What we are looking for

  • USD staggering into consolidation: After another big sell-off for the USD on major forex pairs, there is consolidation this morning. This may not last.
  • Indices are steady: European indices are a shade higher after the strong close on Wall Street, but US futures have just eased back slightly overnight. 
  • Commodities consolidate: After strong moves higher for precious metals yesterday there is consolidation this morning. It is a similar story for oil. 
  • Data traders: EUR traders will be watching Eurozone Industrial Production, whilst USD traders will be focused on prelim Michigan Sentiment. Surprises in sentiment and inflation expectations would likely be market-moving.


US inflation is falling. Although Fed members continue to sound hawkish, falling inflation is dragging on US Treasury yields. This is driving a correction through the USD but also fuelling equity markets higher and higher commodity prices such as gold and copper. Market pricing suggests a 25bps rate hike is all but guaranteed at the February meeting (CME Group FedWatch suggests a 94% probability). 

The big moves of yesterday have just eased off overnight and there is a more stable feel to markets this morning. However, the trend of USD weakness is still a feature of major forex pairs. Commodities also remain supported. 

Michigan Sentiment will be a big focus on the economic calendar today. However, before that, Eurozone Industrial Production is expected to show mild improvement in November. However, with a strong comparative from November 2021 dropping out of the data, the YoY growth is expected to fall to +0.5% (from 3.4%). The prelim reading of January’s University of Michigan Sentiment is the big US data for the day. Sentiment is expected to improve slightly in January, driven by a more positive Current Conditions component (even as Expectations continue to deteriorate). Also keep an eye on the inflation expectations, with any downside surprise likely to be a drag on yields and the USD.

Today’s news

Market sentiment remains positive albeit in consolidation: The USD weakness is still an underlying theme. European markets are edging slightly positively although US futures are flat to slightly lower and need to be watched. Metals prices are marginally positive again.

Treasury yields consolidating after big moves lower: Yields fell sharply into the close last night but have steadied this morning. The US 10-year yield fell by -11bps yesterday, with the US 2-year yield falling by -11bps. Both are broadly flat this morning.

Chinese trade surplus increases more than expected: The surplus increased to $78bn in December (from $69.8bn in November). Exports came in at -9.9% for the year, with imports declining -7.5% YoY. 

UK GDP unexpectedly increased in November: MoM GDP increased by +0.1% which was better than the -0.2% decline forecast. Also, Industrial Production was slightly better than forecast although still fell by -0.2% MoM (-0.3% exp). 

Fed speakers have been slightly mixed: Barkin (2024 voter, hawkish) said that the inflation decline was a “step in the right direction” but the Fed still has work to do. Bostic (2024 voter, centrist) would likely be comfortable with a 25bps hike in February. Bullard (2025 voter, still extremely hawkish) wants to see the rate above 5%. 

Cryptocurrencies consolidating after a huge rebound: Crypto jumped strongly yesterday, but the move is just consolidating today. Bitcoin was +7% with Ethereum +6%. Bitcoin is flat this morning at $18830, with Ethereum just pulling back slightly by -1.3% at $1407.

Fed’s Harker speaks later: The FOMC’s Patrick Harker (2023 voter, centrist) speaks at 12:30 GMT today. His calls for a 25bps rate hike are known. We also get Neel Kashkari (2023 voter, now hawkish) speaking too. 

Economic Data:

  • Eurozone Industrial Production (at 10:00 GMT) Production is expected to have rebounded in November by +0.5% MoM. Despite this, YoY production is expected to drop to +0.5% (from +3.4% in October).
  • Michigan Sentiment - prelim (at 15:00 GMT) Prelim sentiment is expected to improve slightly to 60.5 in January (up from 59.7 in December). 

Major markets outlook

Forex: There is more of a sense of consolidation on USD positions today, even though it is still slightly underperforming. JPY continues to significantly strengthen.

  • EUR/USD has broken decisively above the 1.0785 resistance of the May 2022 high. This continues the recovery and opens 1.0935 as the next resistance. Technically, the outlook remains very strong with RSI momentum in the high 60s. There is a slight cautious, with moves towards 70 repeatedly inducing a mild retracement over the past couple of months. There is strong breakout support between 1.0712/1.0785 as the basis of underlying demand now and we look to buy into near-term supported weakness.
  • GBP/USD has been struggling higher (especially when considering the move higher in EUR/USD). However, with the positive candle yesterday, the market is looking to break higher above minor resistance at 1.2240 to open a test of the high at 1.2445. There is good support now between 1.2075/1.2125. The RSI momentum is edging into the high 50s. We remain mindful that this could be reflective of a developing medium-term ranging formation. Support at 1.1840 remains key.
  • USD/JPY after the indecisive sessions seen earlier in the week, there has been another leg of USD selling and JPY buying. This has driven a decisive bear candle that has broken the support of 129.50 to hit the lowest level since late May. The move continues the run of lower highs and lower lows, with further downside today. The next important support is not until the May 2022 low of 126.35. Already overnight the 129.50 old support has become new resistance, with a band 129.50/130.60 now overhead supply.

Commodities: Gold continues higher, with silver higher but struggling to sustain upside. Oil is higher again and is now testing resistance again.

  • Gold has accelerated higher, through the top of a two-month uptrend channel and is this morning eyeing a test of resistance at $1910/$1920. The move higher is increasingly strong, with the RSI momentum into the 70s and the highest since March 2022. Whilst this reflects strength in the move, it also suggests the move is increasingly stretched. So we are on the lookout for signs of exhaustion in the move. We remain bullish on gold medium term but are mindful of chasing the market higher. We look to use near-term weakness as a chance to buy with initial support at $1867/$1881.
  • Silver continues to struggle. The market posted gains yesterday but the close was well below the high of the session and once more the price has failed in the around $24.10/$24.55 area that it has done time and again over recent weeks. There is a mild positive bias to the RSI momentum but still under arguable negative divergence conditions. Until the market can close at least above $24.10 then it is difficult to back a sustainable move higher. There is still a sense of consolidation range forming between $23.11/$24.55.
  • Brent Crude oil has been more positive in recent days as the market has posted a run of positive candles. However, the move is into the resistance between $83.50/$86.75 which will still likely be a gauge for the market outlook. Since June, near-term rallies have consistently been used as a chance to sell. A close above $86.75 would seriously question this outlook, but until this is seen, the risk is for another bull failure. Initial support is at $82.20.

Indices: Wall Street is more positive now, whilst the rally on European indices remains strong. 

  • S&P 500 futures moving decisively above the old pivot band 3912/3945 leaves a positive outlook within the medium-term range. There is now a key test of the primary downtrend of 2022 (which comes in around 4019 today). A breakout would be a key signal in the medium to longer-term basing process. For the nearer term, it would mean the 4075/4140 December resistance would come back into play. RSI momentum still has upside potential in the near three-month band between 40/65. The pivot area between 3912/3945 is supportive.
  • German DAX has now posted eight strong bull candles in the past nine sessions as the market has moved decisively clear of the old long-term pivot band between 14700/14800. Moving above 15000 is also a strong signal, with the next key resistance in the 15550/15740 area. RSI momentum is strong albeit becoming slightly stretched above 70 which may begin to restrict upside potential. There is good support at the breakouts between 14604/14706. We would still look to buy into supported weakness. The first support to watch is around 14945.
  • FTSE 100 continued to climb to further five-year highs and is closing in on a test of the all-time high of 7903. This move is coming with the RSI moving into increasingly overbought territory. The last time the RSI was around 75 was late November when a three-week correction then set in. There is good support from the breakout of all the old highs between 7635/7695. 

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