Is Stock Market Decline Done for Now?

A decline of -10% or more from the most recent peak is considered a “correction”.

Some Wall Street bulls are noting a decline in bond yields yesterday that they believe indicates the recent selloff may have played itself out. Bears, however, suspect the yield dip is just a blip on the radar with many still predicting 10-year yields will top +2% by the end of the first quarter and perhaps ultimately push towards 2.3% to 2.55 before topping out.

“Bubbles” driven by the Fed’s easy-money policies

The pullback in stock prices has created a more “risk off” mentality that has also bled into other alternative assets like cryptocurrencies that bears believe are massive “bubbles” driven by the Fed’s easy-money policies.

New and ongoing issues that threaten to contribute or extend existing inflationary pressures in 2022 have led to some dramatic recalculations of the Federal Reserve’s upcoming tightening cycle, in turn increasing the downward pressure on more rate-sensitive stocks.

As recently as early-December, most Wall Street insiders were anticipating the Fed would increase rates four times, in increments of 25-basis points. Now, expectations are growing for two hikes of 50-basis points, along with perhaps two hikes of 25-basis points. There has also been some speculation that the initial rate hike, which is expected in March, could be one of the larger 50-basis point moves, an outcome that some worry could send shockwaves through global financial markets.

Another dramatic shift is the expectation that the Fed will begin reducing its nearly $9 trillion balance sheet this year, which Wall Street at one point expected to begin no sooner than 2024.

The Fed meets next week on January 25-26. Ahead of that, investors are anxious to see policy updates from other global central banks, starting today with Bank of Canada, then the European Central Bank on Friday. Bank of Canada is widely expected to hike its benchmark interest rate amid unrelenting inflation similar to what we’ve witnessed in the U.S.

The ECB, on the other hand, is expected to maintain its current policy, with most officials still betting inflation will recede with the pandemic. Unfortunately, current signs point to even higher global energy prices ahead, which will ultimately translate to higher gasoline prices for consumers, as well as higher operating costs for businesses that will also likely get passed along.

Oil prices rose again yesterday after a pipeline explosion that will temporarily halt some exports added to existing disruptions and global supply concerns.

The latest data shows that global oil inventories have continued to shrink into 2022 as several OPEC+ members struggle to meet their production increases.

Data to watch

Today, economic data includes the Philadelphia Fed Index and Existing Home Sales for December. It’s worth noting that December Housing Starts and Permits data released yesterday both came in far above trade expectations.

November numbers were also revised upward. Earnings releases include American Airlines, Baker Hughes, CSX, Netflix, PPG, The Travelers Company, and Union Pacific. Next week we’ll start getting into the big tech giants and other corporate bellwethers like Apple, Boeing, Caterpillar, IBM, McDonalds, Microsoft, Tesla, and Verizon.

Some bullish insiders suspect good results from just a few of America’s leading companies could lure investors back in, possibly setting the stage for a massive rebound, especially if the Fed delivers a less hawkish than expected policy update next week.

On the flip side, many are worried that if Apple, Microsoft, or Tesla were to roll over it could trigger a sizable selloff. I think we are clearly at an inflection point with the Fed changing direction and over 40% of our fund and money managers being too young to ever trade or invest in both a rising rate and rising inflation environment. It will be interesting to see how some chose to navigate these waters.

Economic Data Puts the EUR and the Greenback in Focus

Earlier in the Day:

It is a busy start to the day on the economic calendar this morning. The Japanese Yen and the Aussie Dollar were in focus in the early hours. Later this morning, the PBoC will also be in action.

For the Japanese Yen

In December, Japan’s trade deficit narrowed from ¥955.6bn to ¥582.4bn. Economists had forecast a narrowing to 784.1bn.

According to figures released by the  Ministry of Finance,

  • Year-on-year, exports rose by 17.5%, while imports were up by 41.1%.
  • Exports to China increased by 10.8%, with exports to the U.S up by 22.1%.
  • From China, imports rose by 20.5%, with imports from the U.S increasing by 39.6%.
  • Imports from Australia surged by 95.7% when compared with December 2020.

The Japanese Yen moved from ¥114.350 to ¥114.359 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.02% to ¥114.310 against the U.S Dollar.

For the Aussie Dollar

Employment figures were in focus this morning.

According to the ABS,

  • Employment increased by 64.8k in December, following a 366.1k jump in November.
  • Full employment rose by 41.5k after having risen by 128.3k in the previous month.
  • As a result, Australia’s unemployment rate fell from 4.6% to 4.2%. This was the lowest unemployment rate since August 2008.
  • The participation rate held steady at 66.1% in the month.

The Aussie Dollar moved from $0.72207 to $0.72267 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.24% to $0.7228.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.13% to $0.6775.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. Finalized December inflation figures for the Eurozone and German wholesale inflation figures are due out later today. Expect both sets of numbers to draw interest as market jitters over inflation continue to drive the markets

On the monetary policy front, the ECB monetary policy meeting minutes are also due out and will be key. The markets will be looking for any chatter on inflation and interest rates.

