Sample Category Title

Daily Pivots: (S1) 0.7145; (P) 0.7185; (R1) 0.7223; More...

Further is in favor in AUD/USD with 0.7089 minor support intact, to 55 day EMA (now at 0.7250). Sustained trading above there will raise the chance that whole correction from 0.8006 has completed, after defending 0.6991 key structural support. Further rally would then be seen back to 0.7555 resistance. On the downside, below 0.7089 minor support will turn bias back to the downside for 0.6991 key support again.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 1.2739; (P) 1.2799; (R1) 1.2833; More...

Intraday bias in USD/CAD stays neutral for the moment and some more consolidations could be seen. Near term outlook stays mildly bullish as long as 1.2604 support holds. On the upside, above 1.2935 will target 1.2947 resistance next. Firm break there will target 1.3022 key medium term fibonacci level.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. On the downside, however, break of 1.2286 will turn focus back to 1.2005 low again.

Daily Pivots: (S1) 113.42; (P) 113.83; (R1) 114.11; More...

USD/JPY retreated after hitting 114.26 and intraday bias is turned neutral first. On the upside, above 114.26 will resume the rebound from 112.52 to retest 115.51 high. On the downside, however, below 113.21 minor support will now likely resume the correction from 115.51 through 112.52 support.

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) on resumption. However, firm break of 109.11 structural support will argue that the trend might have reversed and bring deeper fall to 107.47 support and possibly below.

Daily Pivots: (S1) 0.9170; (P) 0.9214; (R1) 0.9237; More....

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the downside, below 0.9156 will target 0.9084 support. Firm break there should confirm that choppy rise from 0.8925 has completed, and suggests that fall from 0.9471 is resuming. Deeper decline would be seen through 0.8925. On the upside, break of 0.9293 will suggest that the pull back from 0.9372 is finished. Intraday bias will be turned back to the upside for 0.9372.

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) 1.3252; (P) 1.3313; (R1) 1.3384; More...

Intraday bias in GBP/USD remains mildly on the upside at this point. A short term bottom should be formed after defending 1.3164 key medium term fibonacci level. Further rise would be seen to 1.3570 support turned resistance first. Firm break there will affirm the case that whole correction from 1.4248 has completed. On the downside, however, sustained break of 1.3164 will carry larger bearish implications.

In the bigger picture, immediate focus is now on 38.2% retracement of 1.1409 to 1.4248 at 1.3164. Sustained break there will argue that whole rise from 1.1409 has completed at 1.4248, after rejection by 1.4376 long term resistance. That will revive some medium term bearishness and and target 61.8% retracement at 1.2493. However, strong rebound from current level will revive that case and up trend from 1.1409 is still in progress, and probably ready to resume.

The dust is settling on central bank week, with the Bank of Japan leaving policy rates and its 10-year JGB yield target of 0.0% unchanged. It has announced it will scale back its pandemic bond and commercial buying programs in 2022 while extending the SME relief program. USD/JPY is sharply unchanged, unsurprising given that the US/Japan yield differential is its key driver.

The BOJ's announcement follows in a similar vein to the ECB's “the lady is not for tapering” tapering not tapering announcement yesterday. Policy rates remained unchanged, but tapering of the PEPP was announced, although it replaced that by that with, you guessed it, more QE under the old APP scheme, as well as continuing with the TLTRO's. A very European compromise overall with the ECB acknowledging inflationary pressures, but well and truly hedging its bets. Overall, the QE forever family of the BOJ and ECB made plenty of noise but did very little tinkering under the bonnet. Both the Yen and the Euro are likely to have a tough Q1 versus the US Dollar.

Elsewhere, it was a mixed result. Norway and Britain have hiked modestly, while Australia and Southeast Asia remain cemented to unchanged, inflation be damned. Latin America, Eastern Europe and Russia have seen a series of hikes continuing and this will spare them the worst of the ravages of a stronger US Dollar in H1 2022. Turkey, meanwhile, cut rates under Erdoganomics. President Erdogan also fired a couple of people, and the Turkish Lira looks to have lost another 12% while I have been away this week. I might have to pencil in USD/TRY at 20.000 by early January at this rate. It would be comical if it wasn't so sad for the people of Turkey.

