<p>December PMIs from China’s National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP).</p><p> Manufacturing 47.0 </p><ul><li>prior 48.0</li></ul><p>Services 41.6 </p><ul><li>prior 46.7</li></ul><p>Composite 42.6</p><ul><li>prior 47.1</li></ul><p>Languishing with the renewed COVID-19 outbreak as China moved rapidly towards reopening. While widespread lockdowns are a thing of the past self-imposed isolation and illness have seen impacts on the Chinese economy as workers stay home and others (at the margin) avoid going out and about. Check out the Services PMI, 41.6 is deeply contractionary. Eating out, shopping, personal services, and more – all suffering.</p><p>While this set of results will not be a positive for China trades, China-proxy trades (AUD for example), oil and other commodities, for traders and markets it will not be a surprise. We’ve all been seeing how the virus is spreading in China, despite the official Chinese media downplaying it, and how that is hitting economic activity. China’s people deserve better, hopefully it’ll come good for them soon. </p><p>-</p><p>As a note, major forex centres in Asia will all be closed on Monday. </p><ul><li>Japan, Singapore, Hong Kong, Australia and New Zealand markets are all closed.</li></ul><p>China is also out on Monday.</p><p>-</p><p>Happy New Year to all – catch you on Tuesday morning Asia time!</p>

This article was written by Eamonn Sheridan at www.forexlive.com.

<p>The 2022 year is in the books and the final rankings of the strongest to the weakest of the major currencies is showing the USD as the strongest and the JPY as the weakest. </p><p>The central bank fundamentals drove both the USD and the JPY to their respective positions. </p><p>The Federal Reserve hiked rates the fastest and the most of all the major countries. Overall, the Federal Reserve hiked rates by 4.25% from 0.25% at the end of 2021 to 4.5% (high target) at the end of 2022. </p><p>The Bank of Japan did not hike once in 2022, choosing instead to maintain their steady rate policy in the face of a tick up in inflation. As a result, their currency was hit hard for most of the year with the USDJPY reaching the highest level going back to July 1990 at it’s peak on October 21, 2022. </p><p>At the high the USDJPY had move up 32.02% for the year. The last 2+ months did see the USDJPY pair correct more than 50% of the years trading range, with the USDJPY ending the year still up 13.91% but well off the highs. </p><p>Catalysts for the decline in the USDJPY (rise in the JPY) other than overbought technical conditions and some technical tilts including a break below the 100 and 200 day MAs, include: </p><ul><li>Softening of US inflation, </li><li>More restrictive Fed policy which shifted the bias for the economy lower going into 2023 (at least from the market traders), </li><li>Lower US stocks</li></ul><p>The Bank of Japan did their part, by hiking the ceiling yield for the 10 year bond to 0.5% from 0.25% in December (a small but meaningful gesture and shift). </p><p>Overall, the respective central banks did the following in 2022:</p><ul><li>Federal Reserve +4.25%</li><li>Bank of Canada, +4.00%</li><li>Reserve Bank of New Zealand 3.25%</li><li>Bank of England 3.25%</li><li>Reserve Bank of Australia 3.00%</li><li>ECB 2.5%</li><li>SNB +1.75%</li><li>Bank of Japan 0.0%</li></ul><p>The next strongest currency behind the US was the CHF. Although the SNB raised rates by 1.75% – less than all but the Bank of Japan, they tended to benefit from safe haven flows in 2022 (and not being part of the EU or GBP). They had a bit of the best of the rest.</p><p>On the weak side, the next weakest of the majors was the GBP. The GBP suffered from the impact of the Ukraine War and its proximity to the EU nations (and trade reliance). They also suffered from political uncertainty with 3 separate PMs in 2022. Fiscal blunders from Liz Truss’s 40 or so day’s as Prime Minister also led to sharp selling in September. </p><p>The combination had investors shunning the pound. </p><p>The GBPUSD move to a low of 1.0352 on September 26th before retracing 61.8% into December helped by a settling of the government issues, and a calming from the anxiety from gas/oil. A weaker USD into year end also helped the GBPUSD recover.</p><p>The GBPUSD settled the year right around the 50% midpoint of the 2022 trading range at 1.20499. Nevertheless, the USD gained 10.7% vs the GBP in 2022. </p><p>The EUR was the next strongest behind the CHF despite the trouble from bordering Ukraine. A relatively mild winter and stockpiling of natural gas helped the EURUSD into year end. The ECB increased their hawkish tilt at the December meeting which has helped to keep the gains from the November run higher. </p><p>The AUD, CAD and the NZD had gains and losses vs the major currencies in 2022. Some ups and some downs vs the majors earns the distinction of being „mixed“ in 2022.</p><p>Below are the gainers and the losers of the major pairs. NOTE if the USDJPY was up 13.91%, I simply inversed the JPYUSD for simplicity purposes. </p>

This article was written by Greg Michalowski at www.forexlive.com.