At the time of writing, the EUR was up by 0.07% to $1.1351.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no major stats due out of the UK to provide the Pound with direction.

At the time of writing, the Pound was up by 0.05% to $1.3619.

Across the Pond

It’s a busier day ahead. Key stats include the weekly jobless claims and Philly FED Manufacturing Index numbers for January. Another rise in jobless claims could test support for riskier assets.

At the time of writing, the U.S Dollar Spot Index was up by 0.05% to 95.562.

For the Loonie

It’s a quiet day ahead, with no major stats due out of Canada to provide the Loonie with direction. The lack of stats will leave the Loonie in the hands of crude oil prices on the day.

At the time of writing, the Loonie was up by 0.09% to C$1.2504 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Slips Despite Strong Building Permit Data

On Wednesday, the dollar edged lower than the Loonie and weaker against most major currencies. The move comes despite stronger than expected housing data. Traders took profits on their short-positions in Treasury yields, allowing the curve’s long end and short end to ease. In December, U.S. building permits jumped 9.1% as pend up demand buoyed housing starts.

Technical Analysis

The USD/CAD edged lower and is hovering just below the 200-day moving average which was former support. Resistance is seen near the 10-day moving average at 1.2570. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate is oversold as the fast stochastic prints a reading of 11, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Building Permits Surge

Permits for future homebuilding jumped 9.1% to a rate of 1.873 million units in December. Permits for buildings with five units or more soared 19.9% to a rate of 675,000 units. Single-family building permits rose 2.0% to a rate of 1.128 million units. Housing starts rose 1.4% to a an annual rate of 1.702 million units last month, the highest level since March.

USD/CAD Remains Stuck Near 1.2500

U.S. Dollar Is Mostly Flat Against Canadian Dollar

USD/CAD is currently trying to settle back above 1.2500 while U.S. dollar is under pressure against a broad basket of currencies.

The U.S. Dollar Index continues its attempts to settle below the support level at the 50 EMA near 95.55. If the U.S. Dollar Index manages to settle below this level, it will head towards the next support at 95.40 which will be bearish for USD/CAD.

Today, foreign exchange market traders focused on inflation reports from Canada. Inflation Rate declined by 0.1% month-over-month in December. On a year-over-year basis, Inflation Rate increased by 4.8%. Both reports were in line with analyst estimates. Interestingly, Core Inflation Rate grew by 4% year-over-year compared to analyst consensus which called for growth of 3.5%.

In the U.S., Building Permits increased by 9.1% month-over-month in December while analysts expected that they would grow by just 0.4%. Housing Starts grew by 1.4% compared to analyst consensus which called for a decline of 2%.

Traders also monitored the developments in commodity markets. WTI oil managed to settle above the $87 level and moved to multi-year highs, which was bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 19 2022

USD to CAD is trading near the resistance level at 1.2500. In case USD to CAD manages to settle back above this level, it will move towards the next resistance at 1.2525.

A successful test of the resistance at 1.2525 will push USD to CAD towards the next resistance at 1.2550. If USD to CAD gets above this level, it will continue its rebound and head towards the resistance level at 1.2590.

On the support side, USD to CAD needs to settle below 1.2500 to have a chance to gain downside momentum in the near term. The next support level for USD to CAD is located at 1.2475.

A move below 1.2475 will open the way to the test of the support which is located near today’s lows at 1.2450. In case USD to CAD declines below this level, it will head towards the next support level at 1.2425.

For a look at all of today’s economic events, check out our economic calendar.

UK Inflation and Central Bank Chatter Puts the Pound back in the Spotlight

Earlier in the Day:

It is a relatively busy start to the day on the economic calendar this morning. The Kiwi Dollar and the Aussie Dollar were in action in the early hours.

For the Kiwi Dollar

Electronic card retail sales increased by a modest 0.4% in December, following a 9.6% jump in November.

According to NZ Stats,

  • Easing COVID-19 restrictions and the Christmas holidays supported another increase in card spending.
  • While total retail card spending rose by just 0.4%, spending on services jumped by 16.6%.
  • Within the retail industries, spending on fuel led the way, rising by 4.2%.
  • Spending on durables and consumables bucked the trend, however, falling by 7.2% and by 0.1% respectively.
  • The sharp fall in durable spending was attributed to higher spending in November that had coincided with Black Friday sales.

The Kiwi Dollar moved from $0.67695 to $0.67668 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.06% to $0.6766.

For the Aussie Dollar

The Westpac Consumer Sentiment Index fell by 2% to 102.2 in January. In December, the Index had fallen by 1.0% to 104.3. Economists had forecast a 0.3% decline.

According to the latest Westpac Report,

  • The 2% decline, attributed to the Omicron strain, was modest when compared with the Delta strain driven 5.2% slide.

