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EUR/USD

After the rally was limited by the resistance zone at 1.1480, the bears prevailed. The European common currency lost quite a bit of ground against the dollar and, during the early hours of today`s trading, the pair is holding positions around the psychological level at 1.1400. If the bearish prevalence continues, then the expectations will be for a test of the support at 1.1359. A breach of the mentioned zone could easily deepen the corrective move towards 1.1272. If the bulls re-enter the market, then their first resistance can be found at 1.1450. Only a successful violation of the next target at 1.1480, however, could lead to future gains and could easily head the price towards the November 2021 levels of around 1.1520. The expected data for the initial jobless claims (Thursday; 13:30 GMT) should lead to increased volatility.

USD/JPY

The support zone at 113.75 withheld the bearish attack and the Ninja recovered some of its recent losses. The price tested the close resistance at 114.28 and, at the time of writing, is trading above the mentioned zone. A confirmation of the breach could easily lead to a recovery and could pave the way for a violation attempt of the next resistance at 114.99. If the bullish momentum fades, then a new successful test of the zone at 113.75 on behalf of the bears could mark the current move as a corrective and could easily deepen the decline towards the support zone at 113.30.

GBP/USD

The breach of the resistance zone at 1.3708 was not confirmed and the GBP lost some ground against the USD. The pair consolidated under the mentioned level and, if the bears prevail, then a test of the support at 1.3596 would be the most probable scenario. A violation of the next target at 1.3555, followed by a breach of the lower support at 1.3507, could lead to a change in the current sentiment of the market participants. If the bulls re-enter the market, then a new attack and a breach of the resistance zone at 1.3708 could most likely prolong the pair’s rally.

EUGERMANY40

Neither the bulls nor the bears managed to gain enough momentum and trading activity remains locked in the zone between 15835 and 15962. A breach of the upper border could easily lead the German index towards the next resistance at 16080, where a violation would strengthen the positive expectations. In the negative direction, the first support is found at the level of 15835, followed by the lower zone at 15711.

US30

The US30 tested the support zone at 35899 and, during the early hours of today`s trading, the price is hovering under the mentioned level. A confirmation of the breach and a successful violation of the lower target at 35445 could easily deepen the decline and lead to a drop towards 34747. An important resistance for the bulls is the level at 36237, followed by the upper zone at 36532. This week, investors will focus on the expected initial jobless claims data for the U.S. (Thursday; 13:30 GMT).

Our weekly analysis on Elliott Waves takes a close look at the GBP/USD, the Ethereum cryptocurrency, and the Gold commodity.

Our analysis indicates a bearish ABC correction on the GBP/USD, a potential 5 waves down on ETH/USD, and a slow wave 4 pattern on XAU/USD.

ETH/USD downtrend must respect shallow Fibs

The Ethereum (ETH/USD) cryptocurrency pair is in a downtrend after breaking below the support trend lines (dotted green):

1. Price action could be moving down lower in 5 waves (pink). But price action should respect the shallow Fibonacci levels (red box) and resistance trend line (red).
2. A break above these Fib levels place the bearish analysis on hold. A bearish bounce and continuation lower, however, could confirm the 5 wave pattern in wave A (grey).
3. The main targets of the bearish swing are the -27.2% and -61.8% Fibonacci targets.
4. In any case, a larger ABC (grey) pattern seems to be taking place in a wave 4 (yellow) correction.

GBP/USD strength expected to face opposition

The GBP/USD is showing a strong bullish impulse, which was able to break above the resistance trend line (red) of the downtrend:

1. The bulls however are facing a strong resistance zone from the previous top (red box). A bearish bounce is likely to occur here (orange arrows).
2. A bearish ABC (blue) pattern could emerge at the resistance to create a pullback. But this could simply complete a wave B (pink) within a larger ABC (pink) pattern.
3. The blue box could indicate an inverted head and shoulders pattern. A deeper bearish retracement would place the bullish ABC on hold or invalidate it. A stronger push up above the resistance (red box) however still will indicate a wave A (pink) most likely.

