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Daily Pivots: (S1) 130.94; (P) 131.15; (R1) 131.47; More....

Intraday bias in EUR/JPY remains neutral for consolidation below 131.59 temporary top. 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) 0.8341; (P) 0.8354; (R1) 0.8370; More...

Intraday bias in EUR/GBP remains neutral and some more consolidation could be seen. But outlook will stay bearish as long as 0.8417 resistance holds. Break of 0.8333 will resume larger down trend for 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) 1.5755; (P) 1.5804; (R1) 1.5868; More...

Intraday bias in EUR/AUD remains neutral first. 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) 1.0409; (P) 1.0430; (R1) 1.0455; More....

Intraday bias in EUR/CHF remains on the upside at this point. Rebound from 1.0324 short term bottom would target 55 day EMA (now at 1.0472). Sustained break there will target 38.2% retracement of 1.0936 to 1.0324 at 1.0558. On the downside, below 1.0397 minor support will bring retest of 1.0324 low instead.

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.

Market sentiment is mixed following the unnerving jobs data revealed in the US last Friday. Much lower-than-expected NFP print, and higher wages has been an explosive cocktail for the Federal Reserve (Fed) hawks, as not only the soft NFP data couldn’t get the Fed doves moving, but the improved unemployment rate and the rising wages boosted the Fed hawks. There is now a stronger case for the first rate hike to happen as early as in March in the US.

The US 2-year yield hit the 0.90% mark, and the US 10-year yield advanced to 1.80%.

So, the first week of 2022 hasn’t been as glorious as the first trading hours suggested it would be. The S&P500 made its worst start to the year since 2016, and Nasdaq got smashed by 4.5%. The sentiment of uncertainty could well continue into Wednesday’s US inflation data, which may reveal a further advance to the 7% mark in December, from 6.8% printed a month earlier. The persistent rise in consumer inflation could further boost the Fed hawks, bring them to price a steeper normalization path, and more importantly fuel the expectation that the Fed should rapidly reduce the size of its balance sheet to avoid flattening the yield curve while fighting back inflation. As a result, there is plenty of hawkishness yet to be priced in the asset prices, and that could cause a bit more selling across the markets this week, especially in growth stocks which should feel the pinch of higher interest rates compared with the value names.

There is one hope though: the latest earnings season will kick off this week, and higher rate prospects have certainly not interfered with the corporate performances just yet. Therefore, strong corporate results could reverse the Fed-induced moodiness, and help improve investor appetite, at least on the index level.

European inflation is high and sticky, as well

High inflation is shaping the Fed expectations for 2022, but the same is oddly not true for Europe. The data released on Friday revealed that inflation in Europe hit the 5% mark, versus a slight retreat to 4.7% penciled in by analysts. Higher energy and food prices were mostly responsible for the rising inflation and the headline figure is now well above the ECB’s 2% target. Inflation in Europe is becoming a big sticky problem as well, but the European officials prefer turning a blind eye on the problem. So normally, such inflation read should’ve fed into a stronger euro appetite long ago, but Lagarde’s stubbornness is holding back the ECB hawks, and the euro bulls contained for now. For how long?

Oil

Kazakhstan is now moving towards suppressing the rebellion in the country helped by Russians. China said it would help restoring order if needed as well. Crude oil kicks off the week on a flat-to-negative note. Appetite above $80pb hasn’t been strong, but any price pullback is expected to meet a strong support as the OPEC production remains below target due to supply constraints in many oil producer countries, and that spare capacity is set to soften the bears’ hands in the short, medium run. Solid support is seen near the $75pb, 50 and 100-DMA.

Market movers today

Today, focus is on Scandi data releases with Danish and Norwegian CPI inflation prints and the monthly Swedish GDP indicator due out, see in the Nordic macro section below.

In the euro area, Sentix Investor Confidence and unemployment data are due out.

In the euro area this week, there will be focus on whether Mario Draghi's plans to run in Italy's Presidential election and whether Macron is finally launching his official re-election bid in France. We will also focus on the sharp rise in new omicron cases and developments in energy prices.

Later this week, we will also be looking out for US CPI figures on Wednesday and monthly GDP data out of the UK on Friday.

The 60 second overview

US labour market: We got a mixed jobs report on Friday with weak jobs growth but high wage growth. Labour demand is high but it is difficult for employment to increase significantly when the labour force remains subdued due to Covid. We think the report strengthens the case for tighter monetary policy. The labour market is quite tight and there are likely long-lasting damages to it.