Looking at the sub-components:

  • Family finances vs a year ago increased by 7.5% to 95.6, while family finances next 12-months fell by 2.8% to 108.1. In spite of the decline the sub-index held above a long run average of 107.5.
  • Economic conditions next 12-months fell by 9.6% to 94.8, with economic conditions next 5-years falling 6.1% to 103.6. Both continued to sit above their long run averages of 91.1 and 91.9 respectively.
  • In spite of the negative sentiment, the time to buy a major household item rose by 2.8% to 108.9. (Long run average: 126.5).
  • The time to buy a dwelling sub-index rose by 6.3% to 87.0, while the Unemployment Expectations Index increased 8.2% to 112.7.

The Aussie Dollar moved from $0.71871 to $0.71850 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.10% to $0.7178.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥114.700 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a quieter day ahead on the economic calendar. Finalized December inflation figures for Germany are due out later today. Expect any revisions to prelim figures to influence. On the monetary policy front, ECB McCaul is scheduled to speak.

At the time of writing, the EUR was up by 0.01% to $1.1326.

For the Pound

It’s another particularly busy day ahead on the economic calendar. December inflation figures are due out today. Persistent inflationary pressures could force the BoE to signal a 2nd rate hike in the coming months. The stats precede scheduled speeches from BoE Governor Bailey and MPC member Cunliffe who are due to speak late in the day.

At the time of writing, the Pound was down by 0.05% to $1.3589.

Across the Pond

Housing sector figures for December are due out. We don’t expect the numbers to influence, however.

On Tuesday, the U.S Dollar Spot Index rose by 0.50% to end the day at 95.732.

For the Loonie

Inflation figures for December are due out later today. Expect plenty of interest in the numbers.

The IEA’s monthly report and crude oil inventories will also draw interest, however.

At the time of writing, the Loonie was up by 0.06% to C$1.2507 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

The Dollar Rises as Treasury Yields Surge

On Tuesday, the dollar edged higher versus the Loonie. The softer than expected Canadian Housing Starts weighed on the Canadian currency. The U.S. 2-year and 10-year U.S. Treasury yields remained at elevated levels, both hitting pre-pandemic levels. In the U.S., interest rate traders are now pricing in 100-basis points of rate hikes in 2022.

Technical Analysis

The USD/CAD was nearly unchanged, edging slightly higher. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2598. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Housing Starts Slide

Housing starts clocked in at 236,106 on an annualized basis, a 22% drop from November, the Canada Mortgage and Housing Corporation reported Tuesday. The agency also revised November’s data up from 301,279 to 303,813 units annualized.

USD/CAD Gains Ground As Treasury Yields Rise

U.S. Dollar Moves Higher Against Canadian Dollar

USD/CAD is currently trying to settle back above the resistance at 1.2550 while U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index has recently managed to settle above the 50 EMA near 95.55 and is currently testing the next resistance level which is located at the 20 EMA near 95.70. In case this test is successful, the U.S. Dollar Index will head towards the 96 level which will be bullish for USD/CAD.

Today, foreign exchange market traders focused on the dynamics of U.S. government debt markets. The yield of 2-year Treasuries made an attempt to settle above the 1.05% level while the yield of 10-year Treasuries tested the 1.85% level.

At the start of this year, currency traders ignored rising yields. However, it looks that the recent move has finally provided enough support to the American currency. Most likely, traders will remain focused on the dynamics of U.S. government bond markets in the upcoming trading sessions. In case yields continue to increase, the safe-haven U.S. dollar may get more support.

It should be noted that Canadian dollar’s losses were limited as WTI oil managed to get above the psychologically important $85 level, which was bullish for commodity-related currencies.

Technical Analysis

usd cad january 18 2022

USD to CAD is currently testing the resistance level at 1.2550. In case this test is successful, USD to CAD will move towards the next resistance level at 1.2590.

A move above 1.2590 will push USD to CAD towards the resistance which is located near the 20 EMA at 1.2625. If USD to CAD gets above this level, it will head towards the resistance at 1.2650.

On the support side, the previous resistance at 1.2525 will serve as the first support level for USD to CAD. In case USD to CAD moves back below this level, it will head towards the next support at 1.2500. A successful test of this support level will open the way to the test of the support at 1.2475.

For a look at all of today’s economic events, check out our economic calendar.

US Dollar Index Short-Covering Rally Targets 95.755 – 96.020

The U.S. Dollar is edging higher against a basket of major currencies early Tuesday as U.S. Treasury yields hit a new two-year high on their return from a long weekend break. The strength in the greenback was fueled as the short-end of the yield curve hit new pandemic highs, which is supportive for the U.S. currency.

At 08:27 GMT, March U.S. Dollar Index futures are trading 95.295, up 0.134 or +0.14%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $25.49, up $0.06 or +0.24%.

Two-year yields rose above 1% for the first time since February 2020 at the open in Asia, as trading returned after a U.S. holiday, and five-year yields rose 3.6 bps to 1.5960%, the highest since January 2020.

Yields have been rising this year, with traders expecting the Federal Reserve to begin hiking interest rates as soon as March, but the dollar index, which measures the greenback against six peers has lost 0.52% year to date.

This suggests investors have fully-priced in the Fed’s expected rate hikes. Given this outlook and the current downtrend, the index is likely going through a correction, which means we can expect to see new short-sellers once it reaches resistance.

