• Albeit the USD/CHF fell 1% on Friday, the pair finished the week with gains of 0.45%.
• USD/CHF remains sideways, though slightly tilted downwards, and it could test the 0.9200 mark.
• If the USD/CHF reclaims 0.9300, that could pave the way to 0.9400.

The USD/CHF plunged after hitting fresh weekly highs around 0.9408, plummeting beneath the 0.9300 figure, on mixed US economic data that triggered a sell-off in the US Dollar (USD); therefore, the USD/CHF collapsed. At the time of writing, the USD/CHF is trading at 0.9281.

USD/CHF Price Analysis: Technical outlook

From a weekly chart perspective, after hitting a weekly high of around 0.9408, the USD/CHF finished the week with gains of 0.45%. It should be said that the week ending on January 6 printed a candlestick with a significant upper wick, meaning that sellers are gathering momentum. With the Relative Strength Index (RSI) extending its fall to bearish territory and the Rate of Change (RoC) aiming lower, the USD/CHF could test 0.9200 in the near term.

The USD/CHF daily chart portrays the pair as downward biased, though consolidating and unable to crack the 0,9200 mark. Following the upbreak of a falling wedge, the USD/CHF failed to gain traction and got trapped around the 0.9250-0.9400 mark.

Oscillators like the Relative Strength Index (RSI) shifted gears, turning bearish, while the Rate of Change (RoC) suggests that sellers outpaced buyers.

Therefore, the USD/CHF first support would be the falling wedge top-trendline which turned support at 0.9240, followed by the 0.9200 mark. Break below, and the USD/CHF might fall toward the 2022 low of 0.9091. On the flip side, the USD/CHF first resistance would be the 0.9300 mark. Once cleared, the next resistance would be January’s 6 high of 0.9408, followed by the 50-day Exponential Moving Average (EMA) at 0.9438.

USD/CHF Key Technical Levels

• WTI is set to end the week with substantial losses of 8.40%
• The jobs report showed a slowdown in wages, while the labor market remains resilient.
• WTI failed to capitalize on US Dollar weakness after the US Services PMI shrinkage

Western Texas Intermediate (WTI), the US crude oil benchmark, hovers at around $73.70s, almost flat, albeit the US Dollar (USD) weakened sharply due to mixed US economic data, though global recession concerns weighed on oil prices. At the time of writing, WTI exchanges hand at $73.71.

Wall Street is poised to end Friday’s session with hefty losses, boosted by disappointing PMIs. The ISM Services PMI plummeted to 49.6, below estimates of 55, on the lowest reading since May 2020. Meanwhile, the US economy added 223K people to its workforce, more than expected, the unemployment rate dropped, and wages aimed down, to 4.6% YoY, against estimates of 5%.

Consequently, the US Dollar turned south, plummeting below the 104.000 mark and down by 1.20%, though WTI failed to capitalize on that.

Back to oil-related news, Saudi Arabia lowered prices for Asia customers to their lowest since November 2021 as global pressures hit oil prices. Factors like China’s reopening and its Covid-19 outbreak keep investors uneasy as additional countries imposed restrictions on visitors from China.

WTI Key Technical Levels

• The GBP/USD soared close to 1.50% on disappointing US ISM Services data.
• Hawkish Fed speaking failed to weigh on the GBP/USD.
• Next week’s economic calendar would feature UK GDP, and US CPI reports.

The Pound Sterling (GBP) extended its gains against the US Dollar (USD), surging more than 160 pips on Friday, following a disappointing ISM Services report and an earlier jobs report. The GBP/USD Is trading at 1.2077.

US ISM Services Index plunges and weakened the USD

The GBP/USD printed another leg-up of more than 100 pips following the US Nonfarm Payrolls data release. Later, the Institute for Supply Management (ISM) revealed the Services PMI Index, which shrank to 49.6 against forecasts of 55 and trailed the November 56.5 jump. It should be said that it’s the lowest reading since May 2020, and traders should be wary that PMI readings below 50 indicate contraction.

Earlier, the US Department of Labor revealed that the US economy added more jobs than expected and that the Unemployment Rate edged lower. The report’s spotlight was Average Hourly Earning, which showed that wage inflation is easing, dropping to 4.6% YoY, below the 5.0% estimates.

Also read: GBP/USD pares Thursday losses, reclaims 1.1900 on soft USD after US NFP report

The GBP/USD extended its gains, above the 1.2050 mark, after the ISM Services PMI headline crossed newswires. The US Dollar Index, which tracks the American Dollar (USD) value against a basket of peers, plummets more than 1%, down at 104.000.

Meanwhile, further Fed speaking failed to underpin the US Dollar, as Federal Reserve Governor Lisa D. Cooks said that inflation is “far too high” and of “great concern” despite recent reports. In the meantime, Richmond’s Fed President Thomas Barkin said the Fed is still resolute on inflation and that it needs to stay on the case until inflation is “sustainably’ back to the 2% goal. He added that adopting a more gradual approach on interest rate paths should limit harm to the US economy.

UK’s next week’s calendar would feature Retail Sales, Gross Domestic Product, and the Trade Balance. On the US front, its calendar will feature the Consumer Price Index (CPI), unemployment claims, and the University of Michigan (UoM) Consumer Sentiment.

GBP/USD Key Technical Levels

Although analysts at Rabobank are forecasting that the DXY index could end the year a little lower, they expect that 2023 will provide plenty of opportunities for USD bulls to become re-engaged. They retain a 1-month forecast of EUR/USD 1.05 and a 3-month forecast of EUR/USD 1.03.

Key quotes:

“The first trading week of the year has already seen investors question some of the strongest themes of last month. Weaker European headline inflation data have raised questions about whether it will be necessary for the ECB to maintain the degree of hawkishness it displayed last month. By contrast, signs of resilience in US labour data underpin the Fed’s protests that it may be too early to bet on a US rate cut prior to the end of this year.”

“The plunge in USD long positions and the increase in long EUR positions into the end of last year suggests that the uptrend in EUR/USD that developed in late 2022 could be replaced by pullbacks and choppy trading conditions. We maintain our 3 month EUR/USD forecast of 1.03.”

• AUD/USD surged on weak US ISM Services data, which contracted to its lowest since 2020.
• The US economy added more jobs than estimated while wage growth eases, helping the Federal Reserve’s job to tame inflation.
• Fed policymakers reiterated the need to curb inflation, emphasizing that they will stay the course.

The Australian Dollar (AUD) rallied against the US Dollar (USD) after the release of crucial economic data in the United States (US), although upbeat, failed to underpin the USD. Additionally, a services PMI survey dropped to contractionary territory, fueling speculations for a recession in the US. At the time of writing, the AUD/USD is trading at 0.6866, some 40 pips above the 200-day Exponential Moving Average (EMA).

Mixed US economic data underpinned the AUD/USD

December’s labor market data in the US painted a mixed report. Although 223K jobs were added to the economy exceeding estimates of 200K, fears that wage inflation would remain stickier waned. Average Hourly Earnings rose by 0.3% MoM, but on an annual basis, fell to 4.6% compared to 5.0% consensus. The slowdown would be welcomed by Fed policymakers, who see wage pressures as one of the factors keeping inflation above its 2% target.

The AUD/USD edged higher on the release and aimed toward the 0.6800 mark. However, weaker-than-expected ISM Services data and shrinkage of US Factory Orders added another leg up in the AUD/USD, extending its gains towards a two-day high of 0.6849.

The ISM Services PMI unexpectedly contracted to 49.6 vs. 55 estimates, and its lowest reading since May 2020, and trailed November’s 56.5 jumps, data released Friday showed. PMI readings below the 50-line signals contraction.

Aside from this, Fed speakers continued to cross newswires. Earlier, Atlanta’s Fed President Raphael Bostic said that December’s employment report does not change his outlook on the economy, emphasizing the need to “stay the course.” Later, Federal Reserve Governor Lisa D. Cooks said that inflation is “far too high” and of “great concern” despite recent reports.

Australia’s next week’s data would feature Building Permits, the release of the Monthly Consumer Price Index (CPI), Retail Sales and the Trade Balance. On the US front, its calendar will feature the Consumer Price Index (CPI), unemployment claims, and the University of Michigan (UoM) Consumer Sentiment.

AUD/USD Key Technical Levels

The ISM Service PMI for December released on Friday came in below expectations and triggered fears about a hard landing of the economy. Analysts at Wells Fargo forecast a recession is coming but they point out that this report does not market the start of it.

 Key quotes:

“One unsettling takeaway from today's services ISM report is that the service economy is joining the manufacturing side of the economy in contraction. The headline services ISM came in at 49.6, down 6.9 points. Setting aside the pandemic-induced drop, that ties the biggest monthly decline since the financial crisis in November 2008.”

“The contractionary reading on the employment component seems at odds with the 223K workers that employers reported adding during December (see in this morning's nonfarm payroll release). But the sub-50 reading (49.8) here needn't imply layoffs so much as difficulty finding people.”

“This is a pretty down-beat report on services activity to end 2022. We try not to put too much weight on any one-month release, but the rapid deterioration in key components isn't good news. In some ways this is the economic direction the Fed is aiming for, to slow the economy without crushing the labor market.”

Atlanta Federal Reserve bank president Raphael Bostic said on Friday that how the economy evolves will shape what the Federal Reserve has to do, as reported by Reuters.

Key takeaways

"The US economy is definitely slowing."

"Housing and other interest rate sectors have seen significant slowing, business leaders see labor markets easing."

"It's still not easy to find workers but it is easier."

"Slowing so far is at a steady, gradual pace, so demand-supply imbalance is not changing rapidly, process will take some time."

"The US has a lot of momentum to absorb tje Fed policy and avoid a significant contraction."

Market reaction

The US Dollar continues to weaken against its rivals following these comments and the US Dollar Index was last seen losing 0.9% on a daily basis at 104.20.

• US Dollar under pressure across the board amid risk appetite and falling yields.
• US: A weak ISM Service sector report follows larger than expected increase in NFP.
• EUR/USD having best day in a month, still down for the week.

The EUR/USD jumped above 1.0600 amid a sharp reversal of the US Dollar that tumbled across the board following the ISM Service PMI report. The pair rose 1.25% from the daily low and is having the best day in a month.

NFP and ISM

The first leg lower of the US Dollar followed the release of the Nonfarm Payroll report. The economy added 223K in December which represents a slowdown from the prior month and shows the job market remains in good shape. The unemployment rate dropped to 3.5%.

