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The S&P 500 extended losses over rising rate worries. The fall below 4640 invalidates the latest rebound and indicates that sentiment is still downbeat.

Below the psychological level of 4600, 4540 is key support near last December’s lows on the daily chart. A bearish breakout would trigger a deeper correction towards 4400, the origin of the October rally.

An oversold RSI may cause a limited rebound. Nonetheless, the bulls need to clear offers around 4675 and then 4745 to gain momentum.

The yen softened after the Bank of Japan signaled no shift in its ultra-loose monetary policy. The US dollar bounced off the critical floor at 113.50 from the daily chart.

A bullish RSI divergence revealed a deceleration in the downward impetus. The indicator’s oversold situation also attracted a number of bargain hunters.

A break above 114.70 suggests a strong interest in keeping the correction in check. 115.50 from the latest sell-off is a major hurdle and its breach could extend the rally to the recent peak at 116.30.

The sterling fell back after a slowdown in Britain’s wage growth in November. Sentiment favors the pound after it rallied above the daily resistance at 1.3700.

However, an overbought RSI has cut back buyers’ appetite. A break below 1.3630 has prompted some traders to take profit, driving down the price.

As the RSI dips into the oversold zone, 1.3570 is the next support. A bearish breakout would send the pair to 1.3480 which sits on the 30-day moving average. 1.3660 is the immediate resistance when a rebound takes shape.

Silver's rebound from 21.39 resumed by breaking through 23.42 and hitting as high as 23.63 so far. Further rise is now in favor as long as 22.79 support holds. Next target is 100% projection of 21.39 to 23.42 from 21.93 at 23.90.

The main question is still on whether corrective pattern from 30.07 has completed as a five-wave descending triangle at 21.39. Break of 23.90 projection level will affirm the bullish case. Upside acceleration could then follow to 161.8% projection at 25.21, which is close to 25.39.

However, rejection by 21.39 will keep the rebound from 21.39 corrective and maintain medium term bearishness.

EUR/USD

Yesterday, the pair continued to lose ground against the U.S. dollar, reaching the support at 1.1320. It seems that the bears have started to lose momentum and, at the time of writing, the price is hovering around the mentioned support. The forecast for today’s trading session is for the pair to rebound from this support and to be traded in the range between 1.1320 – 1.1360. On the other hand, the downward movement may be expected to continue, but only in case the bears manage to violate the support at 1.1320. If this happens, then the pair may head towards the critical support at 1.1272. The data on the building permits for the U.S., which is to be announced today at 13:30 GMT, is expected to cause a spike in volatility.

USD/JPY

After the pair rebounded from the resistance at 115.00, the bears couldn’t gain enough momentum to test the support at 114.28. A possible scenario for today’s trading session is for the bulls to try to reclaim their control over the market and to attack the resistance at 115.00. In case the mentioned level is successfully violated, then this would pave the way for the pair towards the next resistance at 115.63. In the opposite direction, the first important support can be found at 114.28.

GBP/USD

The current situation for the pair is similar to that of the EUR/USD. The market sentiment remains negative and the sell-offs may deepen, heading the pair towards the zone of 1.3555 – 1.3507. However, the bulls may try to intervene and limit the sell-offs, so a short-term correction towards 1.3650, before the confirmation of a potential downward movement, is not to be excluded.

EUGERMANY40

During yesterday’s trading session, the German index recorded significant losses and fell 1.76%. However, the bulls managed to enter the market and this led to a fake breach of the support at 15711. Afterwards, the index started consolidating in the narrow range of 15711 – 15835. After reaching record values in the last months, it seems that the bulls have started losing their positions and the sell-offs may deepen, which could lead to a reversal of the long-term uptrend. A confirmed breach of the critical support at 15711 that is coming from the higher time frames would signal for a further impulsive downward movement towards 15518. Until the bears attack the mentioned support, however, trading activity may remain limited to the narrow range of 15711 – 15835.

US30

The U.S. blue-chip stock index has also been hit hard over the past few days, losing just over 1.8% of its value in the last trading session alone and reaching the support zone at 35375. This situation was largely the result of the poorer-than-expected Q4 results of Goldman Sachs and due to the rising bond yields in the U.S. At the time of writing, the index is testing the support at 35375 and the forecasts are for the bears to prevail and violate this level, heading the price towards the support at 35375. In the opposite direction, the first important resistance sits at 35900.

