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Daily Pivots: (S1) 1.1379; (P) 1.1416; (R1) 1.1477; More...

EUR/USD's rebound from 1.1185 is still in progress and intraday bias stays on the upside. 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) 0.9101; (P) 0.9172; (R1) 0.9215; More....

Intraday bias in USD/CHF remains on the downside for the moment. 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) 114.19; (P) 114.83; (R1) 115.28; More...

USD/JPY's break of 114.26 resistance turned support now argues that rise from 112.52 is already finished. Intraday bias is on the downside for 112.52 support. Also, 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 115.03 will turn bias back to the upside for retesting 116.34 high instead.

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. For now, this will remain the favored case as long as 112.52 support holds, in case of deep pull back.

The New Zealand dollar has posted gains for a third straight day. Early in the North American session, NZD/USD is trading at 0.6886, up 0.56% on the day. The currency is on a tear, rising 1.62% so far this week.

Strong risk sentiment boosts New Zealand dollar 

There was plenty of anticipation ahead of the US CPI release on Wednesday, and the headline reading did not disappoint, coming in at 7%, which matched the estimate. Still, the sizzling read did not dampen the positive mood in the markets, perhaps because investors were relieved that US inflation wasn’t even higher.

The US dollar can’t seem to buy a break. First, nonfarm payrolls came in at 199 thousand, well short of the consensus of 425 thousand. This was followed by a 7% CPI release, which was even higher than the previous reading of 6.8%. Both of these events should have given the US dollar a boost, but investors remain supportive of the other major currencies. Fed Chair Jerome Powell’s testimony on the Hill was considered less than hawkish, even though Powell assured lawmakers that the Fed would raise rates as much as needed in order to contain inflation.

In short, the markets do not seem concerned by the hawkish pivot from the Fed as it moves towards a normalization of policy. Still, the US dollar could rebound rather quickly under the right conditions, such as inflation moving even higher or Omicron causing more economic damage than anticipated.

The New Zealand dollar also received a boost from New Zealand Building Consents, which rose 0.6% in November after two consecutive declines. This indicates strong demand in the housing sector, despite the disruptions from Covid-19.

NZD/USD Technical

• NZD/USD is putting pressure on resistance at 0.6912. Next, there is resistance at 0.6967
• 0.6844 is providing support. Below, there is support at 0.6721

Daily Pivots: (S1) 1.3646; (P) 1.3680; (R1) 1.3737; More...

GBP/USD's rise from 1.3158 is in progress and hits as high as 1.3746 so far. Intraday bias 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.

Dollar remains overwhelmingly the worst performer today, as selloff extends. There is little support from hawkish Fedspeaks, with some officials expressing openness to four rate hikes this year. Commodity currencies continue to be the biggest winners, as supported by resilient risk sentiment. In particular, US futures are pointing to higher open, and further rally could intensify the current moves. European majors are mixed, with Sterling's rally in crosses slowing.

Technically, USD/JPY's extended decline is a rather bad sign for the greenback. Sustained break of 55 day EMA (now at 114.10), with bearish divergence condition in daily MACD, will raise the chance that it's already in medium term correction. Deeper fall could then be seen through 112.52 support ahead. That could be accompanied by EUR/USD's break of 1.1598 fibonacci resistance.

In Europe, at the time of writing, FTSE is up 0.07%. DAX is up 0.25%. CAC is down -0.43%. Germany 10-year yield is down -0.0128 at -0.071. Earlier in Asia, Nikkei dropped -0.96%. Hong Kong HSI rose 0.11%. China Shanghai SSE dropped -1.17%. Singapore Strait Times rose 0.07%. Japan 10-year JGB yield rose 0.0021 to 0.131.

US initial jobless claims rose to 239k, continuing claims dropped to 1.56m

US initial jobless claims rose 23k to 230k in the week ending January 8, above expectation of 213k. Four-week moving average rose 6k to 211k. Continuing claims dropped -194k to 1559k in the week ending January 1, lowest since June 2 1973. Four-week moving averages of continuing claims dropped -77k to 1722k, lowest since March 7, 2020.

US PPI rose 0.2% mom, 9.7% yoy in Dec

US PPI for final demand rose 0.2% mom in December, below expectation of 0.4% mom. Over the year, PPI accelerated to 9.7% yoy, up from 9.6% yoy, below expectation of 9.8% yoy. PPI core rose 0.5% mom versus expectation of 0.4% mom. Over the year, PPI core accelerated to 8.3% yoy, up from 7.7% yoy, above expectation of 8.0% yoy.