XAU/USD bullish chart pattern

Gold is moving sideways after a strong impulsive move up:

1. A bullish break above (green arrow) the resistance (red) trend line could indicate an uptrend continuation. But if the current Elliott Wave analysis is correct, then the previous top should stop the uptrend.
2. A bearish bounce (orange arrow) could complete the ABC (blue) in wave B (pink) and send price back down to the previous bottom.
3. A bullish bounce (green arrow) at the previous bottom could complete the ABC (pink) pattern within wave 4 (yellow) and restart the uptrend.
4. A deeper retracement below the previous bottom places the uptrend on hold or invalidates it.

Markets

US retail data on Friday printed softer than expected. Headline sales declined 1.9% M/M and control group sales (-3.1% M/M), a proxy for  consumption in GDP, missed the consensus by quite a big margin. Omicron is affecting sales, at least temporarily. Later, consumer confidence of the University of Michigan also disappointed, declining from 70.6 to 68.8. A the same time, measures of consumer inflation expectations remain upwardly oriented. The bond market reaction was telling. An initial post-retail sales jumped in bonds immediately met renewed selling pressure. So no safe haven positioning ahead of the long US weekend (Martin Luther King Day today), on the contrary. Recent Fed comments showed an almost unprecedented consensus that inflation needs immediate and decisive action. Even one of the ‘last doves standing’, NY Fed President Williams, saw the strong labour market as a good reason to start raising rates. So despite mediocre data, US yields again made a big leap higher rising between 7.4 bp for the 2-y and almost 10 bp for the 30-y, almost solely due to higher real yields. The 2-y (0.967%), 5-y (1.559%) and 10-y (1.784%) closed at a new cycle top. German yields joined the sharp US rebound rising between 1.6 bps (2-y) and 4.8 bps (30-y). ECB’s Lagarde in a speech reiterated that the drivers for inflation will ease this year, but at the same time said the ECB’s ‘commitment to price stability remains unwavering’. Oil closing north of $86 p/b suggests that the inflation dynamic won’t stop anytime soon. US equities closed mixed (Nasdaq +0.59%, Dow -0.56%). The dollar was already in better shape early in European dealings and was further supported by the rise in (real) yields. EUR/USD closed at 1.141. DXY rebounded of recent correction low and closed near 95.16.

This morning, Chinese Q4 growth data and reduction of the PBOC 1-yr MTL rate are taking center stage (cfr infra). The PBOC action to support growth apparently is a seen a positive for the yuan. USD/CNY dropped to 6.347, with Friday’s multi year top of the yuan again within reach. Regional indices are trading mixed, but the mostly hold up rather well considering persistent selling pressure on the bond markets. The dollar is gaining a few ticks with USD/JPY (114.53) taking the lead. EUR/USD trades little changed near 1.1415. Today, the eco calendar is empty and US markets are closed (MLK Day). This suggest technical, order driven trading at rather low volumes. Still, Friday’s price action shows the direction yield markets are heading as the Fed flags its rate hike intentions and further reduces bond buying. The 1.80% reference for the US 10-y yield stays at risk. The German yields holds in the vicinity of the symbolic 0% level. The dollar apparently enters calmer waters after the post CPI-setback. For now 1.1386/1.1483 remain the first technical reference for the EUR/USD cross rate. Despite political tensions, EUR/GBP is holding in the 0.835 area.

New Headlines

Chinese GDP growth continued to lose steam in 2021Q4 though less than expected. Growth on a quarterly basis accelerated from 0.2% to 1.6% but eased from a 4.9% y/y pace in Q3 to 4%. Over the whole of 2021, China activity grew 8.1%, well above the 6%+ government target. Monthly figures reveal solid industrial production (4.3% y/y), shrugging of shocks coming from a.o. electricity shortages. Property investment further slowed in December. Uncertainty in the vast real estate sector continues to linger. Retail sales were the most depressing figure, retreating from 3.9% y/y to a mere 1.7%. Omicron and China’s zero-Covid policy with hard lockdowns at every breakout dent consumption. To soften the blow on the economy, the central bank eased policy again by lowering the 1-yr medium term lending facility rate from 2.95% to 2.85%, the first rate cut since April 2020. The Chinese yuan strengthens this morning to USD/CNY 6.346, testing the

Boris Johnson’s Conservative Party is sliding in the opinion polls. A poll by Opinium gave Labour 41% of the vote share compared with 31% for the Conservatives, Reuters reported. It’s the biggest lead over the Conservatives since 2013. Johnson (and the party) are under pressure in particular after social gatherings at Downing Street during the lockdown became known to the public. YouGov trackers show the likelihood to vote Conservative in the next general election slipped to 2019 levels whereas Labour holds near recent highs. The next UK election isn’t due until 2024.

