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Daily Pivots: (S1) 1.2475; (P) 1.2497; (R1) 1.2541; More...

Intraday bias in USD/CAD remains on the downside for the moment. As noted before, rise from 1.2286 is finished at 1.2963, and possibly the whole pattern from 1.2005 too. Deeper decline would be seen back to 1.2286 support first. Break there will target 1.2005 low. For now, risk will stay on the downside as long as 1.2812 resistance holds, in case of recovery.

In the bigger picture, focus will be 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.

Daily Pivots: (S1) 1.1433; (P) 1.1458; (R1) 1.1479; More...

Intraday bias in EUR/USD remains on the upside as rebound from 1.1185 is still in progress. Further rise would target 38.2% retracement of 1.2265 to 1.1185 at 1.1598. As we're tentatively treating is as a corrective move, we'd look for strong resistance from 1.1598 to bring down trend resumption. 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) 1.3690; (P) 1.3720; (R1) 1.3738; More...

Intraday bias in GBP/USD remains on the upside for 1.3833 resistance first. 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. Sustained break of 1.3833 will pave the way back to retest 1.4248 high. On the downside, below 1.3619 minor support will turn intraday bias neutral first. But further rise will remain in favor as long as 55 day EMA (now at 1.3479) holds.

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) 0.9087; (P) 0.9118; (R1) 0.9143; More....

Intraday bias in USD/CHF remains on the downside at this point. Firm break of 0.9084/0.9101 support zone 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 0.9147 minor resistance will turn intraday bias neutral first.

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) 113.88; (P) 114.29; (R1) 114.59; More...

Intraday bias in USD/JPY remains on the downside as fall form 116.34 is accelerating towards 112.52 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 fall would be seen to 38.2% retracement of 102.58 to 116.34 at 111.08. on the upside, above 114.37 minor resistance will turn intraday bias neutral first.

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.

Yen trades broadly higher in Asian session, following broad based weakness in the stock markets. Nevertheless, mild risk-off sentiment is providing no support to Dollar, nor the hawkish comments from Fed officials. Dollar remains the worst performing one for the week, followed by Swiss Franc. Yen is now the strongest, followed by Aussie and Kiwi. The economic calendar is active today with UK GDP and US retail sales, which could be market moving.

Technically, as Yen appears to be picking up buying, we'll pay some attention to its pairs. In particular, break of 130.01 minor support in EUR/JPY, and 154.86 minor support in GBP/JPY, will argue that the near term rebound in them are over. We could then see Yen crosses accelerating downward in general, with USD/JPY being dragged further towards 112.52 structural support.

In Asia, at the time of writing, Nikkei is down -1.76%. Hong Kong HSI is down -0.99%. China Shanghai SSE is down -0.59%. Singapore Strait Times is up 0.37%. Japan 10-year yield is up 0.0190 at 0.150. Overnight, DOW dropped -0.49%. S&P 500 dropped -1.42%. NASDAQ dropped -2.51%. 10-year yield dropped -0.014 to 1.711.

Fed Waller: Three rate hikes still a good baseline

Fed Governor Christopher Waller told Bloomberg TV, "three hikes is still a good baseline; we will have to wait and see what inflation looks like in the second half of the year."

If inflation continues to be high, the case will be made for four, maybe five, hikes," he said, but added that if inflation abated -- as many forecasters including him expect it will -- "then you could actually pause and not even go the full three."

"We can start to let the balance sheet run off earlier and that will take some pressure of longer-end rates and also lead to a tightening in policy," Waller added.

Fed Daly: Lift off in March is a quite reasonable thing

In a Reuters interview, San Francisco Fed President Mary Daly said, "lifting off in March when you have an unemployment rate of 3.9%, and an inflation rate that's north of our price stability goal of average 2% inflation, to me seems a quite reasonable thing." But she didn't offer her prediction on the number of rate hike needed this year.

Daly also said even with the rate hikes, "we are not bridling the economy and starting to restrain it." Rate would remain well below the "neutral" level of 2.50%. Meanwhile, once Fed has raised rates once or twice, she said, it should start shrinking the balance sheet as a "predictable" manner.

Fed Harker: Four hikes is not out of question

An a CNBC interview, Philadelphia Fed President Patrick Harker said "we do need to take action on inflation. It is more persistent than we thought a while ago. I've been off the 'transitory' team for a while now". "Three [hikes] is what I've penciled in, but four is not out of the question in my mind," he said.

But Harker preferred a slower approach regarding balance sheet run-off. He thinks the Fed should wait until it raises rates "for sake of argument 100 basis points," or four hikes, before starting the wind down the asset purchases. "I don't want to do that all at once. I think that's just the wrong way to go," he said. "Let's do them in stages."

Fed Evans: The committee strongly expecting two, three, four rate increases this year

Chicago Fed President Charles Evans said, "I readily admit – I have to be humble about this – I did not expect the inflation rates that we're seeing and they have lasted longer than I expected. And because they have lasted longer, I know that we need to take action more quickly than I would have guessed last year."

