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Gold edged higher as the US dollar softened across the board.

The precious metal has met stiff selling pressure in the supply zone around 1830. This level used to support from last November's sell-off.

The recovery above the psychological level of 1800 shows the bulls' commitment to keeping the price afloat. A break above the supply zone would force the sell-side to cover and trigger an extended rally towards the previous peak at 1870.

On the downside, 1800 has turned into fresh support.

The US dollar plunged after December's CPI slowed down to 0.5% from 0.8% in November.

Despite a swift recovery from the daily support at 0.9100, price action came under pressure once again at December's supply area (0.9280). The dive below 0.9180 then 0.9140 is a sign of liquidation as buyers rush to the exit.

As the greenback revisits the critical support at 0.9100, an oversold RSI may attract some buying interest. The former demand area around 0.9200 is now the first resistance level.

Daily Pivots: (S1) 156.68; (P) 157.19; (R1) 157.62; More...

GBP/JPY is staying in consolidation from 157.74 and intraday bias remains neutral first. Further rally is 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) 130.92; (P) 131.20; (R1) 131.43; More....

EUR/JPY is still bounded in consolidation from 131.59 and intraday bias remains neutral. Further rise is expected with 130.01 support intact. Whole consolidation from 134.11 could have completed with three waves down to 127.36, ahead of 126.58 medium term fibonacci level. Break of 131.59 will target a test on 133.44/134.11 resistance zone. On the downside, break of 130.01 minor support will turn bias bias to the downside for retesting 127.36 low instead.

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) 0.8334; (P) 0.8344; (R1) 0.8360; More...

Intraday bias in EUR/GBP is turned neutral for consolidation above 0.8322 temporary low. In any case, outlook will stay bearish as long as 0.8417 resistance holds. Below 0.8322 will resume recent down trend to 0.8276 key long term support. On the upside, above 0.8417 will turn 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) 1.5669; (P) 1.5727; (R1) 1.5763; More...

Intraday bias in EUR/AUD stays 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 form 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.

Daily Pivots: (S1) 1.0430; (P) 1.0468; (R1) 1.0498; More....

EUR/CHF retreated sharply after hitting 1.0510 and intraday bias is turned neutral first. Corrective rebound from 1.0342 could extend higher. But strong resistance should be seen from 38.2% retracement of 1.0936 to 1.0324 at 1.0558 to limit upside. On the downside, below 1.0423 minor support will turn bias back to the downside for retesting 1.0324 low.

In the bigger picture, long term down trend from 1.2004 (2018 high) is now extending. Next target is 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. On the upside, break of 1.0505 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish even in case of rebound.

Markets

US headline inflation in December hit the expected 4-decade high of 7% mark yesterday, even as energy and natural gas prices – a month’s-long driver – eased month over month. In another sign of broadening price pressures, the core gauge accelerated more significantly from 4.9% y/y (0.5% m/m) to 5.5% y/y (0.6% m/m). Housing costs/rents, which make up some 40% of the core basket, are becoming an ever-bigger contributor. The figures convinced more Fed governors, Daly and Barkin, to side with colleagues arguing for a March rate lift-off. St. Louis Fed president Bullard called for four rate increases and added that he thinks the balance-sheet reduction should happen in tandem.

Despite growing evidence of sooner Fed action, US bond yields initially fell across the curve in a buy-the-rumour, sell-the-fact market reaction. Yields clawed back though, finishing the day 0.8 (10y) to 5.7 (5y) bps higher. The real 10y yield undid Tuesday’s 9 bps drop. German yields eased in sympathy with the US’ but they mostly missed out on the American late-session comeback. The curve bull flattened with changes ranging from -0.9 bps (2y) to -4 bps (30y).

Unlike US yields, the dollar held on to post-CPI losses. We saw the greenback losing momentum over previous weeks. Another high inflation reading yesterday provided a profit-taking opportunity. It turns real (policy) rates more negative, erodes the USD’s value and - taking into account effects of tighter monetary policy come with a lag - will probably do so for some time still. EUR/USD pierced through minor 1.1386 resistance, then took out 1.1422 (June 2020 interim high, upper bound of the upward sloping trend channel) to finish at 1.1442. USD/JPY slipped below 115 while the trade-weighted DXY tentatively gave up support from the upward sloping May-Nov 2021 trendline around 95.

Stocks in Europe did well with 0.8% gains. Sentiment on WS was less ebullient. A choppy session ended with minor gains of 0.1-0.3%. The muted US equity session and little overnight news leaves Asian traders with few clues for trading. Stock moves are mixed. China underperforms (-1.5%). The story about ailing Chinese property firms every once in a while pops up. Today it is because they face a wave of important payments on which they may or may not default, eg by the Evergrande Group. Core bonds erase early weakness to trade near yesterday’s closing levels.

Fed vice-chair to-be Brainard appears before the Senate for her nomination confirmation later today. She’ll stress that fighting inflation is the Fed’s most important task. We keep an eye at the $22bn 30-year auction tonight. Yesterday’s 10y sale tailed slightly and bidding metrics weakened a bit. It marked the start of the intraday turnaround in yields. Core bond’s technical picture still suggests short-term minor downward momentum although moves may not go very far. FX markets are extremely quiet. EUR/USD hovers at the 1.1441 close. We’re keen to see whether the repositioning of dollar-bulls continues. 1.146 (23.6% recovery of the Jan-Nov decline) is the first mark but a return above 1.1495 (March 2020 correction high) would turn the technical picture neutral again.