Inflation: Euro area headline inflation posted a new record in December with a slight uptick to 5.0% in December as particularly food prices added further to the huge energy contribution. Core inflation also increased but from a mom perspective core price momentum remains fairly muted.

Equities: Massive sector rotation last week, with banks outperforming tech by 15 percentage points. Such sharp rotation has not been seen in a week since March 2021. While high value stocks felt the pain from rising yields multiple times last year, this time the rotation also spread into long duration stocks, such as real estate, which has not been the case as much earlier this year. Valuation has been the key theme, while the segregation between defensive and cyclicals has played a less crucial role. The rotation lingered on Friday, with energy and banks gaining 1.5%, while tech and consumer discretionary sold off 1-2%. S&P 500 closed down -0.4% (-2% for the week), Nasdaq -1% (a massive -8% for the week), Dow unchanged and Russell 2000 -1.2%. Asian markets are turning a corner this morning, trading slightly higher. US futures are following, led by Nasdaq as investors wish to buy the dip.

FI: Friday's price action will be remembered for the stronger-than-expected wage growth in the US labour market report. A mostly sideways trading session until the release was followed by a sell-off of almost 7bp in the 10y treasuries, before some retracement which left the 10y UST at 1.76% (+4bp on the day). Bunds ended 2bp higher and with the issuance of the new DBR Feb32, we are close to flirting with the 0% level of Bunds for the first time in almost 3 years. Markets did not react to the high euro area inflation prints.

FX: EUR/USD touched the 1.135 level and GBP/USD rallied towards 1.36 as broad USD took a hit following a mixed bag of news on the US jobs market. EUR/SEK dropped below 10.30 and EUR/NOK held steady close to 10.05 on Friday.

Credit: There was a slight risk-off tone in credit on Friday with iTraxx Xover closing 1bp wider and Main 0.6bp wider. HY bonds were unchanged and IG 0.5bp wider. While the primary market kicked 2022 off last week, public holidays kept overall issuance subdued, and hence we expect activity to pick up this week.

Nordic macro

Today in Sweden, a number of growth indicators for November are released. So far, hours worked and real net good exports have been released, both showing a slight decline over the month. Coming up is production, consumption and the overall GDP indicator. As the surge in the Omicron virus was not widespread at this point we expect further gains in all these, suggesting adding to Q4 GDP.

In Norway, core inflation seems to have bottomed out after falling sharply since the summer. We expect it edged up from 1.3% y/y in November to 1.4% y/y in December. In the coming months, the risk is to the upside, as the strong growth in commodity and energy prices and freight costs will probably also push up consumer prices, but we expect this effect to be most evident in the January figures.

In Denmark, we get December CPI inflation and we expect it was unchanged at 3.4%. On the one hand, electricity prices have kept climbing higher, but on the other hand we have seen a significant decline in fuel prices following the plunge in oil prices in late November. We got some signs of a pick-up in the underlying price pressure in November as businesses have been screaming for labour and supplies. It will be very interesting to see if these signs are reaffirmed. The increasingly tight labour market indicates core inflation should pick up.

The conflicting hodgepodge of US employment data released on Friday night hasn’t given Asia much in the way of themes to hang their hats on today, complicated by a Japanese holiday reducing liquidity. An underlying theme of caution still permeates the region, but it is a very mixed picture in equity markets across the region, while currency markets look like they are stuck in the mud, going nowhere fast.

On Friday, the US Non-Farm Payrolls disappointed, adding only 199,000 jobs. The back months were revised up by 141,000 jobs, making a total of 340,000 jobs with some optimistic maths and interpretation, but that is well short of the forecast of between 400,000 and 500,000 jobs. On the other hand, the Labour Force Participation Rate fell once again to 61.90% and official Unemployment fell to 3.90%. Average Hourly Earnings rose MoM rose by 0.60%, and by 4.70% YoY, both well above forecast.

So, the challenge in the US appears to be finding workers to fill jobs, not that there are not enough jobs out there. The JOLTS data amply illustrated that earlier in the week. Headline number aside, there was more than enough to keep the inflation vigilantes awake at night, particularly hourly earnings data. A mid-year lift-off from the Fed remains on track and although the future inflation break evens are universally saying the Fed will succeed in bringing inflation back to 2.0% in the medium term, in the here and now of 2022, a different reality rules.

US equities once again headed south, and US longer-dated yields once again headed North. The playbook failed in currency markets though. Risk sentiment barometers like Australian and New Zealand Dollars held steady, and the Canadian Dollar rallied. Likewise emerging market currencies said “whatever,” and major currencies actually rallied, pushing the dollar index notably lower. That helped gold rally slightly, while oil held steady.