More recently, ISM Service PMI index came in at 49.6 in December, well below the 55 of market consensus. The Price Paid Index fell unexpectedly from 70 to 67.6. The report triggered concerns about a potential “hard landing” for the US economy. At the same time, the jobs numbers keep the debate open about the next Federal Reserve rate hike by 25 or 50 basis points.

After the figures, the Greenback accelerated the decline across the board as US yields tumbled. The US 10-year yield fell from 3.75% to 3.61%, the lowest level since December 20. European yields are also sharply lower. The German 10-year bond yield fell to 2.19%, the lowest since December 19, while the Italian 1-year fell to 4.19%.

The EUR/USD peaked at 1.0613, more than a hundred pips above the one month low it hit earlier at 1.0483. Euro bulls are now looking at the 1.0635 area that is the next resistance. Ahead of the weekend the bias is bullish while above 1.0550.

Technical levels

• Greenback drops sharply after NFP and ISM service sector.
• US yield falls to multi-day lows, commodities rebound.
• NZD/USD reverses from monthly lows, and trims weekly losses.

The NZD/USD has risen a hundred pips from the daily low and it is trading at 0.6290, with a solid bullish tone supported by a broad-based USD decline.

The greenback turned to the downside after the release of the Nonfarm Payrolls report that came in above expectations. After a brief recovery, it resumed the downside following the ISM Service Sector report for December that showed a larger than expected slide.

Following the numbers, US yields tumbled with the 10-year falling from 3.75% to 3.61%, the lowest level since December 20. The DXY reversed sharply from one-month highs above 105.50 to under 104.50, turning negative for the day, but still positive for the week.

The NZD/USD is looking at the 0.6300 zone and toward the next resistance that stands at 0.6310 (Jan 5 high). Above attention would turn to 0.6355/60, a critical area that capped the upside several times. A consolidation above 0.6360 should open the doors to more gains. On the flip side, 0.6250 is the immediate support, followed by 0.6215.

Technical levels

• December’s US Nonfarm Payrolls data weakened the US Dollar, even though the labor market remains tight.
• Average Hourly Earnings easing sparked speculations for a dovish move of the Federal Reserve in the February meeting.
• USD/JPY Price Analysis: Likely to remain downward biased below 133.00.

The USD/JPY struggles at the 200-day Exponential Moving Average (EMA) around 134.82, dropping beneath the 134.00 mark, after US economic data, although positive, weighed on the US Dollar, exacerbating a fall of 100 pips in the major. At the time of writing, the USD/JPY is trading at 132.81, below its opening price by 0.44%.

The US Department of Labor revealed that Nonfarm Payrolls in December increased by 223K, above estimates of 200K, data showed on Friday. The Unemployment Rate fell to 3.5% YoY, against estimates of 3.7%, while Average hourly earnings rose 4.6%, below the market consensus of 5.0%, welcomed news for Fed officials, who see wage pressures as a hurdle to tackle inflation.

The Wall Street Journal (WSJ) Fed Watcher Nick Timiraos Tweeted that “revisions to average hourly earnings data paint a marginally less worrisome picture for the Fed on wages than the Nov report.”

The US Dollar Index, which measures the buck’s value against a basket of rivals, tumbled below the 105.000 mark, spurred by that Timiraous Tweet, at 104.963. Nevertheless, it recovered some ground, above 105.000 before reversing its trend, and turned negative at around 104.682, down by 0.46%.

Meanwhile, US Treasury bond yields edged lower by nine bps, down at 3.625%, a headwind for the USD/JPY, which is diving from daily highs reached at 134.77.

Of late, Atlanta’s Fed President Raphael Bostic is crossing newswires. He said that December’s labor market data does not change his outlook on the economy, adding that the Fed needs to stay the course as inflation remains too high. Bostic's base case for the Federal Funds rate (FFR) is to hit the 5.00-5.25% range, and to stay at that level, well into 2024.

USD/JPY Price Analysis: Technical outlook

In the short term, the USD/JPY hourly chart flashes the US Dollar continues to weaken, extending its gains beneath the daily pivot point at 133.04. On its way down, the USD/JPY cleared the 20 and 50-EMAs, though a downslope trendline and the confluence of the 100 and 200-EMAs around 132.55/57 might stall the fall, shy of the S1 daily pivot at 132.03. On the flip side, if the USD/JPY reclaims 133.00, that could open the door for a resumption of the uptrend, exposing resistance levels like the 134.00 mark, followed by the R1 daily pivot point at 134.45.

• US ISM Services PMI dropped below 50 in December.
• US Dollar continues to weaken against its major rivals.

The economic activity in the US service sector contracted in December with the ISM Services PMI dropping to 49.6 from 56.5 in November. This reading came in much worse than the market expectation of 55.

Further detail of the publication decealerd that the Employment Index decline to 49.8 from 51.5 and the Prices Paid Index fell to 67.6 from 70, compared to the market expectation of 71.5.

Market reaction

The US Dollar came under renewed selling pressure after the disappointing PMI survey. As of writing, the US Dollar Index was down 0.32% on the day at 104.80.

• Employment in Canada rose at a stronger pace than expected in December.
• USD/CAD erased its daily gains and declined below 1.3550 after the data.

The data published by Statistics Canada revealed on Friday that the Unemployment Rate declined to 5% in December from 5.1% in November . This reading came in better than the market expectation of 5.2%.

Further details of the publication showed that the Net Change in Employment was +104K, much higher than analysts' estimate of +8K.

 "Year-over-year growth in the average hourly wages of employees remained above 5% for a seventh consecutive month in December, up 5.1% (+$1.57 to $32.06) compared with December 2021 (not seasonally adjusted)," Statistics Canada noted in its publication. "Total hours worked were little changed on a monthly basis in December, and up 1.4% compared with 12 months earlier."

Market reaction

USD/CAD declined sharply after the Canadian jobs report and was last seen losing 0.2% on the day 1.3540.

• The index fades the earlier advance past the 105.60 level.
• The US economy added more jobs than expected in December.
• The wage growth seems to have lost momentum in the last month.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, gives away initial gains and returns to the negative territory below the 105.00 mark on Friday.

USD Index looks offered post-Payrolls

The index quickly leaves behind the earlier uptick to 4-week highs in the 105.60/65 band and slips back to the sub-105.00 region as investors continue to digest the publication of the Nonfarm Payrolls.

On the latter, the US economy added 223K jobs in December and the jobless rate ticked lower to 3.5% (from 3.6%). The salient point of the labour market report, however, comes from the performance of the wage growth tracked by the Average Hourly Earnings, which came on the soft note after it expanded 0.3% MoM and 4.6% YoY.

The loss of momentum in the wage growth appears to lend some oxygen to the view that the Fed could pause its tightening plans in the near term, which eventually puts the dollar under some selling pressure along with declining US yields across the curve.

Other than Payrolls, the US calendar will show the ISM Non-Manufacturing, Factory Orders and speeches by Atlanta Fed R.Bostic (2024 voter, hawk), FOMC Governor L.Cook (permanent voter, centrist) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The dollar falters in the area of multi-week peaks, as the latest NFP release seems to have torpedoed the Fed’s tighter-for-longer narrative.

However, the idea of a Fed’s pivot has been pushed further back following the publication of the FOMC Minutes on Wednesday, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, ISM Non-Manufacturing PMI, Factory Orders (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.04% at 105.10 and the breakdown of 103.39 (monthly low December 30) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the upside, the next hurdle turns up at 105.63 (monthly high January 6) seconded by 105.82 (weekly high December 7) and then 106.31 (200-day SMA).

• US Nonfarm Payrolls rose by 223K, exceeding estimates, while the unemployment rate fell.
• Average Hourly Earnings were lower than the 5% foreseen, signaling that inflation on wages is easing.
• GBP/USD Price Analysis: The rally could cap around the 50-EMA and daily pivot confluence around 1.1950.

The GBP/USD is trimming some of its Thursday losses, as the US Department of Labor released upbeat economic data, which was positive, though the US Dollar (USD) is weakening across the board. Therefore, the GBP/USD is trading volatile at around 1.1900-1.1920 after hitting a daily low of 1.1841.

Investors’ mood remains upbeat following the release of December’s US Nonfarm Payrolls report by the US Bureau of Labor Statistics. Payrolls jumped by 223K exceeding estimates of 200K, flashing a solid labor market and justifying the need for further Federal Reserve’s (Fed) tightening. Data showed that the Unemployment Rate dropped to 3.5%, while Average Hourly Earnings dropped to 4.6% YoY, vs. estimates of 5%.

According to a tweet by Wall Street Journal (WSJ) Fed Watcher Nick Timiraos, “revisions to average hourly earnings data paint a marginally less worrisome picture for the Fed on wages than the Nov report.”  That said, the US Dollar Index, which measures the buck’s value against a basket of rivals, tumbled below the 105.000 mark, spurred by that Tweet, down by 0.19%, at 104.963, a tailwind for the GBP/USD, which remains negative in the week by 1.38%, though in the day, registering minuscule gains of 0.13%.

Regarding US Treasury bond yields, the 10-year benchmark note rate edged lower by four bps, down at 3.675%, while the CME FedWatch Tool shows that odds for a 25 bps rate hike in the February meeting are approaching the 70% threshold.

GBP/USD Reaction

Per the GBP/USD 1-hour chart, the pair jumped from around 1.1850, rallying sharply towards the 1.1920 mark. On its way north, it cracked the 20-EMA at 1.1906, though it remained slightly shy of reaching the daily pivot point at around 1.1952. The Relative Strength Index (RSI) crossed above its 50 mid-line, while the Rate of Change (RoC) indicates buying pressure is building. Therefore, the GBP/USD key resistance levels would be 1.1952, followed by the 100-EMA at 1.1979 and the 200-EMA at 1.2016.

As an alternate scenario, GBP/USD first support level would be the 20-EMA at 1.1906, above the 1.1900 figure, followed by today’s daily low of 1.1841.

• US Nonfarm Payrolls exceeded estimates of 200K, while the unemployment rate edged lower.
• Average Hourly Earnings were lower than the 5% foreseen, signaling the absence of a wage spiral.
• Gold Price Forecast: To find solid resistance around $1,852-$1,860.

Gold price extends its gains after the US Nonfarm Payrolls showed the US economy added more jobs than estimates while the rate of unemployed Americans edged lower. At the time of writing, XAU/USD trades volatile around the $1,837-$1,844 range.

The US Bureau of Labor Statistics revealed that December’s Nonfarm Payrolls rose by 223K above the 200K estimates, signaling the robustness of the labor market and justifying the need for further Federal Reserve (Fed) action. In the meantime, the Unemployment Rate tumbled to 3.5%, while Average Hourly Earnings dropped to 4.6% YoY, vs. estimates of 5%.

