Eurozone CPI was unchanged at -0.3% yoy in December, below expectation of -0.2% yoy. CPI core was also unchanged at 0.2% yoy. Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in December (1.4%, compared with 1.9% in November), followed by services (0.7%, compared with 0.6% in November), non-energy industrial goods (-0.5%, compared with -0.3% in November) and energy (-6.9%, compared with -8.3% in November).
Eurozone retail sales dropped sharply by -6.1% mom in November, well below expectation of -3.0% mom. Volume of retail trade decreased by -10.6% mom for automotive fuels, by -8.9% mom for non-food products (within this category mail orders and internet increased by 1.8% mom) and by -1.7% mom for food, drinks and tobacco.
EU retail sales dropped -5.0% mom. Among Member States for which data are available, the largest decreases in the total retail trade volume were observed in France (-18.0% mom), Belgium (-15.9% mom) and Austria (-9.9% mom). The highest increases were registered in the Netherlands (+2.6% mom), Croatia (+2.5% mom) and Germany (+1.9% mom).
UK PMI Construction dropped slightly to 54.6 in December, down from 54.7, matched expectations. Markit noted that output expansion maintained for the seventh month in a row. Employment returned to growth amid strong rise in new orders. Supply shortages pushed up input costs.
Tim Moore, Economics Director at IHS Markit: “December data illustrated a positive end to the year for the UK construction sector, mostly fuelled by a sharp rebound in house building. Overall output growth has slowed in comparison to the catch-up phase last summer, but now it is encouraging to see the recovery driven by new projects and stronger underlying demand.”
NZD/JPY’s up trend resumed after brief consolidations, following broad based risk-on sentiment. Outlook stays bullish as long as 73.78 support holds, even in case of retreat. Next target is 100% projection of 63.45 to 71.66 from 68.86, at 77.07. As the current rally could be the end of a five wave sequence from 59.49, we’d look for topping signal around 77.07.
Australian Dollar stays firm and continues to ride on strong overall strong risk-on markets. GBP/AUD’s breach of 1.7423 low affirms our bearish view in a prior post. Down trend from 2.0854 should be resuming.
Sustained trading below 1.7423 will target 38.2% projection of 2.0854 to 1.7493 from 1.8526 at 1.7242 first. Break will pave the way to 61.8% projection at 1.6449. Though, break of 1.7623 minor resistance will delay the bearish case and extend the consolidation from 1.7423 with another rising leg.
Australia goods and services imports rose 10% mom to AUD 31.4B in November. Goods and services exports rose 3% mom to AUD 36.4B. Trade surplus narrowed to AUD 5.02B, below expectation of AUD 6.45B. Building permits rose 2.6% mom in November.
Dollar remains generally pressured after FOMC minutes revealed that members unanimously supported keeping asset purchase pace unchanged. The greenback is only partially supported, more notably against Yen by surging treasury yield. Overall, Dollar is still one of the weakest for the week together with Yen and Sterling.
“All participants judged that it would be appropriate to continue those purchases at least at the current pace, and nearly all favored maintaining the current composition of purchases,” the minutes noted. “A couple of participants indicated that they were open to weighting purchases of Treasury securities toward longer maturities.”
Further, “some participants noted that the committee could consider future adjustments to its asset purchases — such as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturities — if such adjustments were deemed appropriate,” the minutes said.
Dollar index is extending the medium term down trend from 102.99 for now and further decline is expected as long as 91.01 resistance holds. DXY is on track to a key support zone, between 88.25 and 61.8% projection of 102.99 to 91.74 from 94.74 at 87.88. We’d expect further loss of momentum approaching this zone. Tentatively, some strong support should be seen there, at least on first attempt, to bring rebound.
Gold is suffering steep reversal today, on strong rally in stocks and treasury yields. The break of 1906.74 resistance turned support in such a short time was unexpected. More importantly, the development now raises the possibility of rejection by 1965.50 structural resistance.
Focus is now back on 1856.98 support. As long as this level holds, we’d still favor the case that correction from 2075.18 has completed at 1764.31. That is, another rise should be seen sooner or later through 1965.50 to retest 2075.18. However, firm break of 1856.98 will put gold back below 55 day EMA. That would flip favor to the case that correction from 2075.18 is still in progress, for another low below 1764.31 below completion.
DOW surges to new record higher today, with around 500 gains at the time of writing. Some analysts attribute the rally to result of election in Georgia, where the Democrats are stepping closer to control of both Senate and House. that would give the base for Joe Biden to implement the party’s fiscal stimulus.
Technically, if DOW could close today maintaining much of the gains, that would mark upside reacceleration after some sluggish trading. DOW could then be ready for next target of 61.8% projection of 18213.65 to 29119.35 from 26143.77 at 32932.93 in the first half of the year.
US commercial crude oil inventories dropped -8m barrels in the week ending January 1. At 485.5m barrels, oil inventories are about 9% above the five year average for this time of the year. Gasoline inventories rose 4.5m barrels. Distillate rose 6.4m barrels. Propane/propylene dropped -2.4m barrels. Total commercial petroleum inventories rose 1.7m barrels.
WTI crude oil is staying firm above 50 handle after the release. For the near term it’s on track for channel resistance at 52.02.
US treasury yield opens sharply higher today with 10-year yield breaking 1% handle for the first time since March. The strong gap up now confirms resumption of whole rally from 0.0504. Technically, upper channel resistance at 1.130 is the next target.
Judging from the price actions in the forex markets today, Dollar is not having much benefits for surging yields. Instead, Yen is being pressured, in particular against commodity currencies.