I will circle back to currencies later on, but in Asia today, the piecemeal price action across asset classes on Friday has led to some confused price action in Asian markets today, notably equities. Part of this can be laid at the door of omicron, with Asia refusing to buy into the rich-country Western narrative that it is milder and will have a lower net impact than delta. Much of that “data,” of course, is based on heavily RNA-vaccinated countries, something much of Asia hasn’t had access to.

The evolving situation in Australia and India, with skyrocketing caseloads, won’t give much comfort. Nor will an outbreak in Tianjin in Mainland China, a gateway city to Beijing. China already has widening restrictions on other cities. Hong Kong appears to have had a community outbreak as well. Australia, Taiwan, and Japan have all heightened virus restrictions to differing degrees over the weekend as well. China is especially concerning, with the Mainland and Hong Kong behind a Covid-zero wall, but with low vaccination rates in Hong Kong itself, and the Mainland apparently vaccinated with traditional vaccines, which don’t appear to work against omicron. The odds of a China growth shock because of omicron and Covid-zero are steadily rising by the day.

Elsewhere, China property developers are back in the spotlight as well. Evergrande faces a deadline today to persuade onshore noteholders to not force Evergrande to buy them back by executing puts. Shimao, who defaulted on a loan last week, has allegedly put all its residential and commercial projects up for sale. Finally, Modern Land, yet another troubled and defaulting developer, saw its shares start trading in Hong Kong today after a 2 ½ month suspension. Its stock fell 40% intraday after news emerged of early repayment demands on some of its senior notes. The downside risks continue to accumulate for China despite much research saying buy-the-dip/undervalued of late.

Inflation data from the US and China will dominate the economic calendar this week. China releases its CPI data on Wednesday morning while Wednesday evening sees US December CPI released. At this stage, the risks are tilted towards the downside for China’s data, and higher for the US data. The monetary divergence could see the US rally, not just against the Yuan, but also Asian FX and AUD and NZD. We also have US 3 and 10-year notes, and a 30-year bond auction this week, along with some heavyweight European debt auctions. With US yields rising, and 10-year German bunds approaching 0.0%, the bid to cover ratios are worth monitoring this week. Weak covers won’t be good for equities.

Finally, the Bank of Korea policy decision could get interesting on Friday if USD/KRW continues to hold above 1200.00, or we get a soft-China/firm-US CPI divergence mid-week, which causes another bout of Asian currency weakness.

Asian equities diverge

Friday’s US data dump saw the interest rate hawks win the day, thanks to both the participation and unemployment rate tumbling lower. That saw US equities retreat once again, although a soft Non-Farm headline print took the edge of the negativity. The S&P 500 fell 0.41% with the tech-heavy Nasdaq bearing the bearish brunt once again, falling by 0.96%. The Dow Jones outperformed relatively, almost unchanged at down 0.02%. The perception that value-centric Dow Jones and Russell 2000 companies will be a better inflation hedge continues to rule markets. In Asia the trend continues, Dow futures are unchanged, S&P 500 futures are 0.10% lower, while Nasdaq futures have fallen by 0.35%.

In Asia, we are seeing some divergence, complicated by omicron nerves in Australia, Japan, and China and India. Japan is closed today, but we can assume that if the Nasdaq is lower tonight, the Nikkei will drop like a stone tomorrow. The tech-heavy South Korean Kospi is 1.10% lower. Mainland China sees the Shanghai Composite and CSI 300 0.25% higher, and I suspect some “smoothing” by authorities is happening. Hong Kong has jumped higher by 0.85%, led by Mainland healthcare stocks.

Singapore is 0.75% higher today in what looks like an inflation defensive play with the gains being led by the three local mega-banks. Taipei is just 0.10% higher, while Jakarta is up 0.25% and Kuala Lumpur has gained just 0.15%. Manila is 1.45% higher, and Bangkok is down 0.10%. A weak New York session and omicron cases spiralling into space see Australian markets lower today, but only marginally so thanks to the banking and resource heavyweight backstop. The All Ordinaries and ASX 200 are down just 0.10%, having recovered earlier losses.

The more value-centric European markets are unlikely to suffer the technology ill-winds of the US or the virus nerves of Asia, and I would expect them to open modestly lower today. Of far more interest to Europe, this week will be the government debt auctions and the 10-year bund. If that moves above 0.0%, European equities could take fright, as the only region of the world more addicted to central bank money than Europe, is Japan.