Meanwhile, the US Dollar Index is almost flat around 105.223, while the US 10-year Treasury bond yield is unchanged at 3.72%, a reason for Gold to continue extending its gains.

XAU/USD’s reaction

XAU/USD 1-hour chart broke higher on the release, towards $1,843.75, and quickly stabilized just shy of the daily pivot point at around $1,838.85. On the upside, XAU/USD was capped by the 50-EMA around $1,840, though it remains trading volatile as investors assess the overall US jobs market.

On the upside, the next resistance would be the R1 daily pivot point at around $1,852.67, followed by the January 5 daily high of $1,859.03. As an alternate scenario, the XAU/USD first support would be the pivot point around $1,838.85, followed by the 200-ENA at $1,828.68, followed by January’s 5 daily low of $1,825.04 and the S1 pivot level at $1,818.68.

• USD/CAD meets with some intraday selling in reaction to the stellar Canadian jobs report.
• The mixed US NFP data fails to impress the USD bulls or provide any meaningful impetus.
• The price-action warrants caution for bullish traders and positioning for additional gains.

The USD/CAD pair surrenders a major part of its intraday gains and retreats below the 1.2600 mark during the early North American session.

The Canadian Dollar gets a strong boost in reaction to the upbeat domestic employment details, which, in turn, prompts some selling around the USD/CAD pair. In fact, Statistics Canada reported that the
economy added 104K new jobs in December, beating estimates for a reading of 8K by a huge margin. Adding to this, the unemployment rate unexpectedly ticked down to 5.0% during the reported month from 5.1% recorded in November.

That said, a softer tone around crude oil prices acts as a headwind for the commodity-linked Loonie. This, along with the intraday bullish sentiment surrounding the US Dollar, assists the USD/CAD pair to stick to its modest gains for the second successive day. The USD bulls, meanwhile, seem rather unimpressed by the upbeat US jobs data, which showed that the economy added 223K new jobs in December as compared to the 200K estimated.

Furthermore, the jobless rate edged down to 3.5%, beating estimates for a reading of 3.7%. That said, softer Average Hourly Earnings data overshadows the upbeat report, which, along with a sharp spike in the US equity futures, acts as as headwind for the safe-haven greenback. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/CAD pair and positioning for an extension of the overnight bounce from the 100-day SMA.

Technical levels to watch

• EUR/USD keeps the trade around the 1.0500 level on Friday.
• US Non-farm Payrolls came in on the strong side in December.
• The jobless rate ticked lower to 3.5%, bettering consensus.

EUR/USD remains on the defensive near the 1.0500 neighbourhood in the wake of the release of US NFP on Friday.

EUR/USD trims losses post-NFP 

EUR/USD saw its downside curtailed after the US economy created 223K jobs during December, leaving behind previous estimates for a gain of 200K jobs. Furthermore, the November reading was revised down to 202K (from 263K).

Additional results showed the Unemployment Rate deflating to 3.5% and the key Average Hourly Earnings – a proxy for inflation via wages – increasing at a monthly 0.3% and 4.6% over the last twelve months. Finally, the Participation Rate improved slightly to 62.3% (from 62.2).

Later in the NA session the focus of attention should gyrate to the release of Factory Orders and the ISM Non-Manufacturing seconded by speeches by FOMC’s Bostic, Cook and Barkin.

What to look for around EUR

EUR/USD faces some heightened downside near the 1.0500 mark or multi-week lows.

Looking at the broader scenario, the shared currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Retail Sales, EMU Flash Inflation Rate, EMU Retail Sales.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.16% at 1.0504 and the breach of 1.0496 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0311 (200-day SMA). On the other hand, the next up barrier emerges at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27).

Nonfarm Payrolls in the US rose by 223,000 in December, the data published by the US Bureau of Labor Statistics revealed on Friday. This reading came in much higher than the market expectation of 200,000 and followed November's increase of 256,000 (revised from 263,000).

Follow our live coverage of market reaction to the US jobs report.

Further details of the publication revealed that the Unemployment Rate declined to 3.5% in December from 3.6% in November. The Labor Force Participation Rate improved modestly to 62.3% from 62.1% and the annual wage inflation, as measured by the Average Hourly Earnings, declined to 4.6% from 4.8%, compared to market expectation of 5%.

Market reaction

With the initial reaction, the US Dollar Index retreated from daily highs and was last seen rising 0.22% on the day at 105.37.

Alvin Liew, Economist at UOB Group, comments on the November’s contraction of Retail Sales.

Key Takeaways

“After two months of sequential increases, Singapore’s retail sales contracted by -3.7% m/m in Nov, from an unchanged +0.1% m/m in Oct. That still translated to a 6.2% y/y expansion in Nov (from a downwardly revised 10.3% in Oct), and was the first time the y/y growth fell to single-digit expansion after seven consecutive months of double-digit growth. Excluding motor vehicle sales, the m/m decrease was more pronounced at -4.3%, (from +0.7% in Oct), translating to an 8.7% y/y increase (from 14.2% y/y in Oct).”

“Delving into the details of the latest retail sales growth, eight of the 14 main segments recorded m/m decreases in Nov, up from five in Oct. The main segment that recorded the biggest m/m decrease was computer & telecommunication equipment followed by department stores, others, watches & jewellery and wearing apparel & footwear. We think the m/m declines in many of these (discretionary spending) segments may be due to the start of school holidays and in turn the start of year-end holiday travel for many Singaporean households which reduced their spending domestically in Nov.”

“Outlook – Year-to-date, retail sales grew by 10.8% y/y and we continue to project retail sales to expand by 10% in 2022 (unchanged from the previous report) which implies a more moderate forecast of around 3.1% retail sales growth in Dec 22. Going into 2023, key downside risks to retail sales are the still elevated inflation pressures that may increasingly curb discretionary spending of households, in addition to the 1ppt GST hike from 7% to 8% effective from 1 Jan 2023, while the favourable low base effect is also likely to fade going into the new year. That said, upside growth factors for retail sales could still come from the continued recovery in leisure and business air travel and inbound tourism, which will benefit many in-person services sectors, and the impact of China’s reopening from 8 Jan is likely to be positive for Singapore’s travel- and tourism-related sectors including retail, but the boost by China’s re-opening is highly uncertain as there are various factors that may limit the return of inbound Chinese tourists, especially in the near term. We have conservatively maintained a 2.3% retail sales growth for 2023, but the upside potential to our forecast is mainly China.”

• AUD/USD turns lower for the second straight day amid strong follow-through USD buying.
• Thursday’s upbeat US macro data fuels hawkish Fed expectations and underpins the buck.
• Looming recession risks further benefit the safe-haven USD ahead of the crucial US NFP.

The AUD/USD pair attracts fresh selling following an early uptick to the 0.6800 neighbourhood and turns lower for the second successive day on Friday. The steady intraday descent drags spot prices to a fresh daily low, around the 0.6725-0.6720 region heading into the North American session and is sponsored by a strong follow-through US Dollar buying.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, trades near a one-month high and continues to draw support from Thursday's upbeat US macro data. The US ADP report on private-sector employment and an unexpected fall in Weekly Initial Jobless Claims pointed to a strong labour market, which could allow the Fed to stick to its aggressive rate hike path.

Apart from this, the prevalent cautious market mood further seems to benefit the safe-haven greenback and contributes to driving flows away from the risk-sensitive Australian Dollar. Despite the latest optimism over the easing of strict COVID-19 restrictions in China, concerns about a deeper global economic downturn weigh on the sentiment and tempers investors' appetite for riskier assets.

It, however, remains to be seen if the USD bulls can maintain their dominant position as the focus shifts to the closely-watched US monthly jobs data. The popularly known NFP report could influence the Fed's near-term policy outlook and play a key role in driving the USD demand. This, in turn, should assist investors to determine the next leg of a directional move for the AUD/USD pair.

Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near term and positioning for any further depreciating move. Nevertheless, the AUD/USD pair remains on track to register losses for the first time in the previous three weeks.

Technical levels to watch

• EUR/USD extends the bearish note sparked on Thursday.
• A deeper pullback could see the weekly low at 1.0443 revisited.

EUR/USD accelerates its losses and drops to multi-week lows south of the key 1.0500 barrier on Friday.

If sellers push harder, then the pair could extend the decline to, initially, the weekly low at 1.0443 (December 7) prior to the 55-day SMA at 1.0365.

In the meantime, further gains remain in store for the pair while above the 200-day SMA at 1.0311.

EUR/USD daily chart

Economist at UOB Group Ho Woei Chen suggests the BoK could raise the policy rate by 25 bps at its January event prior to pausing its hiking cycle.

Key Takeaways

“High cost of utilities, food and transport continued to drive the inflation in the country. The electricity prices are set for a 9.5% jump in 1Q23 which may lift the inflation this month.”

“The current elevated inflation environment would warrant another 25bps rate hike to bring the 7-day repo rate to 3.50% at the upcoming monetary policy meeting on 13 Jan. We see that as the ‘terminal rate’ as slowing economic growth will increasingly dominate the policy setting.”

“To engineer a soft-landing this year, the government has also announced measures to support the property market and boost the semiconductor industry and will be frontloading 65% of the budget allocated for the central government in 1H23.”

“We maintain our forecast for a moderation in GDP growth to 1.6% y/y in 4Q22 from 3.0% y/y in 1Q-3Q22 with the full-year growth at 2.7% in 2022. Our forecast for South Korea’s GDP growth remains at 1.7% for 2023. The advance 4Q22 GDP will be released on 26 Jan.”

• The index extends the weekly optimism beyond 105.00.
• Immediately to the upside comes the 200-day SMA.

DXY adds to Thursday’s rebound and surpasses the key barrier at 105.00 the figure at the end of the week.

The dollar trades in multi-week highs north of the 105.00 barrier and the current upside momentum allows for the continuation of the upside bias for the time being. Against that, the next target of note comes at the key 200-day SMA, today at 106.32.

While below the latter, the outlook for the index should remain tilted to the negative side.

DXY daily chart

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest release of inflation readings in the Philippines.

Key Takeaways

“Headline inflation picked up for a fourth consecutive month but at a slowerthan-expected pace of 8.1% y/y in Dec (UOB est: +8.4%, Bloomberg est: +8.2%, Nov: +8.0%). This brought the full-year inflation rate to an average of 5.8% in 2022 (2021: 3.9%), matching BSP’s forecast but coming in a tad lower than our projection of 5.9%. Costlier food, energy bills, recreational goods & cultural services, restaurants & accommodation related expenses, as well as personal care were key factors lifting the headline inflation further last month, which fully counteracted the effects of easing energy prices and a recovering Peso (PHP).”

