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Daily Pivots: (S1) 155.82; (P) 156.60; (R1) 157.24; More...

Intraday bias in GBP/JPY stays neutral, but further rally is expected as long as 154.86 support holds. 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) 130.00; (P) 130.69; (R1) 131.21; More....

Intraday bias in EUR/JPY remains neutral for the moment, but further rally is expected as long as 130.01 support holds. 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) 0.8328; (P) 0.8346; (R1) 0.8361; More...

EUR/GBP is trying to resume near term decline, but downside momentum is unconvincing. In any case, outlook will stay bearish as long as 0.8417 resistance holds. Current down trend should target 0.8276 key long term support. On the upside, above 0.8417 minor resistance 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) 1.5736; (P) 1.5786; (R1) 1.5842; 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 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) 1.0451; (P) 1.0478; (R1) 1.0531; More....

Intraday bias in EUR/CHF stays on the upside as rebound from 1.0324 short term bottom is extending. Next target is 38.2% retracement of 1.0936 to 1.0324 at 1.0558. We'd expect strong resistance from there to limit upside to finish the rebound. 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.

Daily Pivots: (S1) 1.1290; (P) 1.1325; (R1) 1.1366; More...

Intraday bias in EUR/USD remains neutral and more sideway trading could be seen. On the upside, sustained trading above 55 day EMA (now at 1.1385) will bring stronger rise back to 1.1663 support turned resistance. On the downside, break of 1.1185 will resume larger decline from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934.

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) 1.3541; (P) 1.3572; (R1) 1.3612; More...

Intraday bias in GBP/USD is neutral as consolidation from 1.3602 temporary top is extending. Further rise is still expected as long as 1.3430 minor support holds. Corrective fall from 1.4248 could have completed with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Sustained trading above 1.3570 will pave the way to 1.3833 resistance next. On the downside, however, break of 1.3430 will dampen this bullish case and turn bias back to the downside for 1.3158 low.

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) 114.89; (P) 115.37; (R1) 115.69; More...

Intraday bias in USD/JPY remains neutral and outlook is unchanged. Downside of the retreat from 116.34 should be contained well well above 114.26 resistance turned support to bring rally resumption. On the upside, firm break of 61.8% projection of 109.11 to 115.51 from 112.52 at 116.47 will pave the way to 100% projection at 118.90, which is close to 118.65 long term resistance.

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.

Yesterday was quite a stressful session for stock traders as we saw an aggressive selloff at the beginning of the session, which, then softened, brought back the ‘dip-buyers’.

Warnings that the Q4 sales may have not been as strong as expected from some retailers like Lululemon dampened the mood, which was already well fragilized by the hawkish Fed expectations after the US jobs figures supported the idea that the Federal Reserve (Fed) could and should move fast to rectify its relaxed behaviour against inflation last year. Lululemon Athletica which was one of the first retailers to reveal the holiday season performance said its fourth-quarter sales and earnings would be toward the low end of its expectations- Holiday season apparently kicked off on a strong footage for Lululemon, but then staffing shortages and shorter operating hours seemingly hit the holiday season performance.

And the staffing shortages has become a real issue for businesses. It is said that 2-3% of the US labour force is calling in sick due to omicron related issues nowadays. Europe is dealing with similar absences and the situation is alarming, the economic activity is slowing, but the tighter central bank expectations remain in place due to a rising inflation. It’s a bad cocktail.

Nasdaq dived more than 2.5% yesterday, but bounced higher to close the session 0.05% up. Yesterday’s rebound was bigger than any rebound we observed since the bottom of the pandemic bear market. Yet, the index tipped a toe below its long-term bullish channel base and the major catalyzer of the move, the hawkish Fed expectations, hasn’t changed. This means that the downside risks prevail in stock markets, and growth stocks remain on the chopping block, as they are the most sensitive to interest rate changes.

Meanwhile the prospects of higher interest rates are strengthening, many call for four Fed rate hikes in 2022 instead of three, and the US 2-year yield continues pushing higher; it’s probably just a matter of time before we step above the 1% mark.

The question is, does the Fed have any interest in wreaking havoc in the financial markets just to fight back inflation? The answer is no. This is why the whole thing is data-dependent and given how hawkish the market shifted recently, there is a chance we see a certain softening in hawks’ positioning, which could lead to a certain positive correction to the latest equity selloff.