The EURUSD turned lower on Friday after the US published weak retail sales numbers. The data revealed that the country’s retail sales declined sharply in December as inflation concerns remained. The headline retail sales declined by 3.1% in December after they fell by about 0.5% in the previous month. This decline was worse than the median estimate of -0.1%. Meanwhile, core retail sales declined by 2.3% in December. Still, despite the weak retail sales numbers, analysts expect that the Federal Reserve will maintain a hawkish tone in a bid to lower inflation.

US equities were mixed on Friday as the earnings season kicked off. The Dow Jones declined by over 145 points while the S&P 500 and Nasdaq 100 index rose by 12 and 130 points, respectively. The earnings season were relatively mixed. While Wells Fargo reported strong results, JP Morgan’s revenue and profitability disappointed as the company warned about rising costs. The company is spending billions of dollars in technology investments. According to FactSet, about 60% of all companies in the S&P 500 index cited the rising costs in the Q4 earnings. US markets will be closed today. Later this week, companies like Morgan Stanley and Johnson & Johnson will publish its results.

The economic calendar will be muted today. Earlier on, China published the latest GDP numbers for the fourth quarter. These numbers showed that the economy did well in the fourth quarter even as the number of Covid cases rose. Still, there are signs that the performance will slow this quarter after the country announced major lockdowns in some cities. The major data to watch will be the latest Bank of Canada business outlook survey.

EURUSD

The EURUSD pair made a bullish breakout last week and soared to a high of 1.1482. This was the highest level since November 11th. It then declined to a low of 1.1415 after the weak US retail sales numbers. It has moved below the middle line of the Bollinger Bands. It also moved below the 25-day moving average while the Relative Strength Index (RSI) has moved below the overbought level. It is also slightly above the key support at 1.1377. Therefore, the pair will likely retest support and then resume the bullish trend.

USDCHF

The USDCHF pair bounced back and rose to a high of 0.9138, which was the highest level since Wednesday. The pair moved slightly below the middle line of the Bollinger Bands while the Stochastic Oscillator and Relative Strength Index (RSI) started rising. It is also above the Parabolic SAR indicator. Therefore, the pair will likely keep rising as bulls target the key resistance at 0.9200.

GBPUSD

The GBPUSD pair declined to a low of 1.3652, which was the lowest level since January 12. The pair moved slightly above the ascending trendline that is shown in red. It also moved to the 25-day moving average while the MACD has formed a bearish crossover pattern. Therefore, the pair will likely keep falling as bears target the key support at 1.3600.

Market movers today

There are no tier-1 market movers today and it will be a pretty quiet week on the data front where the main highlights will be German ZEW and US regional surveys from Philadelphia and Empire.

On the central bank front China has already cut policy rates this morning (see below) and Turkey may also cut rates later this week. Bank of Japan meets on Tuesday where no change is expected but we will listen closely to policy signals given Friday's Reuters story that BoJ may hike policy rates prior to hitting 2% inflation. ECB releases minutes on Thursday which is also the day of the interim Norges Bank meeting where we do not expect any new policy signals. The Fed blackout period has started so we will have no more Fed speeches before the meeting next week (22 January).

The Russia/Ukraine conflict will remain in focus as well.

US stock and bond markets will be out today due to the Martin Luther King holiday.

The 60 second overview

Markets. It has been fairly quiet overnight with limited market moves across asset classes.

Chinese data and rate cut. Overnight the People's Bank of China cut its key policy rates by 10bp and added more liquidity to the banking system. This was the first change in policy rates in almost two years but follows several credit and regulatory easing measures over the last month as a response to the softening growth outlook. This morning's rate cut was announced shortly before national account figures revealed that the Chinese economy grew 1.6% Q/Q in Q4 2021. While this was slightly stronger than expected by consensus the figures still highlighted a weakening momentum and a hit to demand from the zero COVID-19 policy and the property sector. Looking forward we expect 2022 to be a year in which the Chinese economy continues to recover moderately but also where the impact of the recent easing is not felt on the global cycle until summer.