“For 2023, inflation risks are still tilted to the upside due to both external and domestic forces. It is expected to revert to BSP’s medium-term inflation target range of 2.0%-4.0% only in late 3Q23, at the earliest, with year-ago high base effects, full impact of restrictive monetary policy on consumption, and moderating global growth lending a helping hand. This will result in a full-year inflation rate of 4.5% (BSP est: 4.5%).”

“We think that the slower-than-expected headline inflation outturn in Dec is less likely to throw BSP off its rate-hike path. But, the softer inflation reading coupled with gloomier global growth prospects will allow BSP to continuously embark on a slower rate hike path in the coming months. We stick to our BSP call for two more 25bps hikes in 1Q23 before taking a pause at 6.00% thereafter. The first Monetary Board Meeting of the year is slated for 13 Feb.”

Canadian employment details overview

Statistics Canada is scheduled to publish the monthly employment report for December later this Friday at 13:30 GMT. The Canadian economy is anticipated to have added 8K jobs during the reported month, down from November's reading of 10.1K. Moreover, the unemployment rate is anticipated to edge higher from 5.1% to 5.2% in December.

How could the data affect USD/CAD?

The data is more likely to be overshadowed by the simultaneous release of the closely-watched US jobs report - popularly known as NFP. That said, a significant divergence from the expected readings might still influence the Canadian Dollar and provide some meaningful impetus to the USD/CAD pair.

Ahead of the key releases, a modest downtick in crude oil prices is seen undermining the commodity-linked Loonie. This, along with a strong follow-through buying around the US Dollar, assists the USD/CAD pair to capitalize on the overnight bounce from the vicinity of the 100-day SMA and gain traction for the second successive day.

Any disappointment from the Canadian employment details could further weigh on the domestic currency and provide an additional boost to the USD/CAD pair. Conversely, stronger data might do little to benefit the Canadian Dollar, suggesting that the path of least resistance for the major is to the upside.

Key Notes

  •  Can Canadian jobs numbers change the BOC's mind?

  •  USD/CAD Outlook: 100-day SMA holds the key for bulls, US/Canadian jobs data awaited

  •  USD/CAD climbs back closer to mid-1.3600s, focus remains on US NFP/Canadian jobs data

About the Employment Change

The employment Change released by Statistics Canada is a measure of the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive, or bullish for the CAD, while a low reading is seen as negative or bearish.

About the Unemployment Rate

The Unemployment Rate released by Statistics Canada is the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labour market. As a result, a rise leads to weaken the Canadian economy. Normally, a decrease of the figure is seen as positive (or bullish) for the CAD, while an increase is seen as negative or bearish.

• EUR/JPY extends the weekly recovery past the 141.00 barrier.
• The continuation of the rebound should target the 143.00 region.

EUR/JPY reverses Thursday’s pullback and regains the 141.00 mark and beyond at the end of the week.

In light of the ongoing price action, further upside could not be ruled out in the ear term. That said, the immediate target emerges at the weekly high at 142.93 (December 28), which appears underpinned by the vicinity of the 100-day SMA.

The outlook for EUR/JPY is expected to shift to constructive while above the 200-day SMA, today at 140.52.

EUR/JPY daily chart

Senior Economist at UOB Group Alvin Liew assesses the publication of the FOMC Minutes of the December meeting.

Key Takeaways

“The key takeaways from the US Federal Reserve’s (Fed) 13/14 Dec 2022 FOMC minutes released overnight (5 Jan, 3am SGT) were: 1) Fed officials were intent on keeping to hiking rates to lower inflation back toward their 2% target, warning against premature loosening and that no rate cuts were expected in 2023, and 2) policymakers highlighted the downshift to a 50bps hike was not a weakening of its resolve to bring inflation back to 2% target and signaled their concerns regarding market views about the future path of the policy Fed Funds Target rate (FFTR), warning that an ‘unwarranted easing in financial conditions’ would impede their efforts to achieve price stability.”

“The minutes also showed Fed policymakers see the continuing need to balance two risks related to the conduct of its monetary policy: the risk of an insufficiently restrictive monetary policy versus the risk of the lagged cumulative effect of policy tightening, even though participants generally still err to the side of caution, which affirmed more hikes in 2023. For the second consecutive meeting, Fed staff economists’ warned the ‘possibility of a [US] recession sometime over the next year as a plausible alternative to the baseline’, but FOMC policymakers again did not provide any expectation (or mention) of a US recession in 2023.”

“FOMC Outlook – The latest FOMC minutes suggest that the Fed’s hawkish leaning remains very much alive at this point, despite the improving CPI trajectory. As such, we keep our existing forecast for a 50bps hike in Jan/Feb FOMC followed by another 25bps hike in Mar FOMC to our projected terminal FFTR level of 5.25%. We expect this terminal rate of 5.25% to last through 2023. The cumulative rate increases in 2022 amounted to 425bps, with another 75bps increases on the cards in 1Q23.”

US monthly jobs report overview

Friday's US economic docket highlights the release of the closely-watched US monthly jobs data for December. The popularly known NFP report is scheduled for release at 13:30 GMT and is anticipated to show that the economy added 200K jobs during the reported month, down from the 263K in November. The upbeat ADP report on the US private-sector employment, however, might have lifted expectations from the official figures. The unemployment rate, meanwhile, is foreseen to hold steady at 3.7% in December. Apart from this, investors will take cues from Average Hourly Earnings for fresh insight into the possibility of any further rise in inflationary pressures.

How could the data affect EUR/USD?

Heading into the key data risk, some follow-through US Dollar buying drags the EUR/USD pair to a nearly one-month low, below the 1.0500 psychological mark. Surprisingly stronger US employment details should be enough to trigger a fresh leg up in the greenback.

Conversely, any disappointment is more likely to be overshadowed by looming recession risk, which might continue to underpin the safe-haven buck. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer, Editor at FXStreet, offers a brief technical overview and outlines important technical levels to trade the pair: “EUR/USD was last seen trading slightly above 1.0500, where the Fibonacci 50% retracement of the latest uptrend is located. In case the pair drops below that level and starts using it as resistance, it could extend its slide toward 1.0450 (Fibonacci 61.8% retracement) and 1.0400 (psychological level, static level).”

“On the upside, the 200-period SMA on the four-hour chart aligns as immediate resistance at around 1.0550. This level is also reinforced by the Fibonacci 38.2% retracement. With a four-hour close above that hurdle, EUR/USD could gather recovery momentum and target 1.0610/20 area (Fibonacci 23.6% retracement, 100-period SMA, 50-period SMA),” Eren adds further.

Key Notes

  •  Nonfarm Payrolls Preview: Layoffs spreading or another blockbuster month? Three scenarios for the US Dollar

  •  EUR/USD Forecast: Can 1.0500 support hold on another NFP beat?

  •  EUR/USD challenges the 1.0500 region ahead of key data

About the US monthly jobs report

The nonfarm payrolls released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous month's reviews and the unemployment rate are as relevant as the headline figure.

• Silver regains some positive traction and snaps a three-day losing streak to a two-week low.
• The technical setup favours support prospects for the emergence of selling at higher levels.
• Any subsequent move up might still be seen as a selling opportunity and fizzle out quickly.

Silver attracts some buying on Friday and reverses a part of the previous day's losses to the $23.00 neighbourhood, or a two-week low. The white metal sticks to intraday gains, just below mid-$23.00s through the first half of the European session and for now, seems to have stalled this week's pullback from over an eight-month high.

The technical setup, however, still seems tilted in favour of bearish traders, warranting some caution before positioning for any further intraday positive move. This week's break below a two-month-old ascending trend line and a subsequent slide below the 200-period SMA on the 4-hour chart validates the negative outlook. Furthermore, oscillators on the daily chart have been losing momentum and support prospects for the emergence of fresh selling at higher levels.

Hence, any subsequent move up is more likely to meet with a fresh supply near the $23.70 area, or the 200-period SMA on the 4-hour chart. This, in turn, should cap the XAG/USD near the aforementioned ascending trend-line support breakpoint, now turned resistance, around the $23.90-$24.00 zone. The latter coincides with the overnight swing high and should act as a pivotal point, which if cleared decisively might prompt some short-covering around the white metal.

The XAG/USD might then aim to surpass an intermediate resistance near the $24.25 area, which is followed by the multi-month high, around the $24.50-$24.55 region set on Tuesday. A sustained strength beyond the latter will negate any near-term negative outlook and allow bulls to reclaim the $25.00 psychological mark for the first time since April 2022.

On the flip side, the $23.20-$23.10 area now seems to have emerged as immediate support. Some follow-through selling below the $23.00 round figure could drag the XAG/USD towards the $22.60-$22.55 region en route to the next relevant support near the $22.10-$22.00 horizontal zone. Failure to defend the said support levels will be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move.

Silver 4-hour chart

Key levels to watch

Further losses in USD/CNH should not be ruled out for the time being, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Yesterday, we indicated that USD ‘is likely to drift lower but is unlikely to challenge the support at 6.8700’. Our view turned out to be correct as USD dipped to a low of 6.8714 before rebounding. The underlying tone still appears to be soft, but while USD could dip below 6.8700 today, the next support at 6.8560 is unlikely to come into view. On the upside, a breach of 6.9000 (minor resistance is at 6.8900) would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (05 Jan, spot at 6.8910). As highlighted, while the decline in USD from last month has slowed, the risk is still on the downside. Only a break of 6.9250 (‘strong resistance’ level was at 6.9400 yesterday) would indicate that the downward pressure has eased. That said, any decline is expected to face solid support at 6.8400.”

• USD/CAD turns positive for the second straight day and is supported by a combination of factors.
• A downtick in oil prices undermines the Loonie and acts as a tailwind amid sustained USD buying.
• Investors now look to the monthly employment data from the US and Canada for a fresh impetus.

The USD/CAD pair attracts fresh buying near the 1.3540-1.3535 area on Friday and builds on the previous day's goodish rebound from the vicinity of the 100-day SMA support. The uptick, also marking the second successive day of a positive move, lifts spot prices to the 1.3625-1.3630 area during the first half of the European session and is sponsored by a combination of factors.

