chart, EUR/USD has finished another ascending wave at 1.1390; right now, it is correcting towards 1.1317 and may later form a new consolidation range near the lows. After that, the instrument may break the range to the upside and form one more ascending structure towards 1.1358 or even higher, to reach the first target at 1.1428. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving towards 0. After breaking this level, it may continue trading to reach new highs.

As we can see in the H1 chart, after completing the descending correction at 1.1317, EUR/USD is consolidating around this level. If later the price breaks this range to the upside, the market may form another ascending structure to break 1.1358. After that, the instrument may continue trading upwards with the short-term target at 1.1411. From the technical point of view, this idea is confirmed by the Stochastic Oscillator: after breaking 20, its signal line is growing to reach and break 50, thus boosting the price growth in the price chart.

Daily Pivots: (S1) 0.8332; (P) 0.8354; (R1) 0.8393; More...

EUR/GBP's break of 0.8377 resistance indicates short term bottoming at 0.8304, on bullish convergence condition in 4 hour MACD, ahead of 0.8276 low. Intraday bias is back on the upside for 55 day EMA (now at 0.8422). Sustained break there will pave the way back to 0.8598 key structural resistance next. For now, risk will be mildly on the upside as long as 0.8304 support holds, in case of retreat.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8598 resistance holds, towards long term support at 0.8276. We'd look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8598 will now be an early sign of medium term bottoming and bring stronger rebound. However, sustained break of 0.8276 will argue that the long term trend has reversed.

Daily Pivots: (S1) 1.1309; (P) 1.1335; (R1) 1.1368; More...

Intraday bias in EUR/USD remains neutral and outlook is unchanged. Price action from 1.1185 are seen as corrective move. Break of 1.1284 will argue that larger down trend from 1.2348 is ready to resume. Intraday bias will be back on the downside for retesting 1.1185 low first. Also, in case of another rise, upside should be limited by 38.2% retracement of 1.2265 to 1.1185 at 1.1598 eventually.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Daily Pivots: (S1) 1.3532; (P) 1.3567; (R1) 1.3589; More...

GBP/USD's break of 1.3489 support and 55 day EMA dampened our original bullish view. Rebound from 1.3158 is completed at 1.3748, and larger fall from 1.4282 is not over. Intraday bias is back on the downside for retesting 1.3158 low first. On the upside, though, above 1.3571 minor resistance will turn bias back to the upside for retesting 1.3748.

In the bigger picture, strong support was seen from 38.2% retracement of 1.1409 to 1.4248 at 1.3164. The development suggests that up trend from 1.1409 (2020 low) is still in progress. On resumption, next target will be 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Nevertheless sustained break of 1.3164 will argue that whole rise from 1.1409 has completed and bring deeper fall to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 0.9095; (P) 0.9134; (R1) 0.9161; More....

Range trading continues in USD/CHF and intraday bias remains neutral first. On the downside, firm break of 0.9084 support will argue that choppy rise from 0.8925 has completed. Fall from 0.9471 might be ready to resuming. Further decline would be seen back to 0.8925 support first. On the upside, above 0.9276 will target 0.9372 resistance instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

Daily Pivots: (S1) 113.49; (P) 113.82; (R1) 114.04; More...

Intraday bias in USD/JPY remains on the downside and outlook is unchanged. Considering bearish divergence condition in in daily MACD, it's probably already in correction to whole up trend from 102.58. Break of 113.47 will target 112.52 support first, and then 38.2% retracement of 102.58 to 116.34 at 111.08. For now, risk will stay on the downside as long as 115.05 resistance holds, in case of recovery.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high). Sustained break there will pave the way to 120.85 (2015 high) and raise the chance of long term up trend resumption. This will remain the favored case as long as 55 week EMA (now at 110.91) holds.

Daily Pivots: (S1) 1.2527; (P) 1.2558; (R1) 1.2616; More...

USD/CAD's rebound from 1.2448 extends higher today. Break of 1.2619 support argues that pull back from 1.2963 has completed with three waves down to 1.2448. Intraday bias stays on the upside for 1.2812 resistance first, and then 1.2963. On the downside, below 1.2553 minor support will mix up the near term outlook and turn intraday bias neutral.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend form 1.4667 and that carries larger bearish implications too.

Geopolitical tensions drive safe-haven demand

Fears of an imminent Russian-Ukrainian conflict rattled the markets on Monday after both the US and the UK have reportedly started to withdraw families from their embassies in Kiev. The increasing geopolitical tensions are driving the current risk-off sentiment, sending investors to seek refuge into the safety of gold and US Treasury bonds, with the yield of the 10-year benchmark moving lower on Monday.