COVID-19 update. Despite new cases are rising sharply in many countries due to omicron, it seems like we have reached or are close to reaching "peak restrictions" in the sense that severe disease still seems under control for now. Risk is, of course, that the waves get so big that they dominate the fact that omicron is milder than delta. We continue to believe this is the last winter with restrictions in the advanced economies, as COVID-19 becomes endemic like the seasonal flu. We have good vaccines (especially when updated to the prevailing variant), more natural immunity, better treatments and more know-how. So from a societal, economic and financial market perspective, we should be able to deal with COVID-19 outbreaks going forward.

Equities: Global equities moved lower Friday despite some late hour rally in US. Defensives, large cap value outperforming last week where bond yields and central bank repricing dominated the action in equities. The earnings season kick-off in the US did not change the narrative with some mixed bank reporting. Asia is very mixed this morning with Japan and most other markets higher while South Korea is sharply lower. Futures in Europe are playing some Friday catch up to the US session while tech stocks lead US futures lower.

Fixed income: Last week was fairly volatile for the US Treasury market where US inflation hit 7% amid increased speculation of four hikes rather three hikes in 2022 from the Federal Reserve. 10Y US government bond yields rose almost 10bp on Friday and the US curve continues the flattening trend from the start of the year.

FX: Growth and inflation sensitive currencies ended last week on a weak-footing. SEK, AUD, NZD and NOK lead losses with EUR/SEK and EUR/NOK moving towards 10.30 and 10.00, respectively. On the other hand, the USD ended a long string of losing sessions with EUR/USD moving back close to 1.14.

Credit: This Friday the risk off sentiment in credit continued. iTraxx main widened 1.2bp to 52.1bp and Xover widened 4.9bp to 257.5bp. The poor sentiment continues to be driven by fears of rising rates, coupled with rising worries about geopolitical risk relating to Russia and inflation. In cash space, liquidity remains muted.

Daily Pivots: (S1) 1.1382; (P) 1.1433; (R1) 1.1466; More...

Intraday bias in EUR/USD remains neutral at this point and outlook is unchanged. Rebound from 1.1185 is seen as a corrective move. Above 1.1482 will extend the rebound but upside should be limited by 38.2% retracement of 1.2265 to 1.1185 at 1.1598. On the downside, below 1.1284 support will bring retest of 1.1185 low. However, sustained break of 1.1598 will argue that the trend is reversing already.

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) 1.3642; (P) 1.3692; (R1) 1.3732; More...

Intraday bias in GBP/USD remains neutral for consolidation below 1.3748 temporary top. Downside of retreat should be contained by 1.3489 support to bring another rally. As noted before, corrective fall from 1.4282 should have completed with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Above 1.3748 will target 1.3833 first. Sustained break of 1.3833 will pave the way back to retest 1.4248 high.

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) 0.9108; (P) 0.9125; (R1) 0.9155; More....

Intraday bias in USD/CHF remains neutral for consolidation above 0.9090 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) 113.71; (P) 113.99; (R1) 114.49; More...

Intraday bias in USD/JPY remains neutral for the moment. Risk will stay on the downside for another fall as long as 116.34 resistance holds. Break of 113.47 will target 112.52 structural support. Considering bearish divergence condition in in daily MACD, break of 112.52 will confirm that it's already in correction to the up trend from 102.58. Deeper decline would be seen to 38.2% retracement of 102.58 to 116.34 at 111.08.

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. However, firm break of 112.52 support will dampen this bullish case and we'll assess the outlook based on subsequent price actions later.

Daily Pivots: (S1) 0.7179; (P) 0.7236; (R1) 0.7275; More...

Intraday bias in AUD/USD remains neutral for the moment. We're still slightly favoring the case that correction from 0.8006 is complete after defending 0.6991. Above 0.7313 will extend the rise from 0.6992 to 0.7555 resistance. However, break of 0.7128 support will dampen this bullish case and bring retest of 0.6991/2 instead.

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.