Daily March U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom on Friday.

A trade through 94.610 will negate the closing price reversal bottom and signal a resumption of the downtrend. A move through 96.475 will change the main trend to up.

The main range is 93.200 to 96.895. Its retracement zone at 95.050 to 94.610 is support. It stopped the selling at 94.610 on January 14.

The next two minor resistance levels is a pair of 50% levels at 95.360 and 95.545.

The short-term range is 96.895 to 94.610. Its retracement zone at 95.755 to 96.020 is the primary upside target. Since the main trend is down, we’re looking for sellers to come in on a test of this area.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Tuesday is likely to be determined by trader reaction to 95.360.

Bullish Scenario

A sustained move over 95.360 will indicate the presence of buyers. This could fuel a labored rally into a series of retracement levels at 95.545, 95.755 and 96.020.

Since the main trend is down, look for sellers to return on a test of 95.755 to 96.020. They will be trying to produce a potentially bearish secondary lower top.

Bearish Scenario

A sustained move under 95.355 will signal the presence of sellers. This could trigger a retest of 95.050 to 94.610.

If 94.610 fails to hold as support then look for an acceleration to the downside with 93.810 the first downside target, followed by 93.200.

For a look at all of today’s economic events, check out our economic calendar.

A Busier Economic Calendar Puts the Pound in the Spotlight

Earlier in the Day:

It is a quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in focus in the early hours. Later this morning, the Bank of Japan will be in action, with finalized industrial production figures from Japan also due out.

For the Kiwi Dollar

In the 4th quarter, the NZIER Business Confidence Index slumped by 28%. The Index had tumbled by 11% in the 3rd quarter.

According to the NZIER Survey,

  • COVID-19 lockdown measures and international border restrictions weighed on business confidence and demand.
  • A net 34% of firms expect deterioration in general economic conditions in the months ahead, up from 11%.
  • There was also a net 1% of firms reporting weaker demand in their own businesses.
  • The manufacturing sector was most affected, with a net 34% of manufacturers expecting a worsening in the economy. Things were not much better for the services sector, however.
  • On the labor front, labor shortages and a sharp pickup in inflationary pressures were also negatives.
  • A net 61% reported increased costs, the highest since June 2008.
  • Significantly, a net 65% of businesses plan to increase prices in the next quarter.

The Kiwi Dollar moved from $0.67942 to $0.67933 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.09% to $0.6795.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.11% to $0.7209, while the Japanese Yen was up by 0.02% to ¥114.610 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. German and Eurozone ZEW Economic Sentiment figures for January will be in focus. Since the start of the pandemic, EUR sensitivity to the ZEW numbers has seen a marked increase. Expect any weak numbers to test support for the EUR.

At the time of writing, the EUR was down by 0.02% to $1.1406.

For the Pound

It’s particularly busy day ahead on the economic calendar. December claimant count figures and November’s unemployment rate will be the key stats of the day. With the markets expecting a more hawkish BoE in the coming months, upbeat stats would support another near-term rate hike.

At the time of writing, the Pound was down by 0.02% to $1.3644.

Across the Pond

NY Empire State Manufacturing numbers are due out of the U.S. Baring particularly dire numbers, however, the stats should have a muted impact on the Dollar.

On Monday, the U.S Dollar Spot Index rose by 0.10% to end the day at 95.258.

For the Loonie

Housing start figures for December are due out later today. We don’t expect the numbers to have a material impact on the Loonie.

We will expect market reaction to the OPEC’s monthly report and the impact on crude oil prices, however.

At the time of writing, the Loonie was down by 0.02% to C$1.2518 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Hovers Above Key Support Levels

On Monday, the dollar was nearly unchanged versus the Loonie, but activity was very light as most markets in the United States were closed due to the Martin Luther King holiday. The 2-year and 10-year U.S. Treasury yields remained at elevated levels. Market participants are torn between elevated levels of inflation and softer than expected economic data, which might result from higher inflation levels. The PBOC allowed their one-year lending rate to decline. In the U.S. interest rate traders are now pricing in 100-basis points of rate hikes.

Technical Analysis

The USD/CAD was nearly unchanged. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2616. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate is oversold as the fast stochastic is printing a reading of 17, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

China Allows Rates to Slide

The PBOC allowed the one-year lending facility rate to ease by 10 basis points to 2.85%. It is the first reduction since April 2020. The move follows mixed data which saw a beat on GDP, but softer than expected Retail Sales and Fixed-Asset Investment.

USD/CAD Tests Support At 1.2525

Canadian Dollar Is Gaining Some Ground Against U.S. Dollar

USD/CAD  is currently trying to settle below 1.2525 while U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index managed to get above the resistance at 95.20 and is moving towards the next resistance at 95.40. A move above 95.40 will open the way to the test of the 50 EMA at 95.55 which will be bullish for USD/CAD.

Today, Canada reported that Manufacturing Sales increased by 2.6% month-over-month in November compared to analyst cosnensus which called for growth of 3.1%.