And the actual index levels start looking interesting for dip buyers, as Nasdaq slipped below its bullish trend base and approached the important 15’000 psychological support, while the S&P500 came very close to its up-trending channel base and the 100-dma, near 4560/4580 band. And if there is a rebound, the actual levels look good for, at least, a minor positive correction.

But - and there is always a but - the appetite is of course dependent on tomorrow’s inflation read in the US. The US inflation may print a figure at or above the 7% mark tomorrow. A softer figure will likely give hope that the positive pressure may be coming to an end and give a sigh of relief to investors, but in all cases the actual levels remain very high for a country like the US which targets a 2% average inflation. And it also shows that insisting on the fact that inflation is transitory was a mistake.

The latter is true for Europe as well. The German 10-year bund yield is now preparing to step above zero for the first time in three years, as investors are increasingly betting that the European Central Bank (ECB) should also declare war against inflation. In this respect, the EURUSD could soon clear the 50-dma offers.

It was another choppy session overnight in equity and currency markets, followed today, by another cautious Asian session on equity markets, with forex markets marching on the spot. In other words, business as usual for the past few days.

Federal Reserve rate hike nerves continue to grow tauter after Friday’s fall in unemployment and rise in employment cost indexes. From three hikes, I am now hearing for hikes could be possible this year. I would have been laughed out of the room for saying as much a month ago. Actually, I was, it's funny how quickly sentiment shifts.

Given how cautious the FOMC has been over the past two years, to the point of appearing snail-like, I am struggling to see them hitting the panic button right now. As such I am struggling to pencil in a March hike just as the Fed taper finishes, although I don’t disagree with three hikes across all of 2022. I am definitely disagreeing with four hikes. As such, I do believe we may be approaching “peak Fed-fear” for now. That could see a sharp jump for equities, a retreat by US yields and the US Dollar. The first move the market throws the kitchen sink at is usually the wrong one, always fade January.

Wall Street spent much of the evening on the back foot, especially the interest rate sensitive Nasdaq. It's sudden rally into positive territory towards the end of the session. The sudden reversal was put down to “bottom-fishing” and I’ll not disagree with that. But I believe the volatility is being spurred by the US monetary policy outlook. Until just how hawkish, or not, the FOMC will be, becomes clearer, we can expect more days with a lot of intra-day noise, but not change by the close, to be ahead.

Data wise, Asia’s calendar today is fairly quiet. Indonesia and Australian Retail Sales for November outperformed, reflecting the recovery in consumer sentiment in both post-delta. The arrival of omicron, particularly in Australia, will likely mean a new year’s hit to consumer demand once again. Apart from that, markets will be awaiting China CPI tomorrow morning and US CPI tomorrow evening as the week’s highlights.

Readers should watch the situation in China as well. Evergrande dodged another bullet yesterday by engineering a domestic bond extension with creditors. But Evergrande, Shimao and other private property developers remain in deep trouble and a slow-moving credit trainwreck. It has the potential to further cut into China’s growth prospects this year. Likewise, the omicron variant keeps popping up in small numbers across China, even as it and Hong Kong tighten restrictions. The only way for Covid-zero policy countries in 2022 is down, whether by wider outbreaks or social restrictions.

Another mixed day for Asian equities

Wall Street had a schizophrenic session overnight, falling hard for most of the day as markets continued winding themselves up that the Federal Reserve could tighten by as early as March, amid escalating inflation concerns. It is very much a short-term phenomenon though, as US inflation break evens all the way from 1 to 10 years are still pricing in a return to a 2.0% inflation nirvana. Markets rallied sharply for no apparent reason near the end of the session hinting that fast-money flows are dominating at the moment. The S&P 500 finished 0.14% lower even as the Nasdaq unwound over 2.0% intraday losses to finish 0.05% higher. The Dow Jones suffered a late value to growth rotations, falling 0.46%.

In Asia, it is another mixed day once again with the value-centric ASEAN markets outperforming. With Japan returning from holiday today, the Nikkei 225 has played catchup as it falls 0.93%. South Korea’s Kospi by contrast, has eased just 0.15%, with both Japan and South Korean markets ignoring yet another North Korean missile test this morning.

