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Daily Pivots: (S1) 1.1259; (P) 1.1289; (R1) 1.1317; More...

Intraday bias in EUR/USD remains neutral as range trading continues. Downside breakout is mildly in favor with 1.1382 minor resistance intact. 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. On the upside, however, 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 1.1450).

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) 0.9199; (P) 0.9228; (R1) 0.9251; More....

Range trading continues in USD/CHF and intraday bias remains neutral. On the upside, break of 0.9274 will suggest that the pull back from 0.9372 is finished. Intraday bias will be turned back to the upside for 0.9372. 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.

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.

The British pound had moved higher on Tuesday, as GDP/USD trades at 1.3253, up 0.30% on the day.

UK jobs posts sharp job data

UK employment numbers were solid on Monday, although the pound still lost ground. Unemployment rolls continue to drop, with the November reading coming in at -49.8 thousand. The unemployment rate dropped to 4.2% in the three months to October, down from 4.3% a month earlier. Wage growth came in at a strong 4.9%. What is noteworthy about the employment report is that unemployment has been falling despite the end of the job furlough programme. This points to a continuing recovery in the labour market. Still, the employment picture is not all rosy. There is growing concern that job growth is stalling, due to the rapid spread of the Omicron variant. If the government introduces more severe health restrictions, that will translate into closures and unemployment will rise.

The BoE is in a tough spot ahead of the policy meeting on Thursday, and it remains uncertain whether the bank will raise rates. An improving labor market and high inflation are supportive of a rate hike. The Fed has given up on labeling inflation as “transitive”, and one would assume that the BoE agrees that such is the case with UK inflation, even if they haven’t come out and admitted it. Still, the potential impact of the Omicron variant remains the elephant in the room and there is about a 60% likelihood that the BoE will stay pat and maintain the 0.10% cash rate. If the bank does press the rate trigger, it would likely raise the cash rate by 15 bps, to 0.25%.

All eyes are on the FOMC policy meeting on Wednesday. In November inflation rose 6.8% y/y, the highest in 40 years. This makes it likely that the Fed will announce that it will double the pace of its taper, to US 30 billion/month. This means we can expect a rate hike in mid-2022, if not earlier. Investors will be paying close attention to the dot plot, which is expected to indicate that policymakers have become more hawkish in recent months.

GBP/USD Technical Analysis

• GBP/USD has support at 1.3190 and 1.3116
• There is resistance at 1.3314 and 1.3364

Daily Pivots: (S1) 113.32; (P) 113.53; (R1) 113.78; More...

USD/JPY is still bounded in range trading and intraday bias remains neutral for now. On the downside, sustained break of 112.71 will argue that it's already correcting whole rise from 102.58. Deeper fall would be seen to 38.2% retracement of 102.58 to 115.51 at 110.57. On the upside, break of 113.94 minor resistance will turn bias back to the upside for retesting 115.51 high instead.

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.

Commodity currencies remain generally weak today on mixed market sentiment. But buying is turned to European majors, with Swiss Franc having an upper hand. Dollar and Yen, on the other hand, soften mildly. The greenback has little reaction to record PPI reading. Meanwhile, it should be noted that major forex pairs are staying inside last week's range. In particular, there is no sign of range breakout in Dollar versus Yen and Europeans.

Technically, though, Gold might be offering some hope for return to volatile. It dips notably again today after failing to sustain above 4 hour 55 EMA. We'd continue to favor a downside breakout for now. Break of 1761.76 will resume the fall from 1877.05 to 1721.46 support next.

In Europe, at the time of writing, FTSE is up 0.35%. DAX is down -0.20%. CAC is down -0.03%. Germany 10-year yield is up 0.008 at -0.372. Earlier in Asia, Nikkei dropped -0.73%. Hong Kong HSI dropped -1.33%. China Shanghai SSE dropped -0.53%. Singapore Strait Times rose 0.04%. Japan 10-year JGB yield rose 0.0004 to 0.050.

US PPI rose 0.8% mom, 9.6% yoy in Nov, highest annual rise on record

US PPI for final demand rose 0.8% mom in November, above expectation of 0.6% mom. For the 12-month period, PPI rose 9.6% yoy, accelerated from 8.6% yoy, above expectation of 9.1% yoy. That's also the largest annual advance on record since November 2010.

PPI less foods, energy, and trade services rose 0.7% mom, 6.9% yoy. The annual rise was the highest on record too, since August 2014.

IMF urges BoE to avoid inaction bias, should prepare markets for more frequent policy moves

In the United Kingdom Staff Concluding Statement of the 2021 Article IV Mission, IMF urged BoE to "avoid inaction bias" in a statement today, despite facing "difficult trade-offs".

"It would not be a simple matter to see through extended shifts in relative wages and prices while keeping expectations anchored," IMF said. "It would be important to avoid inaction bias, in view of costs associated with containing second-round impacts. Careful communication would be needed to lay the groundwork with markets for potentially more frequent policy moves."

IMF said UK economic growth will "remain strong in the near term, but so too will price pressures". It forecasts 6.8% growth in 2021, and 5% growth in 2022. Inflation would peak at about 5.5% in the spring of 2022, then gradually return to target by early 2024.

UK unemployment rate dropped to 4.2% in Oct, employment rose 257k in Nov

UK unemployment rate dropped from 4.3% to 4.2% in the three months to October, matched expectations. Employment rate rose 0.2% to 75.5%. Average earnings including bonus rose 4.9% 3moy, above expectation of 4.5%. Average earnings excluding bonus rose 4.3% 3moy, above expectation of 4.0%.

Total employment rose 257k to 29.4m in November. It's also 424k above pre-coronavirus level in February 2020.