Foreign exchange market traders also focused on the dynamics of commodity markets. WTI oil made an attempt to get to the test of the psychologically important $85 level but lost momentum and pulled back below the $84 level.

In case WTI oil manages to settle back above $84, it will have a good chance to test the $85 level which will be bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 17 2022

USD to CAD is currently trying to settle below the support level at 1.2525. In case this attempt is successful, USD to CAD will get to another test of the next support level which is located at 1.2500. This support level has been recently tested and proved its strength.

A move below the support at 1.2500 will push USD to CAD towards the support level at 1.2475. If USD to CAD gets below this level, it will move towards the next support at 1.2460. A successful test of the support at 1.2460 will open the way to the test of the next support level which is located at 1.2425.

On the upside, USD to CAD needs to settle above 1.2525 to have a chance to gain upside momentum in the near term. The next resistance level for USD to CAD is located at 1.2550. If USD to CAD manages to settle above 1.2550, it will gain additional upside momentum and head towards the next resistance at 1.2590.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD and USD/JPY Elliott Wave Cycles Point Lower

Notice that pair broke the trendline support of a base channel last week which normally occurs within wave three of an impulse, thus we think there can be more weakness coming, firstly to around 1.2450 and then possibly even to 1.2250-1.23 area. The short-term invalidation level is now at 1.2625; as long it holds the bearish impulse is expected to resume lower within wave 3/C.

USDCAD 4h Elliott Wave Analysis

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USDJPY has been very bullish through 2021 but now it may face a limited upside since we are seeing a fifth wave trying to complete wave c of a higher degree wave d) that can belong to a multi-year triangle. However, calling a top can be too soon since we are not seeing a completed five waves down from recent high when looking at the 4h chart, but so far it looks promising with recent extensions below the base channel support line.

If pair will rise back above 115.05 then market may stay sideways for a big triangle.

USDJPY 4h Elliott Wave Analysis

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Fourth Quarter GDP Numbers from China to Dictate Risk Sentiment

Earlier in the Day:

It is a particularly busy start to the day on the economic calendar this morning, with the Chinese economy in focus. While fixed asset investments, industrial production, and retail sales will draw attention, 4th quarter GDP numbers will be the key stats of the day. Economists are expecting a sharp pickup in 4th quarter economic activity. Anything less will test risk appetite as the economies tackle the spread of Omicron.

The Majors

At the time of writing, the Aussie Dollar was up by 0.07% to $0.7213, while the Japanese Yen was down by 0.12% to ¥114.330 against the U.S Dollar. The Kiwi Dollar was up by 0.03% to $0.6806.

The Day Ahead

For the EUR

It’s a quiet day ahead on the economic calendar. Economic data is limited to finalized December inflation figures for Italy. Barring any marked revision from prelim figures, we don’t expect too much influence on the EUR, however.

At the time of writing, the EUR was down by 0.04% to $1.1406.

For the Pound

It’s particularly quiet ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction. While it is a quiet day ahead, it’s a big week ahead for the Pound, with key stats likely to dictate BoE monetary policy through the quarter.

At the time of writing, the Pound was down by 0.04% to $1.3669.

Across the Pond

There are no stats to consider, with the U.S markets closed today.

At the time of writing, the U.S Dollar Spot Index was up by 0.04% to 95.201.

For the Loonie

Foreign securities purchases and manufacturing sales figures for November will be in focus. Barring dire numbers, we don’t expect the numbers to influence. The BoC Business Outlook Survey due out later in the day will draw plenty of interest, however. With the markets the Bank of Canada to lift rates this year, business sentiment will need to be upbeat.

At the time of writing, the Loonie was up by 0.02% to C$1.2549 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – Earnings, Central Bank Chatter and a Busy Economic Calendar in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 63 stats in focus in the week ending 21st January. In the week prior, 44 stats had been in focus.

For the Dollar:

Key stats include Philly FED Manufacturing and initial jobless claims due out on Thursday.

Other stats include NY Empire State Manufacturing and housing sector data. These stats should have a muted impact on the markets, however.

In the week ending 14th January, the Dollar Spot Index fell by 0.58% to 95.165.

For the EUR:

ZEW Economic Sentiment figures for Germany and the Eurozone will be the key stats early in the week.

Finalized December inflation figures for member states and the Eurozone in the week will also draw interest.

At the end of the week, however, expect Eurozone consumer confidence figures to also influence. The markets will be looking for the effects of rising consumer prices on sentiment.

On the monetary policy front, the ECB monetary policy meeting minutes are due out on Thursday, with ECB President Lagarde scheduled to speak on Friday.

For the week, the EUR rose by 0.44% to $1.1411.

For the Pound:

It’s an important week ahead on the economic calendar.

On Tuesday, claimant counts and the UK’s unemployment rate will be in focus.

Inflation and retail sales figures due out on Wednesday and Thursday will also be key, however.

The stats through the week should give the BoE the numbers it needs to decide what’s next on the policy front.

On the monetary policy front, BoE Gov. Bailey is scheduled to speak on Wednesday.