<p>Both 10 and 2 year yields moved higher in 2022, pushed by much tighter central bank policy. </p><p>The chart above shows the 2021 end of year 10 year yields, the end of year 2022 10 year yields, along with the changes for the year in those yields for major global countries. </p><p>The largest gains in 10 year yields for the year were in EU as the markets started to discount higher yields in 2023 to fight inflation due to a more hawkish ECB going into 2023. The German 10 year is up 2.753%, the France 10 year is up 2.82%, Spain 10 year is up 3.066% and Italy rose the most by 3.535% from end of 2021 levels. </p><p>Japan is the expectation to the run higher as the Bank of Japan maintained a ceiling on 10 year yields at 0.25% for most of the year before raising that cap to 0.50% in December. The end of year yield closed at 0.41%.</p><p>In the US, the 10 year yield moved up 2.365% from end of 2021 levels (or 236 basis points). From the high in yield that was reached on October 21 at 4.335%, the 10 year yield has moved lower and is closing 2022 at 3.879%. The low for the year was on the 1st trading day of the year at 1.529%. </p><p>Technically, the 10 year remains above its 100 day MA at 3.637% (blue line in the chart below) after dipping below in early December. Those dips in early December found support near the 50% of the move up from the August low. Remember as well the Fed was more hawkish at their December 14 meeting raising the terminal rate to 5.1% from 4.6% in September. </p><p>Although the 10 year yield is off highs for the year, it will take a move below the 100 day MA (blue line) to give the downside more of a shot in 2023. That level is also where the 38.2% of the move up August low. Below that the 50% level at 3.426% will be eyed and below that is the rising 200 day MA at 3.257%</p><p>Those targets should be some tough downside hurdles, however, without the Fed shifting policy in 2023. Putting it another way, they are yield support levels into 2023. </p><p>Overall, since August when the last low yield level was reached at 2.516%, the Fed has tightened an additional 200 basis points with increases of 75 basis points in September and November and an additional 50 basis points in December. That pushed the Fed Funds target to 4.5% currently (with expectations for more in early 2023). </p><p>The current yield at 3.88% is 62 basis points below that Fed Funds target level and with the potential for another 75 basis points from the Fed in 2023, hopes to the downside are limited, barring a shift in Fed expectations. However, judging from the Fed comments in December, that shift is not likely soon which should make the 100 day MA a tough nut to crack going into 2023. </p><p>Taking a look at the 2 year yield changes, the European yield changes (in bps) is near the US change of 3.69% (or 369 basis points) in 2022. The German 2 year yield is up 3.40%, and Spain is up 3.62% with France and Italy between those changes. Of note is the Euro 2 year yields were negative at the end of 2021. As a result, with Italy 2 year at 3.34% and German current 2 year yield at 2.76%, they are well below the comparable US 2 year at 4.427%. </p><p>A contributor to that spread is that the ECB hiked rates by 2.5% or 250 basis points in 2022 vs 4.25% in the US.</p><p>Looking at the chart below, it shows the change in the 2 year yields in respective countries vs the change in the target rates by the respective central banks.</p><p>IN the US, the fed hiked rates 4.25% (from 0.25% to 4.5%) in 2022. The 2 year yield is up 3.69% or 369 basis points in 2022 (the rate is 4.427%). The negative spread between the change in central bank rate to the current 2 year yield is saying the Fed is ahead of the curve. Their policy is restrictive.</p><p>In comparison, the European yields are above the the change in ECB policy. For Spain, the 2 year yield is up 3.62% or 262 basis points vs only 250 basis points of tightening in 2022. </p><p>Clearly, the market is saying the ECB is behind in their tightening and indeed that was supported by the more hawkish ECB statement and presser by Lagarde in December. </p><p>Looking at the other countries, Canada with 4.0% or 400 basis points of tightening in 2022, has seen their 2 year move up by 3.10% (or 310 basis points), indicative of the markets belief that the tightening cycle may also be more near an end in that country going into 2023. New Zealand, Australia and UK have seen near equal changes in 2 year yields to changes in policy rates in 2022 (all with 27 basis points).</p><p>Looking at the 2 year yield on the daily chart, the current 2 year yields is at 4.427% vs a Fed funds target at 4.5%. Once again the expectations are for the Fed to continue to tighten into 2023 (up to 75 basis points from them), but the market is not so sure with the 2 year below the current Fed funds target of 4.5%. </p><p>If the market sentiment gets even more bearish on the economy with expectations for inflation to tumble, a break below the rising 100 day MA at 4.127% will be eyed as a technical clue. Get and stay below that level would tilt the bias more to the downside. with the 200 day MA at 3.465% (and rising) another target. Ahead of that, watch 3.80% which is the 50% of the move up from the July corrective low. </p><p>Those levels would need to be broken and if so, would be indicative of an economy that is rolling over with inflation coming back toward the 2% target area. </p><p>Absent that, and the market is continuing to spar with the Fed and the economic data, and waiting for either a more hawking winner (more inflation/continued strong employment) or bearish winner (lower inflation/higher unemployment)</p>

This article was written by Greg Michalowski at www.forexlive.com.

<p>Coming up on Saturday, 31 December 2022 are the December PMIs from China’s National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP). </p><p>The December results are likely to show the ill-effects of surging COVID-19 cases in China as the country embraced reopening. </p><ul><li>Composite prior was 47.1</li></ul><p>On those ‚expected‘ results, it’s a small sample survey only. I expect both results will remain in contraction. </p><p>Also, while you are here, Asian trading this coming Monday, January 2, will be neglibile. It’s the New Year observance holiday in all major forex centres and China. </p><ul><li>Japan, Singapore, Hong Kong, Australia and New Zealand markets are all closed. </li></ul>

This article was written by Eamonn Sheridan at www.forexlive.com.

<p>There weren’t many safe havens in 2022 but energy was one of them. </p><p>Oil finished today with a flurry, gaining $2.03 to $80.43 for the first annual close above $80 since 2013. It was far from a smooth ride though as oil surged to $130.50 on fears that Russian supplies would be cut off before falling all the way back to $70.08 earlier this month.</p><p>Further out the curve, prices have moved up and that’s made energy the best sector in the S&P 500. </p><p>The volatility on the yearly chart since 2020 is staggering. </p><p>Going into next year, many are betting that slowing growth saps demand but others see China reopening eventually spurring bids for barrels.</p><p>On the supply side, Russia is starting to lose some barrels and the SPR sales are now set to reverse. Oil companies have shown discipline so far and are suffering from cost inflation but there’s still money to be made by drilling.</p>

This article was written by Adam Button at www.forexlive.com.