US ADP employment dropped -123k in December, much worse than expectation of 75k growth. By company size, large businesses cut -147k jobs. Medium business added 37k jobs while small businesses cut -13k. By sector, goods-producing companies cut -18k jobs while service-providing companies cut -105k jobs.
“As the impact of the pandemic on the labor market intensifies, December posted the first decline since April 2020,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The job losses were primarily concentrated in retail and leisure and hospitality.”
AUD/CAD’s up trend resumes today as Aussie is back in the driving seat against other commodity currencies. Prior retreat from 0.9857 was much briefer than expected, as the lack of lift from oil price to Canadian Dollar is somewhat disappointing too.
Near term outlook will now stay bullish as long as 0.9772 support holds. Sustained trading above 38.2% projection of 0.8066 to 0.9696 from 0.9247 at 0.9870 is an affirmation of underlying medium term momentum. Next target is 61.8% projection at 1.0254.
Eurozone PPI came in at 0.4% mom, -1.9% yoy in November, above expectation of 0.1% mom, -2.2% yoy. Industrial producer prices increased by 1.3% mom in the energy sector, by 0.3% mom for intermediate goods and by 0.1% mom for durable consumer goods, while prices remained stable for capital goods and non-durable consumer goods. Prices in total industry excluding energy increased by 0.1% mom.
EU PPI came in at 0.4% mom, -1.8% yoy. The highest increases in industrial producer prices were recorded in Denmark and France (both +1.7% mom), Estonia (+1.2% mom) and Romania (+1.1% mom), while the largest decreases were observed in Ireland (-1.4% mom), Slovakia (-0.7% mom) and Czechia (-0.5% mom).
UK PMI services was finalized at 49.9 in December, up from November’s 47.6, but still below 50 no-change threshold. PMI Composite was finalized at 50.4, edged from from November’s 49.0.
Tim Moore, Economics Director at IHS Markit: “With a third national lockdown underway, service providers will be braced for a sustained period of subdued UK economic conditions and deferred client spending in the first quarter of this year. However, business optimism on a 12-month horizon was relatively upbeat in December and reached its highest level for almost six years, underpinned by hopes that a successful vaccine roll-out will help to deliver a strong economic rebound in the second half of 2021.”
Eurozone PMI Services was finalized at 46.4 in December, up from November’s 41.7. PMI Composite was finalized at 49.1, up from November’s 45.3. Looking at some member states, Ireland PMI Composite rose to 53.4, a 4-month high. Germany rose to 52.0, 2-month high. France rose to 49.5, 4-month high. Spain rose to 48.7, 5-month high. Italy rose to 43.0, 2-month high.
Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone economy contracted for a second successive month in December, deteriorating at a slightly faster rate than previously thought at the end of the year due to intensifying COVID-19 restrictions… Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new – more contagious – strain of the virus…. The risk of a technical recession, with GDP also falling in the first quarter has therefore risen.
AUD/JPY’s rally continues today and reaches as high as 80.14 so far. Outlook will now stay bullish as long as 78.83 support holds. Current rally is part of the up trend from 59.89 and should target 61.8% projection of 59.89 to 78.46 from 73.13 at 84.60.
The break of the multi-year channel resistance, as well as the strong from rising 55 week EMA, suggests that whole down trend from 105.42 has completed with three waves down to 59.89. We’re now looking at further rally, in the medium term, to 61.8% retracement of 105.42 to 59.89 at 88.02.
Oil prices are given a lift after Saudi Arabia agreed to a larger production cut with OPEC+ allies. The world’s largest oil exporter agreed to make additional, voluntary cut of 1m barrels per day in February and March. The move led to an overall cut of over 900k bpd in production by OPEC+.
Saudi energy minister Prince Abdulaziz bin Salman said, “as we see light at the end of the tunnel, we must — at all costs — avoid the temptation to slacken off our resolve. Do not put at risk all that we have achieved for the sake of an instant but illusory benefit.”
WTI crude is expending recent rally after brief set back, and it’s now back above 50. Further rise should be seen to channel resistance at 51.71. Some resistance would likely be seen there to limit upside and cap momentum. However, sustained break there would indicate upside acceleration and open up the case for further rally to 65.43 medium term resistance next.
NZD/USD’s rally extends overnight riding on broad based weakness in Dollar. Current rise is part of the up trend from 0.5469 and should be targeting 100% projection of 0.5920 to 0.6797 from 0.6689 at 0.7466. By then, the rise from 0.5469 might be completing a five-wave sequence. Thus, we’d be looking for topping signal as NZD/USD approaches 0.7466. Though, break of 0.7151 minor support will delay the bullish case and bring more consolidations again first.
NZD/JPY, on the other hand, is still limited below 74.61 temporary top so far. Some more consolidations could be seen. But an eventual upside breakout is expected. Up trend from 59.49 should resume sooner or later, to 100% projection of 63.45 to 71.66 from 68.86, at 77.07 (corresponding projection level of NZD/USD mentioned above.
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Eurozone Economic Sentiment Indicator rose 2.7 pts to 90.4 in Dec
Eurozone Economic Sentiment Indicator rose 2.7 pts to 90.4 in December. Employment Expectation Indicator rose 1.4 pts to 88.3. Amongst the largest euro-area economies, the ESI increased significantly in Italy (+6.8), Spain (+3.3) and, to a lesser extent, in the Netherlands (+2.5) and France (+2.1), while it remained broadly unchanged in Germany (+0.1).
Looking at some details, industrial confidence rose from -10.1 to -7.2. Services confidence dropped from -17.1 to -17.4. Consumer confidence rose from -17.6 to -13.9. Retail trade confidence rose from -12.7 to -13.1. Construction confidence dropped from -9.3 to -7.9.
Full release here.