The Pound rose by 0.64% to end the week at $1.3675.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Inflation figures will be in focus on Tuesday, ahead of retail sales and employment figures on Friday.

With the markets expecting a hawkish BoC, this week’s stats could seal the fate of the Loonie near-term.

The Loonie ended the week up 0.72% to C$1.2552 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Westpac consumer sentiment and employment figures will be in focus. While consumer sentiment is important, expect the employment numbers to be key. Another sharp pickup in hiring could force the RBA to reconsider its current stance on cash rates.

The Aussie Dollar rose by 0.36% to $0.7207.

For the Kiwi Dollar:

Business confidence figures for the 4th quarter get things started on Tuesday. We have seen business confidence wane recently, so the markets will be expecting some weak numbers.

Of greater significance will be electronic card retail sales figures due out on Wednesday.

At the end of the week, Business PMI numbers will also draw interest, however.

The Kiwi Dollar ended the week up by 0.37% to $0.6804.

For the Japanese Yen:

It’s a relatively quiet week ahead. Key stats are limited to trade data on Thursday and inflation figures on Friday. We don’t expect the numbers to move the dial, however.

On Tuesday, the BoJ also delivers its first monetary policy decision of the year. No surprises are expected…

The Japanese Yen rallied by 1.19% to ¥114.190 against the U.S Dollar.

Out of China

It’s a big week, with 4th quarter GDP numbers due out on Monday. Expect the numbers to set the tone for the week. Disappointing growth figures could bring into question market optimism towards the global economic outlook.

Other stats on Monday include fixed asset investments, industrial production, and retail sales figures. Barring dire numbers, however, these should have a limited impact on the markets.

On the monetary policy front, the PBoC will also be setting loan prime rates on Thursday.

The Chinese Yuan ended the week up by 0.39% to CNY6.3528 against the U.S Dollar.

Geo-Politics

Nothing new to consider in the week ahead, with China and Capitol Hill and Russia continuing to be the key areas of focus.

COVID-19

COVID-19 news updates will remain a key area focus. Risk aversion could hit should a new strain of the virus appear in a developed economy.

Corporate Earnings

It’s also corporate earnings season, with a number of big names releasing results that could test support for riskier assets.

The Weekly Wrap – U.S Inflation and FED Commentary Delivered a Choppy Week for the Markets

The Stats

It was a quieter week on the economic calendar, in the week ending 14th January.

A total of 44 stats were monitored, which was down from 63 stats in the week prior.

Of the 44 stats, 19 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. 6 stats were in line with forecasts in the week.

Looking at the numbers, 19 of the stats reflected an upward trend from previous figures. Of the remaining 25 stats, 23 reflected a deterioration from previous.

For the Greenback, it was back into the red. In the week ending 14th January, the Dollar Spot Index fell by 0.58% to end the week at 95.167. A 0.65% slide on Wednesday did most of the damage as the markets responded to U.S inflation figures. In the week prior, the Index had risen by 0.07% to 95.739.

Out of the U.S

It was a big week for the Dollar. In the first half of the week, FED Chair Powell testimony and December inflation figures were key drivers.

While the FED Chair talked of the need to hike rates, there was no mention of the need for more than 3 this year. This was taken as a positive for the riskier assets and negative for the Dollar.

On Wednesday, another spike in inflation failed to spook the markets. This was in spite of the U.S annual rate of inflation at its highest since 1982. An easing in energy prices for the first time since the uptrend was taken as a sign of a possible topping out.

Jobless claims failed to impress on Thursday, with initial jobless claims increasing from 207k to 230k in the week ending 7th January.

Retail sales figures for December wrapped things up on Friday. In December, retail sales fell by 1.9% versus a forecasted 0.1% decline. Core retail sales tumbled by 2.3% versus a forecasted 0.2% rise.

Out of the UK

Retail sales were in focus early in the week. In December, the BRC Retail Sales Monitor was up 0.6% year-on-year versus a forecasted 0.3% increase. In November, retail sales had been up by 1.8%.

More significantly, however, were manufacturing production and GDP numbers at the end of the week.

The stats were skewed to the positive, supporting the more hawkish outlook on BoE monetary policy.

Manufacturing production rose by 1.1% in November versus a forecasted 0.2%. In October, manufacturing production had risen by 0.1%.

Month-on-month, the economy grew by 0.9% in November, following 0.2% growth in October, which was also Pound positive.

In the week, the Pound rose by 0.64% to end the week at $1.3675 In the week prior, the Pound had risen by 0.41% to $1.3588.

The FTSE100 ended the week up by 0.77% following a 1.36% gain from the previous week.

Out of the Eurozone

Key stats included Eurozone unemployment, industrial production, and trade data for November.

The stats were skewed to the positive. The Eurozone’s unemployment rate fell from 7.3% to 7.2%, with industrial production up 2.3% in the month. Production had fallen by 1.3% in October.

Trade data was EUR negative, however, while finalized inflation figures for France and Spain had a muted impact on the EUR. The Eurozone’s trade balance narrowed from a €3.3bn surplus to a €1.5bn deficit in November. It was the Eurozone’s first goods trade deficit since January 2014.