The FOMC has swung to hawkish, as per the hints from Jerome Powell pre-FOMC. A faster taper and three rate hikes “dot-plotted” into 2022 are the new reality now. I wasn't the least surprised at the equity and bond market reaction. The “buy everything” story rules the roost and annoying things like reality won't get in the way of it. The FOMC flip was interpreted by the perpetual mega-bulls as proactively anchoring future inflation expectations, something long-dated bond markets have been pricing in forever, so buy big-tech, I mean growth. How bonds and equities will weather the Fed not buying billions of bonds each month remains to be seen. The story looks to be running out of steam already looking at equity markets overnight. The US yield curve will maintain a healthy attraction if you are a fund manager in QE-forever Europe or Japan, so I am not expecting long-dated yields to explode higher. It does, however, reinforce my thoughts that the US Dollar will be the winner in H1 2022.

I will reiterate once again, however, that V for Volatility, and not directional trends, will continue to be the winner in December. I am also quietly hoping that the US Dollar falls, and equities rise in January as well. The new budget year usually brings a group-think kitchen-sink rush in a particular thematic trade. Unfortunately, bitter experience tells me that the first big move of the year in January is usually the wrong one. So, keep going on the “buy-everything” trade, it's all part of my cunning plan, and I love it when a plan comes together.

In Asia today, Singapore posted robust non-oil exports. Overall, omicron has not caused the global economy to blink yet it seems, but that appears to be because the world is fed up with lockdowns and restrictions, rather than the virus itself. The news from China continues to concern, however. The bottom-pickers buy recommendations are flowing thick and fast on China property companies. As I said last week, there's never just one cockroach.

Having vaccinated its population with Sinovac, which doesn't appear to work against omicron, we can safely assume China won't be opening borders in 2022. That, along with the still-developing property sector woes will crimp growth. Additionally, the US has added another 34 Chinese entities to its blacklist, so US/China relations are going nowhere in a hurry. Hopefully, the rest of the world can pick up some of the slack in 2022.

I note that the YouTuber's tool of choice, drone maker DJI, is one of those entities. Are YouTubers about to suffer a Christmas Black Swan? Hit the like and subscribe buttons to see.

A mixed day for Asian equities

The post-FOMC “inflation expectations are now anchored” rally has petered out. Technology, or growth, took a bath overnight as the Nasdaq plummeted by 2.47%, while the S&P 500 fell 0.87%, with the “value-heavy” Dow Jones easing just 0.09%. In Asia, futures on all three indexes continue to ease, shedding around 0.30%. With multiple expires on equity instruments occurring this evening in the US, some distortion because of that could be in play, as could end of yearbook squaring etc. I expect the choppy price action to continue to spoof fast-money players into the year-end, both in the US and elsewhere.

The Wall Street tech retreat overnight has had a similar effect on Asian markets with similar weightings, with the US addition of another swath of Chinese companies to their entity lists also weighing on sentiment. The Nikkei 225 is 1.55% lower, with markets completely ignoring the Bank of Japan. South Korea's Kospi has eased by 0.25%. Mainland China is also lower, the Shanghai Composite falling by 0.95%, and the CSI 300 has retreated by 0.70%. Meanwhile, the Hang Seng is 1.25% in the red.

Regionally, Singapore has eased 0.30% lower while Kuala Lumpur has climbed 0.30%. Jakarta has retreated 0.40%, with Taipei easing just 0.15%. Bangkok and Manila have fallen by 0.40%. Australia is bucking the trend with local markets rising. The All Ordinaries has risen 0.25%, while the ASX has rallied by 0.35%.

Softer post-FOMC US Dollar continues

The US Dollar fell after the FOMC meeting as investors priced in lower longer-term inflation expectations thanks to a pro-active FOMC. Longer-dated yields continue to trade on the softer side, although volatility remains at the shorter end of the curve. There is also likely to be some end of year book-squaring flows that will weigh on the greenback over the next two weeks. It will be interesting to see if we get the usual squeeze on overnight offshore dollar funding rates over the New Year turn this year, which should be greenback supportive next week.

Also weighing on sentiment is the failure of the Biden Build Back Better Bill to make it through the US Congress this year; if it ever does. Technically, that should mean less government borrowing, and less upward pressure on US bond yields and thus, less upward pressure on the US Dollar. Risk sentiment is also steadier in currency versus equity markets right now, particularly6 regarding omicron. Currency markets are pricing in no virus dip from the new variant, most notable in strength in Asian EM and the commonwealths.

The dollar index fell sharply again overnight by 0.34% to 96.00, easing to 95.92 in Asia. Support at 95.50 could well be tested into the year-end, and I would not be surprised to see that continue into January before the FOMC monetary reality hits markets. EUR/USD rose sharply overnight to 1.1340 after a taper, not taper, announcement from the ECB. The rally remains asthmatic though, unable to reclaim 1.1350, and the Euro, along with the Yen, remain highly vulnerable to US Dollar strength and rate differentials going forward.