Omicron weighs on Eurozone and UK growth

Eurozone’s services flash PMI reading for January slumped to a nine-month low amid ongoing covid-19 restrictions. On the bright side, the slight easing of supply chain disruptions has helped to bolster manufacturing activity in the currency union. Similarly, the consumer facing business activity in the UK has witnessed a significant slowdown due to the surging Omicron cases, with manufacturers also reporting further weakening in order book growth.

In the FX arena, the US dollar inched higher against a basket of currencies as investors braced for the upcoming FOMC meeting. Meanwhile, the euro and the British pound have witnessed significant losses against the greenback on Monday. However, the worst performer so far has been the Australian dollar, which slipped versus all of its major peers after the large flash PMI miss for January, attributed to ongoing pandemic-related restrictions distorting business activity.

US stocks to extend their decline

In Friday's trading session, the rout in US equities deepened as investors weighed corporate earnings results and geopolitical tensions in Eastern Europe. The S&P 500 and Nasdaq Composite fell by 1.9% and 2.7% respectively, logging their worst weekly drawdowns since March 2020. Defensive stocks such as utilities emerged as the undisputed winners over the past week as investors remain jittery about elevated valuations and the prospects of tighter monetary policy. Looking ahead, with pandemic darlings such as Netflix calling for slower future growth, the rotation towards value-oriented names is expected to persist.

Futures for the major US indices are pointing to further ‘pain’ on Monday. While the ongoing downturn of US stocks appears to be overextended, considering the recent drop of the 10-year benchmark yield from its recent highs, the current tensions in the Russian-Ukrainian border are buoying risk-off sentiment in the markets. Likewise, in Europe, the Stoxx 600 index is in negative territory, while Hong Kong’s Hang Seng index closed 1.24% lower after the region reported its highest covid-19 cases in the past 18 months, diminishing the chances for further economic reopening.

Meanwhile, oil inched lower at the time of writing despite the supply disruption fears amid the rising tensions in the Middle East between the UAE and Yemen’s Houthis which could make an already tight market even tighter at a period where OPEC is still struggling to raise output.

Daily Pivots: (S1) 0.7155; (P) 0.7193; (R1) 0.7213; More...

AUD/USD's break of 0.7128 support dampens our original bullish view and indicates that corrective rebound from 0.6992 has completed at 0.7313. Intraday bias is back on the downside for retesting 0.6991/2 support zone. Further break there will resume larger down trend from 0.8006, and carries larger bearish implication. Next target will be 100% projection of 0.7555 to 0.6992 from 0.7313 at 0.6750. For now, risk will stay on the downside as long as 0.7313 resistance holds, in case of recovery.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Swiss Franc, Dollar and Yen rise strongly today on risk-off sentiment as geopolitical tensions around Ukraine escalate. Aussie is currently the worst performing one, followed by Sterling and then Kiwi. Euro and Canadian are mixed. In the back ground, markets are also preparing for some hawkish comments from Fed later in the week to set the stage for the start of rate hike cycle in March. In other markets, cryptocurrencies are extending recent free fall. Silver weakens notably but Gold is steady. Oil is extending range trading.

Technically, AUD/USD's break of 0.7128 support suggests that recent choppy rebound from 0.6992 has completed at 0.7313. USD/CAD 's break of 1.2619 also indicate that fall from 1.2963 has completed at 1.2588. Even worse, NZD/USD has already resumed the choppy fall from 0.7463. It looks like sentiment will only get worse before getting better.

In Europe, at the time of writing, FTSE is down -1.37%. DAX is down -2.16%. CAC is down -2.16%. Germany 10-year yield is down -0.025 at -0.089. Earlier in Asia, Nikkei rose 0.24%. Hong Kong HSI dropped -1.24%. China Shanghai SSE rose 0.04%. Singapore Strait Times dropped -0.35%. Japan 10-year JGB yield rose 0.0027 to 0.139.

UK PMIs: Consumer facing businesses hit hard, but others encouragingly robust

UK PMI manufacturing dropped form 57.9 to 56.9 in January, below expectation of 57.9. PMI Services ticked down from 53.6 to 53.3, well below expectation of 55.0. PMI Composite dropped from 53.6 to 53.4. All three indexes were at their 11-month low.

Chris Williamson, Chief Business Economist at IHS Markit, said: "A resilient rate of economic growth in the UK during January masks wide variations across different sectors. Consumer-facing businesses have been hit hard by Omicron and manufactures have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust."