News Headlines

Hungarian PM Orban capped prices of six basis food items (sugar, flour, sunflower oil, chicken breast, pork leg and milk with a fat content of 2.8%) by announcing that they should be sold at October 15 price levels in all stores starting next month. The measures aim to fight off the impact of inflation (7.4% Y/Y in November) on households’ disposable income. Earlier actions include capping fuel prices and freezing mortgage rates. Orban extends its spending spree of the past two years in a push to gain the advantage in a close election race which will be decided in April. The Hungarian finance ministry yesterday announced that the 2021 budget deficit amounted to HUF 5.1tn (around 7.5% of GDP), the second largest since 1997. The month of December alone accounted for HUF 1.2tn of that shortfall. The forint enjoyed a nice rally since the start of the year, taking EUR/HUF down from 370 to below 355. It allows the Hungarian central bank to keep the one-week deposit rate stable today for a second consecutive time at 4%. December inflation numbers are out tomorrow.

EUR/USD

During yesterday’s trading session, the bulls have managed to violate the critical resistance level at 1.1360, taking out the currency pair from the range it has been trading in for quite a while. The expectations are for the euro to continue to appreciate against the U.S. dollar, but only a successful breach of resistance at 1.1450 would pave the way for the pair towards 1.1500. Before a possible upward movement is to develop, however, we may first witness a short correction towards 1.1400. During today's session, there are no economic news that could spark volatility, except for the PPI data for the U.S at 13:30 GMT.

USD/JPY

After the successful breach of the support at 115.00, the downward movement was limited to the support at 114.28. The expectations are for the pair to test the mentioned support and a successful breach here would head the price towards the next level at 113.75. A short consolidation in the range of 114.28 - 115.00, followed up by a possible test of the mentioned level, should still not be excluded.

GBP/USD

The uptrend of the sterling still continues and the pair is currently testing the psychological level at 1.3700. A confirmed breach of this level would strengthen the positive sentiments for an appreciation towards the resistance at 1.3760. During today’s session, we may expect a short corrective move towards 1.3650 before the bulls get around to attacking the above-mentioned resistance.

EUGERMANY40

The German index is in consolidation phase in the range of 15962 - 16080. A test and a successful breach of the support at 15962 may lead to sell-offs targeting 15835. In case the bulls re-enter the market and manage to violate the resistance at 16080, then it is possible that we will witness an appreciation towards 16152.

US30

At the time of writing, the U.S. blue-chip stock index is testing the support at 36237. If the bulls manage to keep the price of the index above the mentioned support and gain just enough momentum, then we may witness a further move towards 36532. However, if the bears re-enter the market and successfully violate the support at 36237, then we should witness a decline towards 35899.

The EURUSD price jumped sharply in the overnight session as investors reflected on the latest American consumer price index (CPI) data. The pair rose to the highest level since November 11 after data showed that the country’s inflation jumped to the highest level since 1982. The headline CPI rose to 7% while core CPI that excludes the volatile food and energy prices, rose to 5.5%. In total, the price of the basket that the statistics agency considers, rose from $277.95 to $278.80. Therefore, the pair rose mostly because analysts believe that inflation has peaked. Later today, the US will publish the latest producer price index (PPI) data.

US equities also rallied after the latest inflation data and after the Federal Reserve published its beige book. The book showed that most officials of the bank were concerned about inflation and were leaning towards tightening of the monetary policy. Analysts are now focusing on the upcoming earnings season that will start tomorrow. According to FactSet, analysts expect that the earnings growth for the fourth quarter was about 21%. If they are correct, that will be the fourth straight quarter in which American corporations’ earnings have risen by over 20%.

The price of crude oil held steady after the latest inventories numbers from the Energy Information Administration (EIA). Data by the agency revealed that inventories declined by over 4.4 million barrels last week. This decline was bigger than the median estimate of 1.9 million barrels. It was also 7th consecutive month in which the US has experienced a drawdown of inventories. Analysts believe that oil demand will keep rising considering that the Omicron variant is not as deadly as other variants.

XAUUSD

The XAUUSD pair continued its bullish comeback after the latest US inflation data. The pair is trading at 1,823, which is significantly higher than last week’s low of 1,783. It moved back to the ascending channel that is shown in red. Also, it rose above the 25-day moving average and the 50% Fibonacci retracement level. Therefore, the pair will likely keep rising as bulls target the upper side of the channel at 1,840.

EURUSD

The EURUSD pair made a bullish breakout in the overnight session. It managed to move above the upper side of the ascending triangle pattern that is shown in red. The pair also moved to the 50% Fibonacci retracement level. Also, the Relative Strength Index (RSI) has moved to the overbought level. Therefore, the pair will likely keep rising as bulls target the key resistance at 1.1.1475.

USDCAD

The USDCAD pair crashed hard as the US dollar declined. The pair fell to a low of 1.2500, which was the lowest level since November 17. The pair managed to move below the 61.8% Fibonacci retracement level. It also moved below the 25-day and 50-day moving averages while the Relative Strength Index has fallen to the oversold level. Therefore, the pair will likely keep falling as bears target the key support at 1.2450.