Crude oil prices struggle to capitalize on the overnight gains and edge lower on the last day of the week, which, in turn, undermines the commodity-linked Loonie. Despite the latest optimism led by the easing of strict COVID-19 curbs in China, which is expected to boost fuel demand, looming recession risks act as a headwind for the black liquid. This, along with a strong follow-through buying around the US Dollar, offers additional support to the USD/CAD pair and remains supportive of the momentum.

The USD continues to draw support from Thursday's upbeat US macro data, which pointed to a resilient US labour market and could allow the Federal Reserve to stick to its aggressive rate hike path. This, along with the prevalent cautious market mood, further seems to benefit the safe-haven greenback. It, however, remains to be seen if the USD bulls can retain control or opt to lighten their bets ahead of the closely-watched US monthly jobs data, due for release during the early North American session.

The popularly known US NFP report, due for release later during the early North American session, could influence the Fed's near-term policy outlook. This, in turn, will play a key role in driving the USD demand. Investors will further take cues from the release of the monthly employment details from Canada, which, along with oil price dynamics, should provide some meaningful impetus to the USD/CAD pair.

Technical levels to watch

Advanced prints from CME Group for natural gas futures markets noted open interest increased for the sixth session in a row on Thursday, this time by around 13.8K contracts. Volume followed suit and rose by around 84.7K contracts, extending at the same time the recent erratic performance.

Natural gas: On its way to $3.50?

Prices of the natural gas resumed the downtrend on Thursday and revisited multi-month lows amidst rising open interest and volume. Against that, the commodity risks a deeper pullback in the very near term with the immediate target at the $3.50 region per MMBtu (December 30 2021).

Inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), declined to 9.2% on a yearly basis in December from 10.1% in November, Eurostat announced on Friday. This reading came in below the market expectation of 9.7%.

The annual Core HICP rose to 5.2% from 5%, surpassing analysts' estimate of 5%. On a monthly basis, the HICP declined by 0.3% but the core HICP was up 0.6%.

Market reaction

EUR/USD edged slightly higher with the initial reaction to inflation figures and was last seen trading at 1.0515, where it was down 0.05% on a daily basis.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group hint at the probability of a move to the 135.00 region in USD/JPY in the short term.

Key Quotes

24-hour view: “Our view for USD to trade sideways was incorrect as it surged to a high of 134.05 before easing off to close at 133.40 (+0.59%). Upward momentum has improved, albeit not much. USD could continue to rise today but it is unlikely to challenge the major resistance at 135.00 (there is another rather strong level at 134.50). The upside pressure is intact as long as USD does not move below 132.55 (minor support is at 133.00).”

Next 1-3 weeks: “We highlighted yesterday (05 Jan, spot at 132.00) that ‘downward pressure appears to have eased and USD has likely moved into a consolidation phase’ and we expected USD to ‘trade between 129.50 and 133.50 for a period of time’. We did not expect the sharp rise in USD to a high of 134.05. Upward momentum is building and the current price actions are likely the early stages of a corrective rebound that could extend to 135.00. In order to keep the momentum going, USD should not move below the ‘strong support’ level, currently at 131.50, within the next few days.”

• EUR/USD probes the vicinity of the 1.0500 zone, or new lows.
• The preliminary inflation figures in the euro area come next.
• Later in the day, the focus of attention will be on US Payrolls.

The single currency trades on the defensive vs. the dollar and motivates EUR/USD to trade in an offered fashion around 1.0500 on Friday.

EUR/USD focuses on EMU CPI, US NFP

EUR/USD tests the proximity of the 1.0500 neighbourhood following the sharp pullback seen in the previous session, all against the backdrop of the generalized consolidative pattern seen in the global markets ahead of key data releases on both sides of the Atlantic.

On the latter, advanced inflation figures in the broader Euroland for the month of December will take centre stage later in the European morning, while the US labour market report, Factory Orders and the ISM Non-Manufacturing will grab all the attention in the US data space.

Earlier in the old continent, Retail Sales in Germany contracted at an annualized 5.9% in November.

In the meantime, the German 10-year Bund yields post marginal gains and add to Thursday’s small uptick.

What to look for around EUR

EUR/USD seems to have met some decent contention near 1.0500 so far this week amidst the resumption of the bid bias around the greenback. The pair’s price action will most likely be put to the test in light of key data releases scheduled later in the session.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Retail Sales, EMU Flash Inflation Rate, EMU Retail Sales.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.16% at 1.0504 and the breach of 1.0496 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0311 (200-day SMA). On the other hand, the next up barrier emerges at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27).

• GBP/USD remains on the defensive near a multi-week low amid sustained USD buying.
• Thursday’s upbeat US data reaffirms hawkish Fed expectations and underpins the USD.
• The focus remains glued to the release of the closely-watched US monthly jobs report.

The GBP/USD pair struggles to gain any meaningful traction on Friday and oscillated in a narrow trading band through the first half of the European session. The pair is currently placed just below the 1.1900 mark, or a fresh six-week low touched in the last hour.

Thursday's upbeat US macro data continues to boost the US Dollar for the second successive day, which, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. In fact, the better-than-expected ADP report on the US private-sector employment and Initial Jobless Claims pointed to a resilient US labour market.

This further suggested that the economy ended 2022 on solid footing and could allow the Federal Reserve to stick to its aggressive rate hike path. That said, subdued action around the US Treasury bond yields fails to impress the USD bulls and could lend some support to the GBP/USD pair ahead of the closely-watched US jobs data.

The popularly known US NFP report, due for release later during the early North American session, could influence the Fed's near-term policy outlook. This, in turn, will play a key role in driving the USD demand and provide a fresh directional impetus to the GBP/USD pair. The bleak outlook for the UK economy, meanwhile, still favours bearish traders.

Hence, any attempted recovery could now be seen as a selling opportunity and runs the risk of fizzling out. The GBP/USD pair seems vulnerable to extending its recent pullback from the vicinity of mid-1.2400s, or the highest level since June 2022. Nevertheless, spot prices remain on track to register heavy weekly losses, marking the third in the previous four.

Technical levels to watch

A senior economist at Commerzbank offers a grim outlook on the German industrial sector after the country’s factory orders plunged in November.

Key quotes

“German industry received 5.3% fewer new orders in November than in October. This means that the downward trend in order intake has if anything worsened.”

“However, due to the large order backlogs built up over the past two years, this is hardly having an impact on production.”

“Real sales, which correlate strongly with production, actually rose by 2.1% in November.”

“In view of the weaker order intake and the burden of high energy prices, production may therefore fall in the coming months, but a slump is unlikely.”

China’s Commerce Ministry spokesperson said on Friday, that they will actively study and implement measures to boost consumption.

“Domestic consumption demand will be gradually released, and consumption is expected to recover steadily,” the spokesperson said.

Market reaction

These above comments have little to no impact on the Chinese proxy, the Australian Dollar. The AUD/USD pair was last seen trading at 0.6752, +0.05% on the day.

• USD/JPY scales higher for the fourth straight day and climbs to over a one-week high on Friday.
• Thursday’s upbeat US data, hawkish Fed expectations underpin the USD and remain supportive.
• Investors now look forward to the release of the US NFP report before placing directional bets.

The USD/JPY pair builds on this week's recovery move from mid-129.00s, or its lowest level since June 2022 and gains traction for the fourth successive day on Friday. The momentum lifts spot prices to over a one-week high, around the 134.40 area during the early part of the European session and is sponsored by a strong follow-through US Dollar buying.

Thursday's better-than-expected US macro data pointed to a resilient US labour market and could allow the Federal Reserve to stick to its aggressive rate hike path. Furthermore, Fed officials reiterated that they were still focused on bringing down inflation to the 2% target, which continues to act as a tailwind for the US Treasury bond yields and the greenback.

Apart from this, a generally positive tone around the equity markets, bolstered by the optimism over the easing of strict COVID-19 curbs in China, undermines the safe-haven Japanese Yen. This is seen as another factor lending support to the USD/JPY pair. The upside, however, seems limited amid reports that the Bank of Japan (BoJ) plans to raise its inflation forecasts.

According to Reuters, the upgrade would underscore the BoJ's conviction that robust domestic demand will keep inflation around the 2% target in coming years. This, in turn, fueled speculations that the central bank will phase out its ultra-lose policy settings when Governor Haruhiko Kuroda's second five-year term ends in April, warranting caution for bulls.

Traders might also refrain from placing aggressive bets and prefer to wait for the release of the closely-watched US monthly jobs data. The popularly known NFP report, due later during the early North American session, could influence the Fed's near-term policy outlook and drive the USD demand. This, in turn, should provide a fresh directional impetus to the USD/JPY pair.

Technical levels to watch

AUD/USD could now navigate within the 0.6660-0.6860 range in the next few weeks, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the rapid rise appears to be overdone and AUD is unlikely to advance further’ and we expected AUD to ‘trade sideways between 0.6770 and 0.6870’. However, instead of trading sideways, AUD plummeted to a low of 0.6737 before closing on a weak note at 0.6752 (-1.26%). While AUD could continue to decline, oversold conditions suggest it is unlikely to challenge the support at 0.6700 (next support is at 0.6660). Resistance wise, a break of 0.6820 (minor resistance is at 0.6790) would indicate that the weakness in AUD has stabilized.”

Next 1-3 weeks: “Yesterday (05 Jan, spot at 0.6825), we highlighted that while upward momentum, AUD has to break clearly above 0.6900 before a sustained rise is likely. We added, ‘the likelihood of AUD breaking clearly above 0.6900 is not high for now but it would remain intact as long as AUD stays above 0.6735 within the next few days’. In NY trade, NY plummeted and came close to taking out 0.6735 with a low of 0.6737. While 0.6735 is not breached, upward momentum has faded. The current price actions are likely part of a broad consolidation range and AUD is likely to trade between 0.6660 and 0.6860 for now.”

CME Group’s flash data for crude oil futures markets noted traders added around 3.8K contracts to their open interest positions on Thursday, extending the uptrend in place since December 23. Volume, instead, set aside three daily drops in a row and went up by around 192.5K contracts.

WTI: A visit to the $70.00 area is not ruled out

Thursday’s small bounce in prices of the WTI was on the back of rising open interest, which suggests the probability of another move higher in the very near term. The sharp decline in volume, however, leaves the door open to extra downside to, potentially, the 2022 low near the $70.00 mark per barrel.

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, GBP/USD could see its losses accelerate to the 1.1850 region in the short term.

Key Quotes

24-hour view: “The sharp drop in GBP came as a surprise (we were expecting GBP to range-trade). The sharp and swift drop appears to be overdone, there is room for the weakness in GBP to extend to 1.1850 before stabilization is likely. The next support at 1.1800 is unlikely to come into view. Resistance is at 1.1950, but only a break of 1.1980 would indicate that the weakness has stabilized.”