Eurozone PMI composite dropped to 11-mth low at 52.4

Eurozone PMI Manufacturing rose from 58.0 to 59.0 in January, above expectation of 57.5, a 5-month high. PMI Services dropped from 53.1 to 51.2, below expectation of 52.2, 1 9-month low. PMI Composite dropped from 53.3 to 52.4, a 11-month low.

Chris Williamson, Chief Business Economist at IHS Markit said: "The Omicron wave has led to yet another steep drop in spending on many consumer-facing services at the start of the year, with tourism, travel and recreation especially hard hit. However, so far the overall impact on the wider economy appears relatively muted, and most encouraging is the further easing of manufacturing supply chain delays despite the renewed virus wave. Not only has the alleviating supply crunch helped factories boost production, but cost pressures in manufacturing have also moderated.

Germany PMI composite jumped to 54.3, surprisingly resilient performance

Germany PMI Manufacturing rose from 57.4 to 60.5 in January, above expectation of 57.0, a 5-month high. PMI Services also rose from 48.7 to 52.2, above expectation of 48.0. PMI Composite rose form 49.9 to 54.3, a 4-month high.

Phil Smith, Economics Associate Director, at IHS Markit said: "January's flash PMI numbers came in comfortably above consensus to show a surprisingly resilient performance from the German economy at the start of the year... Manufacturing is expected to stage a recovery in 2022 as supply bottlenecks ease... January's services numbers, showing activity recovering slightly after the decline at the end of last year, were another positive surprise... Still, rising costs remain a concern for businesses, with the survey data showing that input prices are continuing to rise sharply and on multiple fronts."

Bundesbank: Germany inflation to remain extraordinarily high at 2022 beginning

Bundesbank said in the monthly report that real GDP grew by 2.7% in 2021, not enough to compensate the -4.50% contraction in 2020. It added, "setbacks caused by the pandemic and bottlenecks on the supply side dampened the recovery in the past year."

Overall, prices was at an above-average rate of 3.2% in 2021. The factors driving up inflation are "also having an effect into the new year." Bundesbank added, "the rate at the beginning of 2022 is likely to remain extraordinarily high....In addition, due to the significant rise in market quotations for natural gas, the corresponding end customer tariffs will be raised significantly."

France PMI composite dropped to 52.7, a 9-month low

France PMI Manufacturing ticked down from 55.6 to 55.5 in January, matched expectations. PMI Services dropped notably from 57.0 to 53.1, below expectation of 55.3, a 9-month low. PMI Composite dropped from 55.8 to 52.7, a 9-month low too.

Joe Hayes, Senior Economist at IHS Markit said: "Given the surging number of daily COVID-19 cases we've seen in France, it's no surprise to see softer PMI numbers in January.... Supply chain issues continue to impact the economy, particularly manufacturers, but we do appear to have seen the worst as delivery times lengthened to a far weaker extent than seen during much of 2021. That being said, the inflationary side effects remain in play and are being exacerbated by rising staff costs and energy prices."

Japan PMI manufacturing ticked up to 54.6, services tumbled to 46.6

Japan PMI Manufacturing ticked up from 54.3 to 54.6 in January, below expectation of 55.0. PMI Services dropped sharply from 52.1 to 46.6. PMI Composite also dropped from 52.5 to 48.8.

Usamah Bhatti, Economist at IHS Markit, said: "Flash PMI data indicated that activity at Japanese private sector businesses dipped into contraction territory for the first time in four months at the start of 2022. The pace of decline was modest, and led by the sharpest fall in services activity since August, while manufacturers commented on a slight quickening in output growth."

Australia PMI composite dropped to 45.3, slipped from strong recovery to contraction

Australia PMI Manufacturing dropped from 57.7 to 55.3 in January. PMI Services tumbled sharply from 55.1 to 45.0. PMI Composite also dropped from 54.9 to 45.3, first contraction follow three months of growth. All are at their 5-month low.

Jingyi Pan, Economics Associate Director at IHS Markit, said: "The Australian economy had slipped from a state of strong recovery in end-2021 to being affected by the surge in COVID-19 infections at the start of 2022... Supply issues meanwhile remained prevalent... This had led to input price inflation worsening Employment levels were unchanged."

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.7155; (P) 0.7193; (R1) 0.7213; More...

AUD/USD's break of 0.7128 support dampens our original bullish view and indicates that corrective rebound from 0.6992 has completed at 0.7313. Intraday bias is back on the downside for retesting 0.6991/2 support zone. Further break there will resume larger down trend from 0.8006, and carries larger bearish implication. Next target will be 100% projection of 0.7555 to 0.6992 from 0.7313 at 0.6750. For now, risk will stay on the downside as long as 0.7313 resistance holds, in case of recovery.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

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