Fed Harker open to more than three hikes if required

Philadelphia Fed President Patrick Harker said in an FT interview, "I currently have three increases in for this year, and I'd be very open to starting in March. I'd be open to more if that's required."

"We don't want to put the brakes on completely, but we do need to slow down some of the demand," he said. "We can do something...  by raising the fed funds rate."

"Ultimately, what we worry about is that people start to think, 'Well, inflation is just not going to be at 2 per cent, it's going to be at 2.5 per cent or 3 per cent going forward'," he said.

As for the balance sheet run-off, Harker said if could start once interest rates were "sufficiently away" from zero. "I am very much in the camp of communicating over and over how we're going to do this and then being methodical," he said.

ECB bulletin: Eurozone output to exceed pre-pandemic level in Q1

In the monthly economic bulletin, ECB said, "the global economy remains on a recovery path, although persisting supply bottlenecks, rising commodity prices and the emergence of the Omicron variant of the coronavirus (COVID-19) continue to weigh on the near-term growth prospects."

"Supply bottlenecks are expected to start easing from the second quarter of 2022 and to fully unwind by 2023." But "the future course of the pandemic remains the key risk affecting the baseline projections for the global economy." Risk to growth outlook are "tilted to the downside" and balance of risks to global inflation is "more uncertain".

Eurozone growth is "moderating" but "activity is expected to pick up again strongly in the course of this year." Output is expected to exceed pre-pandemic level in Q1 of 2022. However, as some Eurozone countries have reintroduced tighter restrictions, "this could delay the recovery, especially in travel, tourism, hospitality and entertainment".

ECB de Guindos: Inflation not going to be as transitory as expected

ECB Vice President Luis de Guindos said, "inflation is not going to be as transitory as forecast only some months ago. The assessment of risk for inflation is moderately tilted to the upside over the next 12 months."

"And the reasons are quite simple. First, supply side bottlenecks are going to be there and are more persistent than we and many expected in the past," de Guindos said. "And energy costs are going to remain quite elevated."

Nevertheless, over the longer term, risks to inflation outlook are still balanced. Inflation are projected to fall back below ECB's target of 2% in 2023 and 2024.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3646; (P) 1.3680; (R1) 1.3737; More...

GBP/USD's rise from 1.3158 is in progress and hits as high as 1.3746 so far. Intraday bias 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.

Economic Indicators Update

US PPI for final demand rose 0.2% mom in December, below expectation of 0.4% mom. Over the year, PPI accelerated to 9.7% yoy, up from 9.6% yoy, below expectation of 9.8% yoy.

PPI core rose 0.5% mom versus expectation of 0.4% mom. Over the year, PPI core accelerated to 8.3% yoy, up from 7.7% yoy, above expectation of 8.0% yoy.

Full release here.

US initial jobless claims rose 23k to 230k in the week ending January 8, above expectation of 213k. Four-week moving average rose 6k to 211k.

Continuing claims dropped -194k to 1559k in the week ending January 1, lowest since June 2 1973. Four-week moving averages of continuing claims dropped -77k to 1722k, lowest since March 7, 2020.

Full release here.

EURUSD is trading higher, now breaking out of a triangle pattern after US CPI figures. We know that triangle can occur in wave B and not in wave two, therefore we think that upside can be limited, possibly at around 1.145.

However, important will be to wait on intraday sell-off back to 1.1300 or lower to confirm the end of a corrective recovery that is underway since November 2021.

EUR/USD 4h Elliott Wave analysis

The remains in red on Thursday and trading near new 2 ½ week low, hit after Wednesday’s post-US CPI drop (the biggest daily fall since Nov 26).

Long tails of yesterday’s and today’s candle signal that bears face headwinds at 114.44 Fibo support (50% retracement of 112.53/116.35 / 30DMA) but the action remains weighed down by fresh negative dollar’s sentiment and bearish signal generated on Wednesday’s close below 114.89 (Fibo 38.2%, reinforced by 20DMA).

Recent rapid loss of bullish momentum (14-d momentum indicator is at the borderline of the negative territory) suggests that bears remain firmly in play, also attracted by thinning daily cloud.

Firm break of cracked 114.44 pivot would risk test of Fibo 61.8% (113.99) and daily cloud top (113.63) in extension).

Near-term bias is expected to remain with bears while the action stays below broken Fibo support / 20DMA (114.89).

Res: 114.70; 114.89; 115.04; 115.44.
Sup: 114.36; 114.20; 113.99; 113.63.