Next 1-3 weeks: “We highlighted yesterday (05 Jan, spot at 1.2050) that GBP is likely to consolidate between 1.1900 and 1.2150 for the time being. We did not expect the subsequent sharp drop to 1.1873. The rapid build-up in momentum is likely to lead to further GBP weakness. Support levels are at 1.1850 and 1.1800. The downside risk is intact as long as GBP stays below the ‘strong resistance’ level, currently at 1.2020.”

• Gold price regains positive traction on Friday and reverses a part of the overnight losses.
• Some follow-through buying around the USD should keep a lid on the non-yielding metal.
• Traders keenly await the release of the US monthly employment details, or the NFP report.

Gold price attracts some dip-buying on the last day of the week and stalls its retracement slide from the highest level since June 2022, around the $1,865 area touched on Wednesday. The XAU/USD maintains its bid tone through the early European session and is currently placed near the top end of the daily range, just below the $1,840 level.

The intraday uptick in Gold price could be attributed to some repositioning trade ahead of the release of the closely-watched US monthly jobs data. The popularly known NFP report will play a key role in influencing the Fed's rate hike path and help determine the next leg of a directional move for the non-yielding yellow metal. In the meantime, a strong follow-through buying around the US Dollar could keep a lid on any meaningful upside for the Dollar-denominated commodity.

The USD continues to draw support from Thursday's better-than-expected US macro data, which pointed to a resilient US labour market and could allow the Federal Reserve to stick to its aggressive rate hike path. In fact, Automatic Data Processing (ADP) reported that the US private sector employers added 235K jobs in December against consensus estimates for a reading of 150K. Furthermore, Initial Jobless Claims unexpectedly declined to 204K last week.

This comes on the back of a hawkish tone from the minutes of the Federal Open Market Committee (FOMC) December meeting, showing that policymakers were set to keep interest rates higher for longer. Moreover, Federal Reserve officials reiterated on Thursday that they were still focused on bringing inflation back to the 2% target. Heading into the key data risk, the Fed's hawkish outlook should contribute to capping Gold price and warrants caution for bullish traders.

Technical levels to watch

According to preliminary readings from CME Group for gold futures markets, open interest dropped by nearly 3K contracts on Thursday after four consecutive daily builds. In the same line, volume shrank for the second session in a row, this time by around 4.6K contracts.

Gold could revisit recent peaks around $1865

Gold prices retreated sharply on Thursday on the back of shrinking open interest and volume, which is supportive that a deeper pullback appears out of favour in the very near term. The resumption of the upside momentum is expected to retarget recent highs at $1865 per ounce troy.

Further decline in EUR/USD looks likely and could retest the 1.0450 and 1.0410 levels in the next weeks, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our expectations for EUR to range-trade were incorrect as it dropped sharply and closed at a 1-month low of 1.0520 (-0.75%). The decline gained considerable momentum and EUR is likely to weaken further. That said, the major support at 1.0450 is likely out of reach today (minor support is at 1.0485). Resistance is at 1.0545, followed by 1.0580.”

Next 1-3 weeks: “We highlighted yesterday (05 Jan, spot at 1.0610) that downward momentum is beginning to build and we held the view that EUR is likely to trade with a downward bias but expect solid support at 1.0510. In NY trade, EUR dropped sharply and came close to 1.0510 (low of 1.0513). Downward momentum has improved further and a break of 1.0510 would not be surprising. In view of the improved momentum, EUR could weaken to the next support at 1.0450, possibly 1.0410. On the upside, a break of 1.0630 (‘strong resistance’ level was at 1.0675 yesterday) would indicate that downward pressure has eased.”

• The index adds to Thursday’s advance and trespasses 105.00.
• Markets remain largely in a consolidative mood ahead of NFP.
• All the attention shifts to the US labour market, Fedspeak.

The greenback, in terms of the USD Index (DXY), keeps the optimism well and sound and reclaims the area above the 105.00 barrier at the end of the week.

USD Index looks at Payrolls, ISM, Fed speakers

The index adds to Thursday’s gains and manages to climb past 105.00 the figure on Friday, extending the bid bias in the second half of the week as investors continue to assess recent results in US fundamentals.

In the meantime, investors are expected to closely follow the release of the Nonfarm Payrolls for the month of December, where the economy is expected to have created 200K jobs and the jobless rate to remain unchanged at 3.7%.

The results from the US labour market – and particularly, its resilience - have been growing in importance as of late due to its implications for the Fed’s plans regarding its ongoing tightening process.

Other than Payrolls, the US calendar will show the ISM Non-Manufacturing, Factory Orders and speeches by Atlanta Fed R.Bostic (2024 voter, hawk), FOMC Governor L.Cook (permanent voter, centrist) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The dollar keeps the buying bias unchanged in the second half of the week so far, managing well to regain the 105.00 barrier and above.

Meanwhile, the Fed’s pivot narrative has been pushed further forward following the publication of the FOMC Minutes on Wednesday, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, ISM Non-Manufacturing PMI, Factory Orders (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.02% at 105.16 and faces the next hurdle at 105.82 (weekly high December 7) followed by 106.31 (200-day SMA) and then 107.19 (weekly high November 30). On the flip side, the breakdown of 103.39 (monthly low December 30) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level).

• German Retail Sales arrived at -5.9% YoY in November vs. -2.5% expected.
• Retail Sales in Germany came in at 1.1% MoM in November vs. 1.0% expected.

Germany's Retail Sales rose by 1.1% MoM in November versus 1.0% expected and -2.8% previous, the official figures released by Destatis showed on Friday.

On an annualized basis, the bloc’s Retail Sales plunged by 5.9% in November versus the -2.5% expected and a 5.0% drop recorded in October.

FX implications

The Euro shrugs off the downbeat German data. At the time of writing, the major trades at 1.0516, modestly flat on the day.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Positive economic growth is usually anticipated as "bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

• German Factory Orders tumbled 5.3% MoM in November vs. -0.5% expected.
• German Factory output plunged 11.0% YoY in November vs. -7.0% expected.
• EUR/USD remains unfazed at around 1.0515 following the awful German data.

The German Factory Orders plunged in November, suggesting that the manufacturing sector recovery has lost momentum.

Contracts for goods ‘Made in Germany’ came in at -5.3% on the month vs. -0.5% expected and 0.6% prior, the latest data published by the Federal Statistics Office showed on Friday.

On an annualized basis, Germany’s Industrial Orders arrived at -11.0% in the reported month vs. -7.0% expected and -3.3% previous.

FX implications

The shared currency stands resilient to the disappointing German factory data.  At the time of writing, EUR/USD is almost unchanged on the day, trading at 1.0515.

Here is what you need to know on Friday, January 6:

Supported by the upbeat employment-related data from the US, the US Dollar outperformed its rivals on Thursday with the US Dollar Index rising to its highest level in three weeks above 105.00. Early Friday, markets stay relatively quiet as focus shifts to Eurozone inflation and Retail Sales figures ahead of the December jobs report from the US. US stock index futures trade modestly higher on the day following the heavy losses seen in Wall Street's main indexes on Thursday and the benchmark 10-year US Treasury bond yield holds steady slightly above 3.7%. 

The monthly data published by ADP revealed on Thursday that private sector employment in the US rose by 235,000 in December, surpassing the market expectation of 150,000 by a wide margin. Further details of the report revealed that annual wage inflation was up 7.3% in the same period. Additionally, the US Department of Labor announced that there were 204,000 initial claims for unemployment benefits in the last week of 2022, down from 223,000 in the previous week.

Nonfarm Payrolls in the US are forecast to rise by 200,000 in December following November's better-than-expected increase of 263,000. Wage inflation, as measured by the Average Hourly Earnings, is expected to edge lower to 5% on a yearly basis from 5.1% in November. Ahead of the labor market data, the US Dollar Index consolidates its recent gains slightly above 105.00.

Nonfarm Payrolls Preview: Layoffs spreading or another blockbuster month? Three scenarios for the US Dollar.

EUR/USD fell sharply in the second half of the day on Thursday and came within a touching a distance of 1.0500 before going into a consolidation phase. The annual Harmonized Index of Consumer Prices (HICP) in the Eurozone are projected to declined to 9.7% in December from 10.1% in November.

EU Inflation Preview: Easing price pressures will lift hopes, but can it impact the Euro?

GBP/USD fell below 1.1900 for the first time since late November on Thursday but managed to stage a modest rebound. In the absence of high-impact data releases from the UK, the US Dollar's reaction to the US data should impact the pair's action heading into the weekend.

USD/JPY closed the third straight day in positive territory on Thursday and continued to stretch higher during the Asian trading hours on Friday. At the time of press, the pair was up 0.5% on the day at 134.10. The Bank of Japan (BoJ) conducted another unscheduled/emergency Japanese government bond (JGB) buying operation on Friday and announced that it held a two-year pooled collateral operation for the third straight session.

Following Thursday's sharp decline, AUD/USD clings to modest daily gains slightly above 0.6750 on Friday. China has reportedly placed its first order to import Australian coal, helping the Australian Dollar hold its ground for the time being.

Gold price snapped a two-day winning streak and lost more than 1% on Thursday pressured by the broad US Dollar strength and recovering US Treasury bond yields. XAU/USD edges higher toward $1,840 early Friday as the 10-year US T-bond yield stays quiet so far.

US December Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises.

Bitcoin failed to build on its weekly gains amid risk aversion and retreated below $16,700. Ethereum registered small losses on Thursday and was last seen trading flat at around $1,250.

Citing sources familiar with the matter, Reuters reported on Friday that China placed its first order for Australian coal since the unofficial ban imposed in 2020.

No further details are provided about the same.

Also read: China's curbs on Australian commodities may lift in unofficial manner – Bloomberg

Market reaction

AUD/USD has popped again on the above headlines, currently trading at 0.6766, up 0.25% on the day.

FX option expiries for Jan 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0300 1.37b
• 1.0375 241m
• 1.0515 241m
• 1.0650 310m
• 1.0700 379m

- USD/JPY: USD amounts                     

• 131.35-35 602m
• 131.85 500m
• 133.0 876m
• 135.00 448m
• 135.87 500m
• 136.00 908m

- AUD/USD: AUD amounts  

• 0.6650 767m
• 0.6800 693m  
• 0.7000 456m

- USD/CAD: USD amounts       

• 1.3600-15 336m
• 1.3700 224m

• AUD/USD attracts fresh buyers on Friday, though the intraday uptick lacks bullish conviction.
• Recession fears act as a headwind for the Aussie amid some follow-through USD buying interest.
• Traders now look forward to the closely-watched US NFP report for a fresh directional impetus.