In China, upward momentum quickly faded and reversed as Covid-19 restrictions were tightened once again in some Chinese cities, notably Zhengzhou today. With China showing no signs of opening the stimulus floodgates, swirling virus nerves and property sector concerns, local markets are struggling to maintain any sort of upward momentum. The Shanghai Composite is 0.45% lower, while the CSI 300 is down 0.75%. Hong Kong has gained a temporary respite from the latest Evergrande debt rollover, but the Hang Seng is still only 0.15% higher.

Singapore is 0.45% higher today as it continues to be a defensive play versus Northern Asia with investors still wanting Asia exposure. Taipei, Jakarta and Kuala Lumpur are 0.25% higher, with Manila down 0.15% while Bangkok has climbed 0.45% higher. A weak and nervous New York session, and spiralling omicron cases Australian markets sharply lower today. The All Ordinaries and ASX 200 have tumbled by 0.80%.

Europe should open neutral this morning and I believe markets there will remain more focused on movements in German Bund yields, than noise from Wall Street.
Currency markets nervously range-trade

The US Dollar rallied sharply overnight as US equities headed south, only to give back most of those gains towards the end of the New York session as the Nasdaq recovered. US Bond markets provided no direction with yields almost unchanged. It all paints a picture of nervous tail-chasing as the dollar index finished 0.22% higher at 95.95, before edging lower to 94.85 in Asia today. In the bigger picture, the dollar index is range trading. I am waiting for 95.50 or 96.50 to break to signal the US Dollar’s next directional move.

EUR/USD and GBP/USD both feel intra-session before steadying at the New York close. GBP/USD continues to erode resistance at 1.3600, signalling a further rally to 1.3800 if broken. EUR/USD’s is marooned at 1.1340 and only a close above 1.1400 will lessen the bearish outlook. Risks are still skewed towards a retest of 1.1200, especially if German Bund yields stop rising. USD/JPY has eased to 115.25 but remains a bid on dips into 115.00 as long as US yields remain at these levels, targeting 118.00 initially.

AUD/USD and NZD/USD are unmoved at 0.7190 and 0.6190 today. Both continue to be bounced around on RORO (risk-on, risk-off) sentiment swings, but ultimately, are range-trading right now. Key levels for AUD/USD are 0.7150 and 0.7300, and 0.6700 and 0.6850 for NZD/USD. USD/CAD is trading sideways at 1.2650 and has support at 1.2600, and resistance at 1.2700.

USD/Asia has run into offers overnight and I suspect some regional central banks may be looking to cap the US Dollar’s rally for now. USD/KRW has fallen to 1195.00, USD/PHP to 51.15, while USD/MYR has eased to 4.1940, and USD/THB to 33.520. USD/CNY and USD/CNH remain just below 6.3800 which is becoming a key pivot point now. The key directional driver this week will be the US CPI data, especially if a high CPI print lifts Fed hiking expectations, pressuring Asian FX.

Oil consolidates

Oil prices eased slightly overnight in corrective price action consistent with a consolidation of oil’s recent impressive price gains. Brent crude fell by 1.0% to $81.00, rising to $81.30 a barrel in Asia. WTI fell by 0.55% to $78.40, rising slightly to $78.75 in Asian trading.

Despite prices easing again overnight, oil continues to hold onto almost all its gains since the start of December. Omicron has yet to wreak the havoc of the delta variant and may never do so, keeping the global recovery on track, and OPEC+ compliance means that spare production capacity is limited. Both factors will continue supporting oil’s bullish outlook.

In the nearer term, Brent crude has support at $79.60 and the 100-day moving average (DMA) at $78.55 a barrel. A rally through $83.00 signals more gains to $86.00 a barrel. WTI has support at $78.00 and $77.50 a barrel, with resistance at $80.50 and 82.00 a barrel.

Gold rallies in Asia

Gold continued range-trading overnight. With US yields moving sideways buyers cautiously push gold higher by 0.30% to $1801.75 an ounce overnight. In Asia, the buying momentum has continued, perhaps after North Korea’s latest missile test today. Gold has risen 0.45% to $1809.50 an ounce.

Gold has resistance here at $1810.00 and $1830.00 an ounce. Support lies at $1785.00, followed by $1780.00 and $1760.00 an ounce. Gold continues to drag in hapless bulls to false rallies, and as such, I believe gold will trade in a $1775.00 to $1815.00 range this week.