"We need to be adjusting monetary policy to something close to neutral," he said. "The committee very strongly is expecting two, three, four rate increases this year. We'll see how it plays out."

Fed Barkin: More aggressive normalization needed if inflation remain elevated and broad-based

Richmond Fed Bank President Thomas Barkin said yesterday, "the closer that inflation comes back to target levels, the easier it will be to normalize rates at a measured pace,"

"But were inflation to remain elevated and broad-based, we would need to take on normalization more aggressively, as we have successfully done in the past," he added.

Barkin also said labor shortage is a "long lasting phenomenon", with "baby boomers retiring" and "immigration slowing". Officials may need to accept that labor force participation is "stagnant".

On the data front

Japan PPI rose 8.5% yoy in December, below expectation of 8.8% yoy. China trade surplus widened to USD 94.5B in December, above expectation of USD 73.4B.

UK GDP and production will be the main focus in European session, together with trade balance. Eurozone will also release trade balance.

Later in the day, US will release retail sales, import price, industrial production, U of Michigan sentiment and business inventories.

USD/JPY Daily Outlook

Daily Pivots: (S1) 113.88; (P) 114.29; (R1) 114.59; More...

Intraday bias in USD/JPY remains on the downside as fall form 116.34 is accelerating towards 112.52 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 fall would be seen to 38.2% retracement of 102.58 to 116.34 at 111.08. on the upside, above 114.37 minor resistance will turn intraday bias neutral first.

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.

Economic Indicators Update

Key Highlights

• USD/JPY started a fresh decline from well above 116.00.
• It broke a major bullish trend line with support near 115.60 on the 4-hours chart.
• EUR/USD surged above 1.1400, and GBP/USD rallied above the 1.3700.
• The US Initial Jobless Claims increased to 230K in the week ending Jan 08, 2022.

USD/JPY Technical Analysis

This past week, the US Dollar struggled to clear the 116.40 resistance against the Japanese Yen. USD/JPY started a major decline from the 116.34 high and declined below 116.00.

Looking at the 4-hours chart, the pair traded below the key 115.60 support zone. There was a break below a major bullish trend line with support near 115.60 on the same chart.

The pair settled below the 115.20 and the 100 simple moving average (red, 4-hours). There was a break below the 50% Fib retracement level of the upward move from the 113.13 low to 116.34 high.

It even traded below 114.50 and the 200 simple moving average (green, 4-hours). On the downside, an immediate support is near the 113.85 level. It is close to the 76.4% Fib retracement level of the upward move from the 113.13 low to 116.34 high.

The main support is forming near the 113.50 level, below which the pair could drop to 113.00. On the upside, the pair is facing resistance near 114.50 level. The next major resistance is near the 115.00 level, above which the pair could test 115.80.

Looking at EUR/USD, the pair started a major increase after there was a clear move above the 1.1380 and 1.1400 resistance levels. Besides, GBP/USD rallied above the 1.3650 and 1.3700 resistance levels.

Economic Releases

• UK Industrial Production for Nov 2021 (MoM) - Forecast +0.2%, versus -0.6% previous.
• UK Manufacturing Production for Nov 2021 (MoM) - Forecast +0.2%, versus 0% previous.
• US Retail Sales for Dec 2021 (MoM) – Forecast 0%, versus +0.3% previous.
• US Industrial Production for Dec 2021 (MoM) – Forecast +0.4%, versus +0.5% previous.

Fed Governor Christopher Waller told Bloomberg TV, "three hikes is still a good baseline; we will have to wait and see what inflation looks like in the second half of the year."

If inflation continues to be high, the case will be made for four, maybe five, hikes," he said, but added that if inflation abated -- as many forecasters including him expect it will -- "then you could actually pause and not even go the full three."

"We can start to let the balance sheet run off earlier and that will take some pressure of longer-end rates and also lead to a tightening in policy," Waller added.

In a Reuters interview, San Francisco Fed President Mary Daly said, "lifting off in March when you have an unemployment rate of 3.9%, and an inflation rate that's north of our price stability goal of average 2% inflation, to me seems a quite reasonable thing." But she didn't offer her prediction on the number of rate hike needed this year.

Daly also said even with the rate hikes, "we are not bridling the economy and starting to restrain it." Rate would remain well below the "neutral" level of 2.50%. Meanwhile, once Fed has raised rates once or twice, she said, it should start shrinking the balance sheet as a "predictable" manner.

An a CNBC interview, Philadelphia Fed President Patrick Harker said "we do need to take action on inflation. It is more persistent than we thought a while ago. I've been off the 'transitory' team for a while now". "Three [hikes] is what I've penciled in, but four is not out of the question in my mind," he said.

But Harker preferred a slower approach regarding balance sheet run-off. He thinks the Fed should wait until it raises rates "for sake of argument 100 basis points," or four hikes, before starting the wind down the asset purchases. "I don't want to do that all at once. I think that's just the wrong way to go," he said. "Let's do them in stages."