The AUD/USD pair regains some positive traction on Friday and recovers a part of the previous day's heavy losses. Spot prices, however, struggle to capitalize on the move and remain below the 0.6800 round figure through the early European session.

A modest recovery in the global risk sentiment, supported by the easing of strict COVID-19 restrictions in China, lends some support to the risk-sensitive Aussie. That said, concerns about a deeper global economic downturn keep a lid on the optimism, which, along with strong follow-through US Dollar buying, act as a headwind for the AUD/USD pair.

The USD draws support from Thursday's upbeat US macro data, which pointed to a resilient US labour market and could allow the Federal Reserve to stick to its aggressive rate hike path. Traders, however, seem reluctant and prefer to wait for the release of the closely-watched US monthly jobs data, due later during the early North American session.

The popularly known NFP report could influence the Fed's policy outlook and play a key role in driving the USD demand in the near term. This, in turn, should assist investors to determine the next leg of a directional move for the AUD/USD pair. This, in turn, warrants some caution for bulls and before positioning for any further appreciating move for the major.

Technical levels to watch

• Advancing anxiety ahead of the US NFP release has underpinned the risk-off impulse.
• S&P500 futures have witnessed a drop in their early gains, portraying negative market sentiment.
• The upside in the Loonie asset is capped around 1.3700 while the downside is restricted near 1.3500.

The USD/CAD pair has rebounded firmly after dropping to near 1.3550 in the early European session. The Loonie asset has sensed a decent demand as traction has shifted in the favor of safe-haven assets. Also, the US Dollar Index (DXY) has scaled to near the crucial resistance of 105.00, at the time of writing, as anxiety among market participants has soared ahead of the release of the United States Nonfarm Payrolls (NFP) data.

Gains recorded in the S&P500 futures in early Asia have trimmed significantly as investors are preferring in avoiding positions in the US equities till the release of the employment data for making informed decisions.

A scrutiny of USD/CAD on a four-hour scale indicates that the upside of the asset is capped around the horizontal resistance plotted from December 7 high at 1.3700 while the downside is restricted around the demand zone placed in a 1.3480-1.3500 range. The 50-period Exponential Moving Average (EMA) at 1.3567 is overlapping with the Lonnie price, which indicates a rangebound structure.

Also, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which signifies that investors are waiting for a fresh trigger for making positions.

Going forward, a decisive break above the December 16 high around 1.3700 will strengthen the US Dollar and will drive the Loonie asset toward October 25 high at 1.3748 and November 3 high at 1.3808.

On the contrary, the major could drop to November 23 high at 1.3440 after surrendering the psychological support of 1.3500. Later on, a slippage below 1.3440 will expose the Loonie asset for more downside towards December 5 low at 1.3385.

USD/CAD four-hour chart

• GBP/USD has sensed selling pressure around 1.1930 amid a recovery in the US Dollar Index.
• A recovery in the risk-on profile is getting faded as investors turn anxious ahead of the US NFP release.
• Higher wage inflation might for the Fed to stretch its terminal rate projections.

The GBP/USD pair is facing pressure while attempting the cross the immediate resistance of 1.1930 in the early European session. The Cable is expected to terminate its less-confident recovery as investors are pouring their funds back into the US Dollar Index (DXY) amid anxiety ahead of the release of the United States Nonfarm Payrolls (NFP) data.

The US Dollar Index is looking to extend its recovery above the immediate hurdle of 104.80 decisively and later on may focus on recapturing the critical resistance of 105.00. Meanwhile, S&P500 futures have marginally trimmed gains as the risk-off impulse is getting back in action. Uncertainty ahead of the first release of the US NFP of CY2023 cannot be ruled out. The 10-year US Treasury yields are still hovering below 3.72%.

Analysts at Goldman Sachs see the first US Nonfarm Payrolls data release of 2023 at 225K+. The Unemployment Rate is seen unchanged at 3.7%. Apart from the employment status, investors will keep an eye on the Average Hourly Earnings data. According to the consensus, the annual earnings data might trim to 5.0% from the former release of 5.1%.

The catalyst that is creating hurdles for the Federal Reserve (Fed) in achieving price stability is the higher wage inflation, which is providing room to households to accelerate their retail demand. An occurrence of the event would force the Fed to stretch its interest rate peak projections and may continue to keep borrowing costs on a higher time for a longer period.

On the United Kingdom front, the Pound Sterling remained lackluster on flat PMI data. S&P Composite PMI landed at 49.0 in line with the expectations and the prior release. While Services PMI dropped marginally to 49.9 from the consensus and the former release of 50.0.

• NZD/USD is looking to stretch its recovery above 0.6250 backed by a rebound in the risk-on mood.
• The US Dollar Index is struggling below 104.80 ahead of the US NFP data release.
• Upbeat US ADP Employment Change data has resulted in more troubles for the Fed policymakers.

 The NZD/USD pair is struggling to extend its recovery above the immediate resistance of 0.6250 in the Asian session. The Kiwi asset rebounded firmly to near 0.6220 as investors shrugged off the United States' upbeat employment-inspired volatility.  On Thursday risk-sensitive currencies witnessed extreme selling pressure after the US Automatic Data Processing (ADP) Employment Change reported the stronger-than-projected addition of fresh payrolls in December.

The US Dollar Index (DXY) is hovering in an extremely narrow range below the immediate resistance of 104.80 as investors await US Nonfarm Payrolls (NFP) data release for fresh impetus. Meanwhile, the S&P500 futures have rebounded significantly, portraying a recovery in the risk-on impulse. The 10-year US Treasury Yields are displaying a subdued performance and are hovering below 3.72%.

The release of the upbeat US ADP Employment data proved that the tight labor market is going to be the major hurdle for the Federal Reserve (Fed) in its way toward achieving price stability. There is no denying the fact that firms must be offering higher wages to attract talent amid solid labor demand. So, any further rebound in the US Consumer Price Index (CPI) may stem from higher wage inflation.

In the meantime, analysts at TD Securities have come forward with expectations for interest rate hikes for CY2023.

Commenting on the minutes of the Federal Reserve's December policy meeting, TD Securities analysts noted that officials remained in broad agreement about the need to push the policy stance further into restrictive territory in the near term. Therefore it expects another 50 basis points (bps) rate increase in February, and expects 25 bps rate hikes in March and May. It projects that the Fed will therefore settle on a terminal Fed funds target rate range of 5.25%-5.50% by May."

Meanwhile rising cases of Covid-19 in China will continue to impact the New Zealand Dollar. Economic activities in China are continuously scaling down as firms have still not resumed operations on a full-fledged note. It is worth noting that New Zealand is one of the leading trading partner of China and a decline in the volume of economic activities in the Sino region impact the New Zealand Dollar.

• A significant improvement in investors’ risk appetite backed the recovery in the Asian indices.
• Asian equities to display a decisive move post the release of the US NFP data.
• Oil price continues its rangebound action despite an increase in weekly oil inventories.

Markets in the Asian domain have displayed a recovery move, shrugging off volatility witnessed in S&P500 on Thursday. Investors have accepted the fact that United States Nonfarm Payrolls (NFP) could display a stronger-than-anticipated performance after upbeat cues from the release of the Automatic Data Processing (ADP) Employment Change.

Analysts at Goldman Sachs see the first US Nonfarm Payrolls data release of 2023 at 225K+. The Unemployment Rate is seen unchanged at 3.7%.

At the press time, Japan’s Nikkei225 gained 0.70%, SZSE Component jumped 0.82%, Hang Seng climbed 0.66% and Nifty50 added 0.12%.

Investors are worried due to resilience in the United States job market as it would provide a genuine reason to the Federal Reserve (Fed) to keep the interest rates on an elevated note. The release of the Federal Open Market Committee (FOMC) minutes has already cleared that none of the Fed policymakers are expecting a consideration of an interest rate cut before CY2024. The street reacted significantly to the release of DP Employment Change data, however, the release of the official US employment data will provide more clarity on employment status.

Meanwhile, Chinese equities have picked strength amid China-Australia trade optimism. The Chinese economy is expected to wave off restrictions on imports of Australian commodities. Investors consider it a significant step from the Chinese administration to accelerate trade relations at times when it is reopening a full-fledged economy after a stretched lockdown period.

On the oil front, oil price has continued its sideways auction after a bloodbath recorded on Wednesday. In the Asian session, the black gold attempted to extend its recovery above the crucial resistance of $75.00. The oil price didn’t display any major gyration despite the US Energy Information Administration (EIA) reporting an increase in oil stockpiles by 1.694 million barrels for the week ending December 30.

European Central Bank (ECB) Governing Council member and French central bank governor Francois Villeroy de Galhau said late Thursday, "it would be desirable to reach the right 'terminal rate' by next summer, but it is too early to say at what level.”

"We need to be pragmatic and guided by observed data, including underlying inflation, without fetishism for increases that are too mechanical,” Villeroy added.

Market reaction

EUR/USD was last seen trading at 1.0532, up 0.14% on the day.

• A decent recovery in S&P500 futures indicates that the risk-on profile has regained traction.
• Investors are awaiting the release of the Eurozone Inflation and US NFP for fresh impetus.
• The RSI (14) has shifted into the bearish range, which indicates that the downside momentum has been triggered.

The EUR/USD pair has displayed a rebound move after gauging an immediate cushion around 1.0520. It would be prudent not to consider it a reversal for now as volatility is likely to remain on a lower note ahead of the release of the United States Nonfarm Payrolls (NFP) data and Eurozone Inflation for fresh cues.

The risk-on profile has gained traction amid a decent recovery in risk-sensitive assets like S&P500 futures. Meanwhile, the US Dollar Index (DXY) is struggling to surpass its crucial resistance around 104.80.

A bearish trend led by the formation of lower highs and lower lows is clear on an hourly scale. Earlier, the 200-period Exponential Moving Average (EMA) at 1.0610, which was acting as major support for the shared currency has turned into a major hurdle for the latter.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates that the bearish momentum has been activated.

Should the major currency pair break below Thursday’s low at 1.0515, US Dollar will get strengthened and will drag the asset towards December 8 low at 1.0490 followed by December 7 low at 1.0443.

Alternatively, a decisive move above Wednesday’s high at 1.0643 will drive the asset towards December 30 high at 1.0713. A break above the latter will support EUR/USD to recapture its seven-month high at 1.0736.