A 10 basis point hike from the Bank of England overnight has lifted GBP/USD to 1.3330 today with the street pricing in future hikes after yesterday's surprise. However, until we close above 1.3500, Sterling remains in a technical downtrend and the UK could yet suffer an omicron upset. AUD, CAD and NZD all outperformed overnight thanks to steady risk sentiment, much like Asian FX.

Asian currencies have had a mixed performance. The Yuan continues to strengthen despite weaker fixes from the PBOC. With China borders likely closed for all of 2022, the trade surplus flows will continue underpinning Yuan strength. The SGD, THB, PHP, and IDR have all performed well post-FOMC, most likely because omicron has been discounted as a risk factor by investors. Although the INR and KRW have failed to rally, they are still holding steady. Both currencies are likely to feel the heat of fast-money outflows into the year-end, limiting gains.

Oil searches for equilibrium

Oil prices have endured another choppy range-trading week, although, by the standards of early December, the volatility remains modest. A continuing recovery ex-China and the threat of OPEC+ moving suddenly, is offset by an easing energy crunch in China and omicron growth fears. That has left oil markets looking for a more settled equilibrium price until the narrative convincingly changes one way or the other.

Brent crude rose 0.40% to $74.60 overnight, easing to $74.30 in Asia. It looks set to trade between its 100 and 200-day moving averages (DMAs) at $76.80 and $73.20 into the year-end. WTI climbed by 0.70% to $71.95 overnight, easing to $71.60 in Asia. It has clearly denoted resistance above $73.00 a barrel, followed by its 100-DMA at $74.00. Its 200-DMA at $70.50, and technical support at $69.50 a barrel, should contain any sell-offs.

Gold's recovery continues

Gold spiked higher overnight, continues its post-FOMC recovery. Gold finished 1.25% higher at $1799.00 an ounce, an impressive rally in two days from its post-FOMC lows around $1753.00 an ounce. In Asia, the rally has continued, with gold rising 0.30% to $1805.00 an ounce as local investors put on risk insurance for the weekend.

Gold has now cleared and closed above its 50, 100 and 200-DMAs at $1789.00, $1795.00 and $1786.50, an ostensibly bullish technical move. As ever, though, the rally overnight has more than a small hint of desperate fast-money to it. Gold bulls have been led to water before, only to find a massive Nile crocodile awaiting them in the watering hole.

The jury is still out on whether the rally is sustainable, although is US Dollar weakness continues, combined with year-end risk hedging, there may still be juice left in it. Gold has resistance at $1810.00 and $1820.00 an ounce and that could possibly extend to $1840.00 an ounce. Readers should tread with extreme caution if we see that level before the month-end.

General trend

• Reminder: China loan prime rates (LPRs) may be lowered during Dec, cited analysts - Chinese press [from Dec 16th].
• Australia New South Wales (highest population state) reported another record for virus cases.
• Australia debt agency cut FY21/22 bond issuance plan.
• Risk-sensitive commodity currencies trade lower, Crude Oil FUTs also drop.
• Quiet Asian session seen for GBP/USD amid BOE rate hike.
• USD/JPY trades slightly lower.
• US equity FUTs extended declines in Asia, Nasdaq FUTs continued to lag; Some are focusing on Friday’s option expiration.
• FedEx rose during afterhours trading amid earnings/guidance and buyback.
• Cerner [CERN] rose on renewed M&A talk.
• Nikkei 225 has extended declines.
• Hang Seng ended the morning session near the lows (-1.3%).
• Shanghai Composite also continued to decline during morning trading.
• S&P ASX 200 has pared gain.
• BOJ Gov Kuroda to hold post rate decision press conference at 06:30 GMT [will he comment on the recent rise in repo rates?].
• Companies due to report during the NY morning include Darden Restaurants, Winnebago.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat.
• (AU) Australia Treasurer Frydenberg: China is unable to replace Australia Iron Ore very easily.
• (AU) NSW recorded 2,213 new COVID cases [record high]; South Australia has also reported a record high for new virus cases - Australian press.
• (AU) Australia AOFM Issuance Program/MYEFO 2021-22: Cuts planned gross issuance of Treasury Bonds for 2021-22 to ~A$105B (of which A$44.3B has been completed) v ~A$130B prior.