From the ECB, the Economic Bulletin sent mixed signals, while suggesting that inflation was more than just transitory.

For the week, the EUR rose by 0.44% to $1.1411. In the week prior, the EUR had fallen by 0.08% to $1.1361.

The DAX30 slipped by 0.40%, with both the CAC40 and the EuroStoxx600 ending the week down by 1.05% respectively.

For the Loonie

There were no material stats for the markets to consider. The lack of stats left market sentiment towards BoC monetary policy to influence, with the markets expectations of an imminent move delivering support.

An upswing in crude oil prices in the week was also Loonie positive.

In the week ending 14th January, the Loonie rallied by 0.72% to C$1.2552 against the Greenback. In the week prior, the Loonie had fallen by 0.05% to C$1.2643.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.36% to $0.7207, with the Kiwi Dollar gaining 0.37% to end the week at $0.6804. A Friday sell-off limited the upside for the week.

For the Aussie Dollar

Retail sales and trade data were in focus, which delivered mixed results.

Key, however, was a 7.3% jump in retail sales in November versus a forecasted 3.9% increase. In October, retail sales had risen by 4.9%.

Australia’s trade surplus narrowed from A$11.22bn to A$9.423bn in November. Economists had forecasted a surplus of A$10.60bn.

For the Kiwi Dollar

Economic data was limited to building consents, which had a muted impact on the Kiwi Dollar in the week.

For the Japanese Yen

There were no material stats to provide the Yen with direction in the week.

The Japanese Yen rallied by 1.19% to ¥114.190 against the U.S Dollar. In the week prior, the Yen had fallen by 0.42% to ¥115.560.

Out of China

It was a relatively busy week on the economic data front. Inflation and trade data were in focus in the week.

In December, inflationary pressures eased, with China’s annual rate of inflation softening from 2.3% to 1.5%. China’s annual wholesale rate of inflation softened from 12.9% to 10.3%. These were positive for riskier assets, however.

Trade data was upbeat for December. China’s USD trade surplus widened from $71.72bn to $94.46bn. Exports were up 20.9% year-on-year, while imports increased by 19.5%. Exports been up by 22.0% and imports up by 31.7% in November.

In the week ending 14th January, the Chinese Yuan rose by 0.39% to CNY6.3528. In the week prior, the Yuan had ended the week down by 0.34% to CNY6.3778.

The Hang Seng Index ended the week up by 3.79%, while the CSI300 slid by 1.98%.

USD/CAD Rebounds Despite Soft U.S. Data

On Friday, the dollar rebounded versus the Loonie as U.S. Treasury yields rallied. The increase in the 2-year yield pulled the yield differential in favor of the greenback. The move-in Treasury yields come despite weaker than expected U.S. data. Retail Sales, Import Prices and Industrial Production all fell short of expectations.

Technical Analysis

The USD/CAD moved higher on Friday but finished the week in the red. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2640. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Import Prices Decline

Import prices dropped 0.2% last in December, the first decrease since August, after increasing 0.7% in November,. In the 12 months through December, prices rose 10.4% after advancing 11.7% in November. Expectations had been for import prices, which exclude tariffs, gaining 0.3%.

USD/CAD Tests Resistance At 1.2550

U.S. Dollar Rebounds Against Canadian Dollar

USD/CAD is currently trying to settle back above the resistance at 1.2550 while U.S. dollar rebounds against a broad basket of currencies.

The U.S. Dollar Index has recently managed to settle above the 95 level and is moving towards the resistance at 95.20. In case the U.S. Dollar Index manages to settle above this level, it will head towards the next resistance at 95.40 which will be bullish for USD/CAD.

Today, foreign exchange market traders focused on the economic data from U.S. Retail Sales declined by 1.9% month-over-month in December while analysts expected that they would remain unchanged. On a year-over-year basis, Retail Sales increased by 16.9%.

U.S. Industrial Production declined by 0.1% month-over-month in December compared to analyst consensus which called for growth of 0.3%. Manufacturing Production decreased by 0.3% month-over-month compared to analyst consensus which called for growth of 0.5%.

Traders also had a chance to take a look at the preliminary Michigan Consumer Sentiment report for January. The report indicated that Consumer Sentiment declined from 70.6 in December to 68.8 in December compared to analyst consensus of 70, and it looks that the fast spread of Omicron has already put pressure on consumers’ mood.

Technical Analysis

usd cad january 14 2022

USD to CAD is currently testing the resistance level at 1.2550. In case this test is successful, USD to CAD will move towards the next resistance at 1.2590.

A move above the resistance level at 1.2590 will open the way to the test of the resistance at 1.2625. If USD to CAD manages to settle above this level, it will head towards the next resistance which is located at 1.2650.