EUR/USD hourly chart

• USD/JPY has stretched its recovery above 133.60 despite an improvement in investors’ risk appetite.
• S&P500 futures have displayed a firmer recovery while the USD Index is displaying a subdued performance.
• An ultra-loose monetary approach by the BoJ has triggered volatility in Japanese Yen.

The USD/JPY pair has shifted its auction profile above the crucial resistance of 133.60 in the Asian session. The asset has sensed buying interest despite a recovery attempt by the risk-on impulse. It seems that a spree of the emergency bond-buying program by the Bank of Japan (BoJ) is impacting the Japanese yen.

S&P500 futures have recovered significantly in the Tokyo session while indices were heavily sold on Thursday, portraying an improvement in the risk appetite of the market participants. Also, the US Dollar Index (DXY) is struggling to get stronger after a marginal drop to near 104.75. A recovery in the risk-on impulse has also improved the demand for US government bonds. This has led to a decline in 10-year US Treasury yields to 3.71%.

Regular bond-buying by the BoJ to achieve raised inflation targets for CY2023 and 2024 is resulting in the weakness of the Japanese Yen. BoJ Governor Haruhiko Kuroda is dedicated to achieving pre-pandemic growth levels by maintaining an ultra-loose monetary policy, which will scale up the volume of economic activities.

The Automatic Data Processing (ADP) agency of the United States reported a healthy improvement in the number of employment additions for December month to 235K vs. the expectations of 150K and the former release of 127K. It is highly transparent that higher requirements for talent will be offset by offering higher wages, which would spurt wage growth and therefore leave individuals with more funds for disposal. The expression could bring a recovery in the price index through bumper retail demand.

Going forward, the release of the United States Nonfarm Payrolls (NFP) data will provide more clarity on the employment status. The Unemployment Rate is seen unchanged at 3.7%. Apart from that, the release of the Average Hourly Earnings data will be of utmost importance.

• Gold price is licking its wounds on Friday after a massive slump.
• Markets remain mixed, US Dollar consolidates gains ahead of key US events.
• Gold bulls stay hopeful whilst above critical $1,825 support, eye $1,850 again.

Gold price is attempting a minor comeback, consolidating the 1% sell-off seen on Thursday. Gold bulls come up for air ahead of the critical US Nonfarm Payrolls release on Friday while attention turns toward next week’s US Consumer Price Index (CPI) data. Any reaction to the US NFP data could be quickly reversed, as Gold traders will resort to repositioning ahead of the critical US inflation data. Thursday’s Gold price slump was fuelled by strong US ADP employment data, which suggested that the tight American labor market could prompt the US Federal Reserve (Fed) to go higher on its interest rates for longer. US private sector (ADP) employment increased by 235,000 in December, much higher than the market consensus of 150,000. Expectations of a hawkish Fed outlook drove the US Dollar through the roof alongside the US Treasury bond yields while weighing heavily on Wall Street indices.

Also read: Week Ahead – US inflation back in focus, UK data to underline recession risks

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price seems to have found strong support near $1,833, at the time of writing. That level is the convergence of the previous week’s high, the previous month’s high, SMA5 one-day and Fibonacci 23.6% one-day.

Therefore, the renewed upswing could challenge the immediate hurdle at $1,838, where the Fibonacci 38.2% one-day and the pivot point one-week R1 merge.

Acceptance above the latter could call for a test of the $1,846 barrier, which is the intersection of the Fibonacci 61.8% one-day and SMA10 four-hour.

The pivot point one-month R1 at $1,850 will be a tough nut to crack for buyers on their way to around $1,855.          

Alternatively, a sustained move below the abovementioned powerful support will fuel a drop toward $1,825, the confluence of the previous day’s low and the Fibonacci 23.6% one-week.

The next downside target is seen around $1,820, which is the meeting point of the pivot point one-day S1 and the Fibonacci 38.2% one-week. The SMA10 one-day also hangs around that level.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

Bank of Japan (BoJ) conducted another unscheduled/ emergency Japanese government bond (JGB) buying operation on Friday.

In doing so, the Japanese central bank offered to buy:

JPY 150bn in up to 1 year remaining until maturity JGBs

JPY 500bn in 1-3 year JGBs.

JPY 575bn in 3-5 year JGBs.

JPY 300bn in 5-10 year JGBs.

JPY 300bn in 10-25 year JGBs.

Market reaction

In reaction to the BoJ operation, USD/JPY is advancing toward 134.00, adding 0.26% on the day.

Analysts at Goldman Sachs offer their expectations on the first US Nonfarm Payrolls data release of 2023. The data is for December month and is due to be published at 1330 GMT on Friday.

Key quotes

• AUD/USD has extended its rebound above the critical hurdle of 0.6770 amid optimism on Sino-Australian trade.
• S&P500 futures have displayed a recovery move, shrugging-off the bearish sentiment witnessed in Thursday’s session.
• Investors will get more clarity about the US employment status on the release of the US NFP data

The AUD/USD pair picked strength after a perpendicular fall to near 0.6740 in the late New York session. The Aussie asset has extended its recovery move above the immediate hurdle of 0.6773 amid headlines that China is easing restrictions on imports of Australian commodities.

Meanwhile, S&P500 futures have also displayed a recovery move, shrugging-off bearish sentiment witnessed in Thursday’s session. An improvement in the risk appetite of the market participants is also supporting the Australian Dollar. The US Dollar Index (DXY) has also sensed a gradual selling pressure and has dropped to near 104.75 in early trade. While the 10-year US Treasury yields are unchanged at 3.72%.

The Australian Dollar has sensed demand on expectations that China could ease its trade restrictions on imports of Australian wine, lobsters, and other commodities following earlier reports that Beijing has ended a partial ban on imports of coal from Canberra in a note from Hans Hendrischke, professor of Chinese Business and Management at the University of Sydney, reported by Bloomberg.

After the release of the stronger-than-anticipated United States Automatic Data Processing (ADP) Employment Change data, one thing is for sure the Federal Reserve (Fed) has a genuine reason to maintain higher interest rates for a longer period. A solid job market is going to remain a major concern for the central bank as bumper demand for labor can be offset by offering higher wages, which is sufficient to spurt the overall demand and eventually the Consumer Price Index (CPI).

Going forward, investors will get more clarity on the release of the official US Nonfarm payrolls (NFP) data, which will provide the broad status of employment.

On Friday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.8912 versus Thursday’s fix of 6.8926 and market expectations of 6.8914.

Citing Hans Hendrischke, professor of Chinese Business and Management at the University of Sydney, Bloomberg reported that China could ease its trade restrictions on imports of Australian wine, lobsters and other commodities following earlier reports that Beijing has ended a partial ban on imports of coal from Canberra. 

Additional takeaways

"We don’t know when.”

“Nobody could tell you whether it will start with barley, wine producers or lobsters for Chinese New Year.”

Market reaction

Amid a pause in the US Dollar upside ahead of the US Nonfarm Payrolls data, AUD/USD has picked a fresh bid toward 0.6800, further helped by the upbeat China-Australia trade optimism. The pair is up 0.21% on the day, trading at 0.6765, at the time of writing.

• A mild recovery in S&P500 futures is indicating that the risk-on mood is attempting to regain traction.
• A breakdown of an H&S chart pattern will result in the sheer downside ahead.
• The RSI (14) has slipped into the bearish range of 20.00-40.00, which indicates more weakness ahead.

The GBP/USD pair has sensed a temporary demand below the critical support of 1.1900 in the Asian session, however, the broader set of the risk profile is extremely negative. The Cable asset is likely to remain on the tenterhooks as stronger United States job market data has accelerated the odds of further policy tightening consideration by the Federal Reserve (Fed).

S&P500 futures have displayed a higher tick in early Asia after a massive sell-off on Thursday but still portraying caution before turning to risk-sensitive assets. The US Dollar Index (DXY) is expected to display a sideways action ahead of the release of the US Nonfarm Payrolls (NFP) data.

On a four-hour scale, the Cable is hovering near the neckline of the Head and Shoulder (H&S) chart pattern, which is plotted from December 29 low around 1.1900. The aforementioned chart pattern indicates a stretched inventory distribution, which results in volatility expansion after a breakdown.

Declining 20-and 50-period Exponential Moving Averages (EMAs) at 1.1990 and 1.2010 respectively add to the downside filters.

Also, the Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Going forward, a slippage below Thursday's low at 1.1873 will drag the major toward November 21 low around 1.1778. A slippage below the latter will expose Cable for more downside towards the round-level support at 1.1700.

On the flip side, the Pound Sterling needs to push the Cable decisively above December 27 high around 1.2100 for an upside move, which will drive the major towards December 21 high at 1.2147 followed by December 21 high around 1.2200.

GBP/USD four-hour chart

• USD/CAD struggles to find direction as investors seek Canadian employment data for fresh cues.
• A resilient US labor market is likely to support the Fed’s decision of hawkish policy continuation for a longer period.
•  Canada’s Employment Change for December is seen lower at 8K against 10.1K released earlier.

The USD/CAD pair is oscillating in a narrow range of 1.3560-1.3580 in the early Asian session. The Loonie asset has turned sideways after a rally from the psychological support of 1.3500. The US Dollar witnessed firmer strength from the market participants after the upbeat United States Automatic Data Processing (ADP) Employment Change data triggered a risk-aversion theme.

The US Dollar Index (DXY) soared to the crucial resistance of 105.00 as accelerating expectations of a secular hawkish monetary policy by the Federal Reserve (Fed) improved the safe-haven’s appeal. Also, it provided support for the 10-year US Treasury yields and pushed them above 3.72%. Meanwhile, S&P500 futures have picked some demand after a sell-off on Thursday, portraying a minor recovery in investors’ risk appetite.

As per the US ADP agency, the United States economy has generated employment for 235K job aspirants against the consensus of 150K. No doubt, firmer labor demand shows strength in an economy but in times of red-hot inflation it provides a meaningful reason to the Fed for avoiding consideration of interest rate cut-approach in the near time.

For more clarity on the status of the US labor market, investors will scrutinize the release of the US Nonfarm Payrolls (NFP) data, which will release on Friday.

Meanwhile, the Canadian Dollar will also display action on the release of the Employment data. According to the estimates, net addition in payrolls for December stands at 8K against 10.1K released earlier. The Unemployment rate may escalate marginally to 5.2%.

On the oil front, the oil price is displaying a rangebound action ahead of the release of the official US Employment data. The black gold could pick strength as the Covid-19 situation might find its peak sooner. It is worth noting that Canada is a leading exporter of oil to the US and higher oil prices support the Canadian Dollar.