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Daily Pivots: (S1) 115.60; (P) 115.89; (R1) 116.16; More...

USD/JPY is staying in consolidation below 116.34 temporary top and intraday bias remains neutral. Downside of retreat should be contained well above 114.26 support turned resistance to bring another rally. On the upside, sustained 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.

Daily Pivots: (S1) 0.9179; (P) 0.9202; (R1) 0.9235; More....

Intraday bias in USD/CHF remains mildly on the upside at this point. Fall from 0.9372 should have completed with three waves down to 0.9101. Further rally would be seen to 0.9293 resistance first. Break will likely resume the choppy rise from 0.8925 through 0.9372 resistance. On the downside, 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.

At the time of writing, markets are still figuring out how to react to the mixed US non-farm payroll data. While the headline job grow was very disappointing, unemployment rate improved. More importantly, wages reported another month of strong growth. Canadian Dollar is trading mildly higher after strong job data, but there is no clear follow through buying yet. For, Sterling and Dollar are still the strongest ones for the week while Aussie and Kiwi are the weakest.

In Europe, at the time of writing, FTSE is down -0.05%. DAX is down -0.85%. CAC is down -0.65%. Germany 10-year yield up sharply by 0.052 at -0.047. Earlier in Asia, Nikkei dropped -0.03%. Hong Kong HSI rose 1.82%. China Shanghai SSE dropped -0.18%. Singapore Strait Times rose 0.66%. Japan 10-year JGB yield rose 0.0160 to 0.135.

US non-payroll missed expectation, but unemployment rate and wage growth beat

US non-farm payroll employment rose only 199k in December, much worse than expectation of 400k. Overall job growth averaged 537k per month in 2021. Non-farm employment remained -3.6m, or -2.3%, from its pre-pandemic level in February 2020.

Unemployment rate dropped to 3.9%, down from 4.2%, better than expectation of 4.1%. Number of unemployed persons dropped -483k to 6.3m. Labor force participation rate was unchanged at 61.9%, remain -1.5% below pre-pandemic level.

Average hourly earnings rose strongly by 0.6% mom, above expectation of 0.4%.

Canada employment grew 54.7k in Dec, way above expectation

Canada employment grew 54.7k in December, much better than expectation of 24.5k. Full-time employment rose 123k while part-time employment dropped -68k. Total hours worked dropped -0.3%, first decline since June.

Unemployment rate dropped from 6.0% to 5.9%, better than expectation of 6.0%. Labor force participation rate held steady at 65.3%.

Eurozone CPI accelerated to 5.0% yoy in Dec, another record

Eurozone inflation accelerated from 4.9% to 5.0% in December, above expectation of 4.7% yoy. That's another record print since record began in 1991. CPI core was unchanged at 2.6% yoy, above expectation of 2.3% yoy.

Energy is expected to have the highest annual rate in December (26.0%, compared with 27.5% in November), followed by food, alcohol & tobacco (3.2%, compared with 2.2% in November), non-energy industrial goods (2.9%, compared with 2.4% in November) and services (2.4%, compared with 2.7% in November).

Eurozone retail sales rose 1.0% mom in Nov, EU up 0.9% mom

Eurozone retail sales rose 1.0% mom in November, much better than expectation of -0.5%. Volume of retail trade increased by 1.6% for non-food products and by 0.6% for food, drinks and tobacco, while it fell by -1.5% for automotive fuels.

EU retail sales rose 0.9% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Spain (+4.9%), Luxembourg (+4.0%) and Portugal (+2.8%). The largest decreases were observed in Austria (-4.1%), Latvia (-3.6%) and Croatia (-3.1%).

Eurozone economic sentiment dropped to 115.3 in Dec, EU down to 114.5

Eurozone Economic Sentiment Indicator dropped -2.3 pts to 115.3 in December. Employment Expectations Indicator dropped -1.6 pts to 114.0. Industry confidence rose from 14.3 to 14.9. Services confidence dropped sharply from 18.3 to 11.2. Consumer confidence dropped from -6.8 to -8.3. Retail trade confidence dropped from 3.7 to 1.1. Construction confidence rose from 9.0 to 10.2.