Japan

• Nikkei 225 opened -0.7%.
• (JP) Bank of Japan (BOJ) leaves interest rate on excess reserves (IOER) unchanged at -0.10%; as expected; Announces partial extension of the Special Program to Support Financing in Response to COVID-19 to Sept 2022 (prior Mar 2022), but reduced the scale of the program.
• (JP) Japan PM Kishida's visit to the US has been postponed to 2022 - Nikkei.
• (JP) Japan Govt said to be looking at maintaining new JGB issuance in the ~¥30T range for FY22/23 [~¥43.6T was initially planned]; notes economic recovery may support tax revenues - Press.
• (JP) Japan Govt to convene diet session on Jan 17th (Mon) - Press.
• (JP) Japan considers extending border controls past Jan - Press.

Korea

• Kospi opened -0.7%.
• (KR) South Korea to spend ~KRW3.2T on small business owners during coronavirus restrictions.

China/Hong Kong

• Hang Seng opened -0.1%; Shanghai Composite opened -0.1%.
• (CN) China PBOC Deputy Gov Chen: Calls for creation of financial risks alert system.
• (CN) China PBOC sets Yuan reference rate: 6.3651 v 6.3637 prior.
• (CN) China PBOC Open Market Operation (OMO): Sells CNY10B in 7-day reverse repos v CNY10B prior; Net CNY0B v Net CNY0B prior.
• (US) Senate passes bill unanimously to ban all imports from Xinjiang, China unless US govt determines that they were not made with forced labor; Bill now moves to Pres Biden who has indicated he will sign it.
• (CN) China Stats Bureau (NBS) Revises 2020 GDP growth to 2.2% v 2.3% prior (>40 year low).
• CN) China Finance Ministry (MOF) said debt risks related to local governments are 'generally' under control - Chinese press.
• (HK) Hong Kong Government: To sell land site in Tsing Yi by public tender, the move will support the development of logistics.
• (CN) China Ministry of Finance (MOF) Sells 3-month bills and 50-year bonds.

North America

• (US) President Biden: Has productive call with Schumer and Pelosi; Believes Build back better will receive support to pass in Senate.
• (US) Nov Housing Starts: 1.679M V 1.567ME; Building permits: 1.712M V 1.661ME.
• (US) Price-fixing case related to Chicken industry prices said to end in mistrial - US financial press.
• (US) Initial Jobless Claims: 206K V 200KE; Continuing claims: 1.85M V 1.94ME.
• (US) Dec Preliminary Markit PMI Manufacturing : 57.8 V 58.5E.
• (US) Dec Philadelphia Fed Business Outlook Survey: 15.4 V 29.6E.
• (US) Nov industrial Production M/M: 0.5% V 0.6%E; Capacity Utilization: 76.8% V 76.8%E.

Europe

• (DE) German Chancellor Scholz: Will continue to closely watch energy price situation; Do not plan an obligation for coronavirus tests for travel in the EU.
• (FR) France President Macron: No plans to introduce obligatory coronavirus tests for travel in the EU.
• (UK) Liberal Democrats said to win the North Shropshire seat by defeating the UK Conservatives in special election - UK media.

Others

• (PE) Peru Congress to debate giving tax law powers to Govt on Dec 17.

Levels as of 00:20 ET

• Nikkei 225, -1.9%, ASX 200 +0.1% , Hang Seng -1.2%; Shanghai Composite -0.9% ; Kospi flat.
• Equity S&P500 Futures: -0.2%; Nasdaq100 -0.3%, Dax -0.3%; FTSE100 -0.5%.
• EUR 1.1340-1.1320 ; JPY 113.85-113.44 ; AUD 0.7187-0.7151 ;NZD 0.6829-0.6774.
• Gold +0.3% at $1,803/oz; Crude Oil -1.2% at $71.53/brl; Copper flat at $4.2977/lb.

Daily Pivots: (S1) 1.1289; (P) 1.1324; (R1) 1.1368; More...

EUR/USD is still bounded in sideway trading in range of 1.1185/1382. Intraday bias remains neutral first. On the upside, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1436). Sustained break there will be a sign of larger bullish reversal. On the downside, break of 1.1185 will resume larger fall 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.

Overall markets are rather mixed so far, as guided by the volatile risk sentiment. There is no clear follow through moves in the markets. Sterling is the strongest one for the week so far, after the surprised BoE rate hike. But Swiss Franc is the second strongest, as helped by some safe haven flow. Canadian Dollar is the worst performing, while even the strong Aussie is losing much momentum. Dollar and Euro are mixed and they're still bounded in range against each other.