On the support side, a move below 1.2550 will push USD to CAD back towards the support level at 1.2530. If USD to CAD declines below 1.2530, it will head towards the support at 1.2500. A successful test of the support at 1.2500 will push USD to CAD towards the support at 1.2475.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the GBP and the Greenback in the Spotlight, with the ECB also in Focus

Earlier in the Day:

It was a quiet start to the day on the economic calendar this morning. There were no major stats to provide the majors with direction early in the Asian session. Later this morning, however, trade data from China will draw plenty of interest as economies grapple with the Omicron strain.

The Majors

At the time of writing, the Aussie Dollar was down by 0.03% to $0.7281, while the Japanese Yen was up by 0.02% to ¥114.180 against the U.S Dollar. The Kiwi Dollar was up by 0.03% to $0.6863.

The Day Ahead

For the EUR

It’s a relatively busy day ahead on the economic calendar. Eurozone trade data will be in focus later today. Following disappointing numbers from Germany, a marked narrowing of the trade surplus could test support for the EUR.

Finalized inflation figures from France and Spain are also due out. Barring any revisions from prelim figures, however, they should have a muted impact on the EUR.

On the monetary policy front, ECB President Lagarde is due to speak, with the markets looking for views on inflation and monetary policy.

At the time of writing, the EUR was up by 0.02% to $1.1457.

For the Pound

It’s busy day ahead on the economic calendar. Industrial and manufacturing production figures are due out along with GDP numbers for November. Expect the manufacturing production and GDP numbers to be key. Trade data, also due out, should have a muted impact on the Pound.

At the time of writing, the Pound was up by 0.02% to $1.3709.

Across the Pond

It’s another relatively busy day ahead, with December retail sales the key stat of the day. The markets will be looking for any impact of the latest spike in consumer prices on spending. In December, the U.S annual rate of inflation had hit the highest level since 1982.

Other stats include industrial production and consumer sentiment figures. Barring dire numbers, however, these should have a muted impact on the markets.

On Thursday, the U.S Dollar Spot Index fell by 0.07% to 94.853.

For the Loonie

It’s yet another quiet day ahead. There are no material stats from Canada to provide the Loonie with direction. The lack of stats will leave the Loonie in the hands of crude oil prices and market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.04% to C$1.2515 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

The USD/CAD Decline Below the 200-day Moving average on Soft PPI

The dollar continued to trend lower versus the Loonie, as U.S. Treasury yields finally declined. A softer than expected U.S. Wholesale price report in conjunction with a larger than expected rise in U.S. jobless claims weighed on the greenback.

Technical Analysis

The USD/CAD moved lower on Thursday slipping through support which his now short-term resistance near the 200-day moving average at 1.25. Support is seen near the October lows at 1.2285. The 10-day moving average crossed below the 50-day moving average which means a short-term downtrend is in place. Prices are oversold as the fast stochastic is printing a reading of 10, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

 Core PPI Missed Expectations

Core PPI increased 0.4% for the month, below the 0.5% estimate. PPI for food and energy both fell during the month, declining 0.6% and 3.3%, respectively. The producer price index, which measures wholesale prices, was up 0.2% for the month, half the 0.4% expected. When measuring PPI year over year it came in at 9.7%, the highest increase going back more than a decade. Separately, initial jobless claims for the week ended January 8 totaled 230,000, well above the 200,000 estimates and a considerable increase from the previous week’s 207,000. Continuing claims, fell by 194,000 to 1.56 million, the lowest level since June 2, 1973. The four-week average for claims was 210,750, an increase of 6,250 from the previous week but still below the pre-pandemic level.

USD/CAD Keeps Moving Lower As Sell-Off Continues

U.S. Dollar Remains Under Pressure

USD/CAD is currently trying to get below 1.2475 while U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index is testing the support level at 94.75. If this test is successful, the U.S. Dollar Index will move towards the next support at 94.50 which will be bearish for USD/CAD.

Today, foreign exchange market traders focused on economic data from U.S. Initial Jobless Claims report indicated that 230,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 200,000. Continuing Jobless Claims declined from 1.75 million to 1.56 million.

Interestingly, Producer Prices increased by just 0.2% month-over-month in December while analysts expected that they would grow by 0.4%. On a year-over-year basis, Producer Prices grew by 9.7% compared to analyst consensus which called for growth of 9.8%.

WTI oil is mostly flat today, and its dynamics had little impact on USD/CAD. However, in case WTI oil manages to settle above the $83 level, it will gain additional upside momentum and move towards the psychologically important $85 level which will be bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 13 2022

USD to CAD has recently made an attempt to settle below the support level at 1.2475. In case USD to CAD manages to settle below this level, it will move towards the next support at 1.2450.

A successful test of the support at 1.2450 will open the way to the test of the support level which is located at 1.2425. If USD to CAD declines below this level, it will move towards the support level at 1.2400.

On the upside, the previous support level at 1.2500 will serve as the first resistance level for USD to CAD. If USD to CAD moves above this level, it will head towards the resistance at 1.2530.

A move above 1.2530 will push USD to CAD towards the next resistance level at 1.2550. In case USD to CAD manages to settle above this level, it will head towards the resistance at 1.2590.

For a look at all of today’s economic events, check out our economic calendar.