EU ESI dropped -2.1 pts to 114.5. EEI dropped -1.4 pts to 114.2. Amongst the largest EU economies, the ESI rose only in Poland (+0.6). By contrast, confidence worsened in the Netherlands (-4.1), Germany (-2.8), France (-2.1), Italy (-1.6) and Spain (-0.8).

Also released, Germany industrial production dropped -0.2% mom in November, versus expectation of 1.0% mom. Trade surplus narrowed to EUR 10.9B, versus expectation of EUR 12.7B.

France consumer spending rose 0.8% mom in November, versus expectation of 0.5% mom. Industrial output dropped -0.4% mom, versus expectation of 0.5% mom. Trade deficit widened to EUR -9.7B, versus expectation of of EUR -7.2B.

Swiss retail sales rose strongly by 5.8% yoy in November, versus expectation of 0.8% yoy. Unemployment ticked down to 2.4%, versus expectation of being unchanged at 2.5%.

UK PMI construction dropped to 54.3, worst phase of supplier delays passed

UK PMI Construction dropped from 55.5 to 54.3 in December, above expectation of 53.9. Markit said weakness centered on commercial and civil engineering segments. House building regained its place as fastest-growing category. Suppliers delay were the least widespread since November 2020.

Tim Moore, Director at IHS Markit: "UK construction companies ended last year on a slightly weaker footing... The worst phase of supplier delays seems to have passed... Input cost inflation moved down another notch.... The latest rise in purchasing prices was far slower than the 24-year peak seen last June."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9179; (P) 0.9202; (R1) 0.9235; More....

Intraday bias in USD/CHF remains mildly on the upside at this point. Fall from 0.9372 should have completed with three waves down to 0.9101. Further rally would be seen to 0.9293 resistance first. Break will likely resume the choppy rise from 0.8925 through 0.9372 resistance. On the downside, 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.

Economic Indicators Update

Canada employment grew 54.7k in December, much better than expectation of 24.5k. Full-time employment rose 123k while part-time employment dropped -68k. Total hours worked dropped -0.3%, first decline since June.

Unemployment rate dropped from 6.0% to 5.9%, better than expectation of 6.0%. Labor force participation rate held steady at 65.3%.

Full release here.

US non-farm payroll employment rose only 199k in December, much worse than expectation of 400k. Overall job growth averaged 537k per month in 2021. Non-farm employment remained -3.6m, or -2.3%, from its pre-pandemic level in February 2020.

Unemployment rate dropped to 3.9%, down from 4.2%, better than expectation of 4.1%. Number of unemployed persons dropped -483k to 6.3m. Labor force participation rate was unchanged at 61.9%, remain -1.5% below pre-pandemic level.

Average hourly earnings rose strongly by 0.6% mom, above expectation of 0.4%.

Full release here.

UK Construction PMI cools off

The UK Construction PMI for December indicated that growth at cooled off and fallen to a 3-month low. The PMI slowed to 54.3, down from 55.5 in November. Although the construction sector continues to expand, the pace of expansion is considerably weaker than the summer months, when we were seeing readings in the mid-60s. This follows a disappointing Services PMI on Thursday, which fell from 58.5 to 53.6, its lowest level since February 2021.

The reason for the weak PMIs is the spread of the Omicron Covid variant, which has taken a toll on hospitality and travel as well as construction activity. Although Omicron appears to be milder than other Covid variants, the numbers of infections has skyrocketed, and this could result in negative growth for the UK in December and January. This could cause the Bank of England to delay its next rate hike, which had been expected as early as February.

There is plenty of anticipation ahead of the US nonfarm payroll release, especially after the huge ADP release earlier this week. The ADP gain of 807 thousand was double the consensus of 400 thousand, but historically, ADP has not been a reliable gauge of nonfarm payrolls.