The US Dollar retreats

Perhaps the most surprising move post the US Non-Farm Payrolls, came from the US Dollar, which staged a sharp retreat versus major currencies, even as US yields rose. The dollar index slumped 0.52% to 95.74, before recovering to 95.90 in Asia today. I am at a loss to explain the move lower, in all honesty, I am doubtful that international investors selling US equities alone, could be responsible for it. In the bigger picture, the dollar index is mid-range at 95.90, and as previously stated, 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 were the main winners of US Dollar weakness on Friday, both gaining around 0.50% to 1.1360 and 1.3590. GBP/USD remains steady and has resistance just above 1.3600 which will signal a further rally to 1.3800 if broken. EUR/USD’s rally looks unconvincing 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 remains a bid on dips from 115.50 to 115.00 as long as US yields remain at these levels, targeting 118.00 initially.

AUD/USD and NZD/USD have added 0.20% today to their modest Friday gains, trading at 0.7195 and 0.6770 respectively. 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 and NZD/USD are 0.7150 and 0.7300, and 0.6700 and 0.6850 for Kiwi. USD/CAD fell 0.65% to 1.2640 on Friday, where it remains in Asia. The CAD strength is surprising, and I suspect the rally in oil and industrial metals is providing a back-stop. USD/CAD has support at 1.2600 and resistance at 1.2700.

Asian currencies remain mostly towards the weaker side of their recent range versus the US Dollar, the exception being the Indian Rupee which seems to be receiving hot money flows once again as the China outlook darkens. USD/KRW remains above 1200.00, USD/PHP at 51.40, USD/IDR at 14,400.00, USD/MYR at 4.2040, and USD/THB at 33.700. USD/CNY and USD/CNH look poised to retest 6.3800 shortly, which would put downward pressure on regional FX. The key directional driver this week will be the US CPI data with high CPI prints lifting Fed hiking expectations and pressuring Asian FX.

Oil ignores US jobs data

Oil prices were almost unchanged on Friday, with Brent crude and WTI maintaining their gains even as headline US jobs data came in soft. Brent crude edged 0.20% lower to $81.80, and WTI fell 1.0% to $78.85 a barrel. In Asia, prices have risen slightly with Brent crude trading at $81.90, and WTI at $79.00 a barrel.

Despite prices easing slightly on Friday, oil continues to hold onto almost all its gains from the start of December. That was despite two OPEC+ meetings where production was increased. Part of the answer lies with OPEC+ itself, where overall compliance with production targets by members has been well over 100% for the last six months. The importance of this cannot be emphasised enough as it implies that OPEC+ itself has very little readily available swing production. Assuming that omicron passes and that the global recovery and international travel continue to recover, the supply/demand dynamics for oil will continue to swing towards higher demand and constrained supply. It would not surprise me in the least if Brent crude and WTI rose to near $100 a barrel in the coming months.

In the nearer term, Brent crude has support at $79.60 and the 100-day moving average (DMA) at $78.15 a barrel, with well-denoted resistance now at $83.00 a barrel. A rally through $83.00 signalling a retest of $86.00. WTI has support at $78.50 and $77.50 a barrel, with resistance at $80.50 and 82.00 a barrel.

Gold remains unexciting

A lower US Dollar on Friday gave gold some solace, rising 0.30% to $1796.60 as it remains side-lined in range trading. Gold remains vulnerable to US Dollar strength, and I have no doubt that any meaningful rally will continue to be unwound aggressively at the first sign of trouble.

Gold has edged lower to $1793.70 an ounce in Asia with no momentum apparent either way. Gold has resistance at $1810.00 and $1830.00 an ounce. Support lies at $1785.00, followed by $1780.00 and $1760.00 an ounce. The downside continues to look the more vulnerable and I believe gold will trade in a roughly $1775.00 to $1815.00 range this week.

Daily Pivots: (S1) 1.1312; (P) 1.1338; (R1) 1.1387; More...

Range trading continues in EUR/USD and intraday bias remains neutral first. 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) 1.3546; (P) 1.3572; (R1) 1.3617; More...

Intraday bias in GBP/USD remains on the upside at this point. 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, though, break of 1.3489 minor support will mix up the outlook and turn intraday bias neutral first.

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) 0.9167; (P) 0.9200; (R1) 0.9217; More....

Intraday bias in USD/CHF remains neutral at this point. As long as 0.9084 support holds, choppy rise from 0.8925 could still extend higher. Above 0.9213 will target 0.9293 and then 0.9372. However, break of 0.9101 will resume the fall from 0.9372 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.