Markets

The new paradigm that dominates trading since the start of the year simply continued as trading resumed post Martin Luther King Day. Markets ever more see inflation as an obstacle to growth rather than a result of healthy demand, raising speculation that the Fed will have to act sooner and more aggressive than anticipated until now. A further rise in oil due to geopolitical tensions add to that picture. Investors are also looking out for signs of cost pressures affecting corporate margins as the earnings season comes into full swing (cf Goldman results). Especially US yield markets ever more embrace the idea of further frontloading of Fed normalization (or will it be real tightening?). US yields yesterday jumped between 7.6 bps for the 2y, 10 bps for the 5y and 6.6 bps for the 30y. Despite the rise in oil prices, the move was almost solely due to a rise in the real yield component (10y +8.4bps). A mediocre US NY Fed empire manufacturing survey didn’t change the intraday dynamics. European yields initially tried to join the uptrend in USD markets but couldn’t hold to that momentum. The German yield curve steepened marginally with the 2y declining 0.9 bps and the 30y rising 1.4 bps. The 10y Bund yield this morning opens in positive territory for the first time since May 2019. The rise in US real yields continued to weigh on global equity markets with US indices underperforming (Nasdaq -2.60%, Dow -1.51%, Euro Stoxx 50 -1.03%). Last week, the sharp rise in US inflation triggered a temporary setback of the dollar. However, this apparently was nothing more than profit taking on overdue long positions. The dollar yesterday again profited from the rally in US (real) yields. The DXY TW index regained the previous neckline near 95.55. EUR/USD dropped below the top of the previous consolidation pattern (1.1386) to close the day at 1.1325. USD/JPY finished the day little changed at 114.61. So the yen held up well, even as the BOJ at its policy meeting didn’t make a big U-turn on its inflation assessment.

This morning, Asian equities join the sell-off from WS, with Japan underperforming (Nikkei -2.8%).In a briefing, PBOC Deputy Governor Liu Guoqiang indicated that the central bank will use a wide range of tools in order to support credit flows to the economy. The yen outperforms on the risk-off with USD/JPY drifting to the 114.25 area. The oil price extends its rise on headlines of an explosion affecting operations of a key pipeline between Turkey and Iraq (Brent $88/b). The US eco calendar contains the building permits and housing starts. EMU data are second tier. A risk-off sentiment currently is no good enough reason to slow the rise, especially in US yields. Even so, the pace of the move might slow as markets will look out for new guidance from next week’s Fed meeting. The technical picture for the dollar improves again. EUR/USD returned in the 1.1186/1.1386 trading range. UK CPI data published this morning mostly were higher than expected with headline CPI rising from 5.1% to 5.4%. The debate on a new BOE rate hike in February seems settled. EUR/GBP is holding near recent lows (EUR/GBP 0.8330).

News Headlines

Tory rebels in the UK sat down yesterday to discuss a no-confidence vote in PM Johnson. They claim to soon have the necessary 54 letters required to trigger such a vote. Johnson is under heavy pressure from both the opposition and (for now mostly internally) from his own party over the “partygate” scandal. In a bid to sooth increasingly frustrated Tories, Johnson will today announce the lifting of some Covid restrictions. These may include scrapping the work-from-home guidance and the use of Covid passes to attend big events. Sterling thus far remains immune for the political showdown. EUR/GBP yesterday even to a fresh 2022 low at 0.833.

Washington ups diplomatic efforts to de-escalate a building crisis with Moscow over Ukraine. Secretary of State Blinken will first meet Ukrainian president Zelenskiy and Foreign Minister Kuleba today. He will then travel to Berlin to discuss the matter with German Foreign Minister Baerbock and will later hold a “Transatlantic Quad”, involving the US, UK, France and Germany. On Friday, Blinken is due to meet with Russian Foreign Minister Lavrov in Geneva. On markets meanwhile, Russian assets are getting hammered. Bonds tanked, pushing yields in one month time 90 – 125 bps higher across the curve. The MOEX stock index stumbled more than 20% lower since hitting an all-time high in October last year. The rubble over that same period declined 8%. EUR/RUB trades around 87.23.

Daily Pivots: (S1) 155.23; (P) 156.07; (R1) 156.65; More...

Intraday bias in GBP/JPY remains neutral first. Overall, further rise is still expected with 154.86 support intact. On the upside, decisive break of 158.19 high will resume larger up trend to 167.93 long term fibonacci level. On the downside, below 154.86 minor support will turn intraday bias back to the downside for deeper pull back.

In the bigger picture, strong rebound from 148.93 key structural support retains medium term bullishness. Firm break of 158.19 high will resume whole up trend from 123.94 (2020 low), to 61.8% retracement of 195.86 to 122.75 at 167.93. Nevertheless, firm break of 148.93 will bring deeper correction to 38.2% retracement of 123.94 to 158.19 at 145.10, and possibly further lower, as a correction to up trend from 123.94 at least.

Daily Pivots: (S1) 129.27; (P) 130.23; (R1) 130.75; More....

The break of 129.59 support dampens our bullish view and indicates that rebound from 127.36 has completed at 131.59 already. Intraday bias is back on the downside for 127.36 first. Break there will extend the corrective pattern from 134.11 to 126.58 fibonacci level. On the upside, though, break of 131.59 will resume the rebound to 133.44/134.11 resistance zone.

In the bigger picture, as long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of medium term bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.

Daily Pivots: (S1) 0.8312; (P) 0.8345; (R1) 0.8364; More...

Intraday bias in EUR/GBP is back on the downside as recent down trend is resuming. Further fall would be seen to 0.8276 key long term support. On the upside, however, break of 0.8377 resistance will now indicate short term bottoming, and bias back to the upside for stronger rebound.

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) 1.5724; (P) 1.5799; (R1) 1.5839; More...

Intraday bias in EUR/AUD remains neutral and outlook is unchanged. On the downside, break of 1.5559 will resume the fall from 1.6168 to retest 1.5250/5354 support zone. On the upside, however, break of 1.5898 will argue that pull back from 1.6168 has completed. Intraday bias will be back to the upside for 1.6168 resistance.

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.