The forecast for NFP is around 425 thousand, and a release below 250 thousand or above 550 thousand could shake up the US dollar. Investors are starting to get nervous now that a Fed rate hike may be only a few months away, and the timeline for the first rate hike of the year could be impacted by the strength of the nonfarm payroll release. A strong gain would strengthen the likelihood of a March hike, while a soft NFP could delay a rate hike and result in a rotation out of US dollars.

GBP/USD Technical Analysis

• GBP/USD has support at 1.3426 and 1.3329
• There is resistance at 1.3585. Above, there is resistance at 1.3647

The Canadian dollar is on a holding pattern ahead of key Canadian and US employment reports later today. Currently, USD/CAD is trading just above the 1.27 line.

Nonfarm payrolls could shake up US dollar

It could be an active North American session for the Canadian dollar, with the release of Canada’s job creation numbers and the US nonfarm payrolls. Expectations are low for the Canadian data, with a forecast of just 27 thousand new jobs in December, after a robust gain of 153 thousand in November. There is plenty of anticipation around the nonfarm payroll release, however, especially after the monster ADP release earlier this week. The ADP gain of 807 thousand was double the consensus of 400 thousand, but historically, ADP has not been a reliable gauge of nonfarm payrolls.

The forecast for NFP is around 425 thousand, and a release below 250 thousand or above 550 thousand could shake up the US dollar. Investors are starting to get nervous now that a Fed rate hike could only a few months away, and the timeline for the first rate hike could be impacted by the strength of the nonfarm payroll release. A strong gain would strengthen the likelihood of a March hike, while a soft NFP could delay lift-off of a hike, which could lead to a rotation out of US dollars.

In determining when to start hiking, policymakers will be looking not only at the strength of the recovery but also at inflationary pressures. The Fed has abandoned its view that inflation is ‘transitory’ and this week’s FOMC minutes indicated that policymakers viewed inflation risks to the upside and are also concerned about the very tight job market. The minutes also stated that the Fed is considering scaling back its balance sheet as another brake on the economy. The markets took note, with 10-year bonds rising above 1.70% and CME FedWatch pegging the likelihood of a March hike above 70%.

USD/CAD Technical

• USD/CAD is testing resistance at 1.2784. Above, there is resistance at 1.2929
• There are support levels at 1.2558 and 1.2477

Eurozone Economic Sentiment Indicator dropped -2.3 pts to 115.3 in December. Employment Expectations Indicator dropped -1.6 pts to 114.0. Industry confidence rose from 14.3 to 14.9. Services confidence dropped sharply from 18.3 to 11.2. Consumer confidence dropped from -6.8 to -8.3. Retail trade confidence dropped from 3.7 to 1.1. Construction confidence rose from 9.0 to 10.2.

EU ESI dropped -2.1 pts to 114.5. EEI dropped -1.4 pts to 114.2. Amongst the largest EU economies, the ESI rose only in Poland (+0.6). By contrast, confidence worsened in the Netherlands (-4.1), Germany (-2.8), France (-2.1), Italy (-1.6) and Spain (-0.8).

Full release here.

Eurozone retail sales rose 1.0% mom in November, much better than expectation of -0.5%. Volume of retail trade increased by 1.6% for non-food products and by 0.6% for food, drinks and tobacco, while it fell by -1.5% for automotive fuels.

EU retail sales rose 0.9% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Spain (+4.9%), Luxembourg (+4.0%) and Portugal (+2.8%). The largest decreases were observed in Austria (-4.1%), Latvia (-3.6%) and Croatia (-3.1%).

Full release here.

Eurozone inflation accelerated from 4.9% to 5.0% in December, above expectation of 4.7% yoy. That's another record print since record began in 1991. CPI core was unchanged at 2.6% yoy, above expectation of 2.3% yoy.

Energy is expected to have the highest annual rate in December (26.0%, compared with 27.5% in November), followed by food, alcohol & tobacco (3.2%, compared with 2.2% in November), non-energy industrial goods (2.9%, compared with 2.4% in November) and services (2.4%, compared with 2.7% in November).

Full release here.