Eurozone industrial production rose 1.1% mom in Oct, EU up 1.2% mom

Eurozone industrial production rose 1.1% mom in October, below expectation of 1.5% mom. Production of capital goods rose by 3.0%, durable consumer goods by 1.7%, non-durable consumer goods by 0.4% and energy by 0.1%, while production of intermediate goods fell by -0.6%.

EU industrial production rose 1.2% mom. Among Member States for which data are available, the highest monthly increases were registered in Germany and Slovakia (both +3.0%), Greece (+2.5%) and Denmark (+2.1%). The highest decreases were observed in Estonia (-2.4%), Latvia (-1.5%), the Netherlands and Romania (both -0.9%).

Australia NAB business confidence dropped to 12, come back to earth

Australia NAB business confidence dropped from 20 to 12 in November. Business conditions improved from 10 to 12. Looking at some details, trading conditions rose from 15 to 16. Profitability conditions rose were unchanged at 8. Employment conditions rose from 6 to 11.

"Confidence remains high across states and industries, albeit it has come back to earth a little after the optimism associated with the end of lockdowns," said NAB Chief Economist Alan Oster.

"Forward indicators are also very strong with a rise in capital expenditure a welcome sign that businesses are beginning to look towards a period of expansion. These results align with the strong rebound in activity that we believe is now underway, as well as a positive outlook for the coming months with vaccination rates now very high."

Looking ahead

UK employment, Swiss PPI and Eurozone industrial production will be released in European session. US PPI is the main feature later in the day.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.32; (P) 113.53; (R1) 113.78; More...

USD/JPY is still bounded in range trading and intraday bias remains neutral for now. On the downside, sustained break of 112.71 will argue that it's already correcting whole rise from 102.58. Deeper fall would be seen to 38.2% retracement of 102.58 to 115.51 at 110.57. On the upside, break of 113.94 minor resistance will turn bias back to the upside for retesting 115.51 high instead.

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.

Economic Indicators Update

US PPI for final demand rose 0.8% mom in November, above expectation of 0.6% mom. For the 12-month period, PPI rose 9.6% yoy, accelerated from 8.6% yoy, above expectation of 9.1% yoy. That's also the largest annual advance on record since November 2010.

PPI less foods, energy, and trade services rose 0.7% mom, 6.9% yoy. The annual rise was the highest on record too, since August 2014.

Full release here.

IMF urged BoE to "avoid inaction bias" in a statement today, despite facing "difficult trade-offs".

"It would not be a simple matter to see through extended shifts in relative wages and prices while keeping expectations anchored," IMF said. "It would be important to avoid inaction bias, in view of costs associated with containing second-round impacts. Careful communication would be needed to lay the groundwork with markets for potentially more frequent policy moves."

IMF said UK economic growth will "remain strong in the near term, but so too will price pressures". It forecasts 6.8% growth in 2021, and 5% growth in 2022. Inflation would peak at about 5.5% in the spring of 2022, then gradually return to target by early 2024.

Full statement here.

The focus of this week’s ECB meeting is whether the PEPP would extend beyond March 2020 in light of the new Omicron variant and rapid increase the number of coronavirus cases across Europe since the November meeting. Recent comments from ECB officials signal that things would go as planned. The latest economic projections would also be released. We expect upgrade on next year's inflation projection. The policy rates would stay unchanged with the main refi rate, the marginal lending rate and the deposit rate staying at 0%, 0.25% and -0.5% respectively.

Monetary Policy

At the November meeting minutes, policymakers noted that “judging on the basis of the current developments, net purchases under the PEPP could be expected to come to an end by March 2022”.  Recent comments from President Christine Lagarde in Reuters’ Next conference earlier this month suggest that the plan stays intact. We expect the PEPP pace to be lowered to 50B euro/month in 1Q22. The president affirmed that the central bank is “not without ammunition" after ending PEPP, pointing to APP program and reinvestment of bond purchases. We expect the ECB increase the size of APP by 120B euro, in addition to the underlying 20B euro/ month. On the policy rate, she noted that it is "very unlikely" that the ECB would hike rates in 2022, amidst concerns that the tightening would “choke the growth we are seeing".

Economic Projections

Another focus is the updated staff economic projections. We expect little change to the GDP growth outlook. Elevated inflation’s pressure on growth has partly been offset by euro’s weakness. Concerning inflation, Lagarde described in the abovementioned conference that “inflation as a hump and the hump eventually declines", adding that it would “decline over the course of 2022", and "we see it going towards our target in the course of 2022”. As such, we expect the inflation estimate would be upgraded to above +2% target for 2022, before easing below that in 2023. The central bank would, for the first time, introduce 2024's inflation forecast which should likely an uptick from the prior year.

The price for gold jumped on Friday due to the publication of the US employment data. The metal reached above the 50, 100 and 200-hour simple moving averages near 1,780.00. Since then, the bullion has been fluctuating between the support of the moving averages and the resistance of the 1,790.00 level.

A move below the simple moving averages might reach for the support of the Friday low level at 1,770.45. Below the low level, the December low at 1,762.20 could stop a decline.

However, a surge of the price would need to pass the 1,790.00 level, before reaching the 1,800.00 mark.

The 200-hour simple moving average has kept the rate up since December 7. However, the USD/JPY has been piercing the support of the SMA. At mid-day on Tuesday, the rate was heading to the support of the SMA and the weekly simple pivot point at 113.40.

In the case of the rate passing the support of the 200-hour SMA and the weekly simple pivot point at 113.40, a potential decline might reach the weekly S1 simple pivot point at 112.84. However, note that the 113.00 mark might act as support.

On the other hand, a recovery of the US Dollar against the Japanese Yen is highly likely going to encounter resistance at the December high level zone at 113.88/113.96. In addition, the weekly R1 simple pivot point is located at 113.95.