Technically, Gold is probably displaying the clearest picture. A short term bottom is formed at 1752.32 with break of 1792.94 resistance. It's supported by bullish convergence condition in 4 hour MACD too. Fall from 1877.05 should be finished. If Gold could grab firm hold above 1800 handle, there is prospect of further rise back to 1877.05 resistance. That, if happens, would be a sign of Dollar weakness.

In Asia, at the time of writing, Nikkei is down -1.63%. Hong Kong HSI is down -1.28%. China Shanghai SSE is down -0.90%. Singapore Strait Times is down -0.28%. Japan 10-year JGB yield is up 0.0016 at 0.046. Overnight, DOW dropped -0.08%. S&P 500 dropped -0.87%. NASDAQ dropped -2.47%. 10-year yield dropped -0.041 to 1.422.

BoJ keeps interest rates unchanged, scales back emergency funding

Under the yield curve control, BoJ kept short-term policy interest rate unchanged at -0.10%, and 10-year JGB target at around 0% without upper limit to purchases. It will continue to buy ETFs and J-REITs with upper limits of JPY 12T and JPY 180B respectively on annual paces.

The Special Program to Support Financing in Response to the Novel Coronavirus is extended in part by six months until the end of September 2022. The additional purchases of commercial paper and corporate bonds will be complete at the end of March 2022 as scheduled with outstanding amounts gradually drop back to pre-pandemic levels.

BoJ said, "Japan's economy is projected to continue growing at a pace, albeit slower, above its potential growth rate." Core CPI is "likely to increase moderately in positive territory in the short run," and "projected to increase gradually as a trend".

The course of COVID-19 continues to warrant attention". There are "high uncertainties over whether the resumption of economic activity can progress smoothly". Attentions should also be paid to risk that "effects of supply-side constraints seen in some areas will be amplified or prolonged."

New Zealand ANZ business confidence dropped to -23.2, inflation expectations rose further

New Zealand ANZ business confidence dropped further to -23.2 in December, down from November's -16.4. Own activity outlook dropped from 15.0 to 11.8. Export intentions dropped from 9.5 to 8.8. Investment intentions dropped from 16.3 to 11.4. Employment intentions dropped from 15.8 to 10.5. Pricing intentions dropped from 66.5 to 63.6. Inflation expectations rose further from 4.24% to 4.42%.

ANZ said: "Unfortunately the cloud of uncertainty that hangs over 2022 is not a great deal smaller, nor fluffier... Labour shortages and cost pressures rank high in firms' list of concerns, and freight disruptions are getting worse... But having trouble meeting demand is probably a better problem to have than not having enough demand.

UK Gfk consumer confidence dropped to -14, slightly depressed end of year

UK Gfk consumer confidence dropped from -14 to -15 in December. Personal financial situation over the next 12 months dropped from 2 to 1. General economic situation over the next 12 months dropped from -23 to -24. Major purchase index also dropped from -3 to -6.

Joe Staton, Client Strategy Director, GfK says: "News about the Omicron variant could not have arrived at a worse time for festive celebrations... We end 2021 on a slightly depressed note and it looks like it will be a bleak midwinter for UK consumer confidence possibly with new COVID curbs and little likelihood of any real uplift in the first months of 2022."

Looking ahead

Germany Ifo business climate, PPI and Eurozone CPI final will be released in European session. Canada will release foreign securities purchases.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1289; (P) 1.1324; (R1) 1.1368; More...

EUR/USD is still bounded in sideway trading in range of 1.1185/1382. Intraday bias remains neutral first. On the upside, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1436). Sustained break there will be a sign of larger bullish reversal. On the downside, break of 1.1185 will resume larger fall 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.

Economic Indicators Update

Under the yield curve control, BoJ kept short-term policy interest rate unchanged at -0.10%, and 10-year JGB target at around 0% without upper limit to purchases. It will continue to buy ETFs and J-REITs with upper limits of JPY 12T and JPY 180B respectively on annual paces.

The Special Program to Support Financing in Response to the Novel Coronavirus is extended in part by six months until the end of September 2022. The additional purchases of commercial paper and corporate bonds will be complete at the end of March 2022 as scheduled with outstanding amounts gradually drop back to pre-pandemic levels.

BoJ said, "Japan's economy is projected to continue growing at a pace, albeit slower, above its potential growth rate." Core CPI is "likely to increase moderately in positive territory in the short run," and "projected to increase gradually as a trend".

The course of COVID-19 continues to warrant attention". There are "high uncertainties over whether the resumption of economic activity can progress smoothly". Attentions should also be paid to risk that "effects of supply-side constraints seen in some areas will be amplified or prolonged."

Full statement here.