<p style=““ class=“text-align-justify“>Core PCE prices are on the data docket in US trading today and that will might set out one final twist, albeit unlikely, before the Christmas weekend comes along. The monthly reading is estimated to show a 0.2% increase but the annual reading is estimated to slow to +4.7%, with some arguments for why pointed out earlier <a target=“_blank“ href=“https://www.forexlive.com/centralbank/inflation-indicator-pce-data-coming-up-from-the-us-on-friday-23-december-2022-soft-20221223/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>With markets already settling into the holiday mood, it is hard to see this as being a major mover but then again, it is in part inflation data. So, that’s always worth watching based on recent behaviour in markets.</p><p style=““ class=“text-align-justify“>It’ll be a long weekend amid the Christmas holiday and stocks are tentative for now, throwing some caution to the wind with US futures flattish after <a target=“_blank“ href=“https://www.forexlive.com/news/equities-stay-under-pressure-ahead-of-the-christmas-weekend-20221223/“ target=“_blank“ rel=“follow“>yesterday’s setback</a>.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>GDP +4.4% vs +3.8% y/y prelim</li></ul><p style=““ class=“text-align-justify“>A light revision lower as the Spanish economy managed to grind out a measly growth in activity in Q3. The initial post had a bit of an error as the Reuters print was inaccurate and subsequently corrected:</p>

This article was written by Justin Low at www.forexlive.com.

<p class=“MsoNormal“>As the Fed delivered a <a target=“_blank“ href=“https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/“ target=“_blank“ rel=“follow“>more
hawkish than expected stance</a>, the market sold off for some
days as the risk of an overtightening coupled with a deep recession caused risk
aversion across the board, affecting the Russell 2000. The Fed is resolute on bringing the inflation
rate back to their 2% target and they are willing to go for a “hard
landing” scenario to achieve that. </p><p class=“MsoNormal“>This can be seen by the subtle
hawkish messages like them not revising the terminal rate in the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/fomc-dot-plot-and-central-tendencies-from-dec-2022-meeting-eoy-2023-48-20221214/“ target=“_blank“ rel=“follow“>Dot
Plot</a> after the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-cpi-71-yy-vs-73-expected-20221213/“ target=“_blank“ rel=“follow“>miss
in the CPI report</a> even if they could do so until the evening or them
complaining about the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/“ target=“_blank“ rel=“follow“>tight labour market</a> hinting that they want to see the unemployment
rate picking up. </p><p class=“MsoNormal“>All of these things point to the
two of the worst things for the stock market: overtightening and serious
recession.</p><p class=“MsoNormal“>RUSSELL 2000
Technical Analysis</p><p class=“MsoNormal“>In the
chart above we can see how the market initially spiked up as the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-cpi-71-yy-vs-73-expected-20221213/“ target=“_blank“ rel=“follow“>CPI
report missed</a> again expectations but soon after got faded as
the market went defensive into the FOMC meeting. Sure enough, the Fed came
out as more hawkish than expected causing a risk-off <a target=“_blank“ href=“https://www.forexlive.com/Education/understanding-market-sentiment-20220217/“ target=“_blank“ rel=“follow“>sentiment</a> in the following days. The
price broke down through a swing low support and kept on falling until the
selling momentum waned.</p><p class=“MsoNormal“>In the 1-hour chart above we can
see how the price <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-divergence-20220429/“ target=“_blank“ rel=“follow“>divergence</a> with the <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-relative-strength-index-rsi-20220426/“ target=“_blank“ rel=“follow“>RSI</a> was hinting to a loss of
selling pressure. In such instances generally the price pullbacks to a
previous swing level or the top/bottom of the swing where the divergence
started. In the chart above the price retraced back to the top (orange line) of
the whole divergent move. </p><p class=“MsoNormal“>This is also a previous broken
swing low <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>support</a> area (blue) that now may turn
into a <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a>. The price now is struggling
right at the resistance as we can tell by the multiple rejections and
candlesticks wicks. If the price breaks down through the blue trendline the sellers
would be again in control.</p><p class=“MsoNormal“>On the daily chart above we can
see how the CPI spike couldn’t break the resistance area at 1910-1920.
After the FOMC the price broke down through the minor blue support zone. As the
selling pressure waned, the price pull backed and it’s currently retesting the
previous broken support that now may turn into resistance. </p><p class=“MsoNormal“>On a downward continuation the clear
target is the double bottom level at 1642. If we get another “Santa Claus
Rally” the price should break up the blue resistance area and reach again the
1900 price zone.</p>

This article was written by ForexLive at www.forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/10-year-jgb-yields-fall-back-after-first-run-up-against-050-20221222/“>10-year JGB yields fall back after first run up against 0.50%</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/how-significant-was-the-impact-of-the-boj-surprise-this-week-20221222/“>How significant was the impact of the BOJ surprise this week?</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/ecbs-de-guindos-50-bps-rate-hikes-may-be-the-new-standard-20221222/“>ECB’s de Guindos: 50 bps rate hikes may be the new standard</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/uk-q3-final-gdp-03-vs-02-qq-prelim-20221222/“>UK Q3 final GDP -0.3% vs -0.2% q/q prelim</a></li></ul><p>Markets:</p><ul><li>AUD leads, CAD lags on the day</li><li>European equities little changed; S&P 500 futures down 0.1%</li><li>US 10-year yields down 2.3 bps to 3.641%</li><li>Gold flat at $1,814.63</li><li>WTI crude up 1.8% to $79.68</li><li>Bitcoin up 0.2% to $16,829</li></ul><p style=““ class=“text-align-justify“>Markets are slowly winding down to the holiday period, with meaningful headlines few and far between. Bonds moved higher on the day, owing to a drop in 10-year JGB yields after having run up against the 0.50% mark set out by the BOJ yesterday.</p><p style=““ class=“text-align-justify“>Equities are looking more tepid now after a decent start, with US futures nudging a touch lower while European indices have also pared early gains to keep more flattish at the moment.</p><p style=““ class=“text-align-justify“>In the FX space, the dollar is just a smidge lower with losses more evident against the yen and aussie. USD/JPY is seen trading 0.3% lower to 132.10 as the plunge from Tuesday begins to consolidate. Meanwhile, AUD/USD is up 0.4%. to 0.6735 as the pair keeps a bounce off its 100-day moving average from around 0.6658 earlier in the week.</p><p style=““ class=“text-align-justify“>EUR/USD is up 0.2% to 1.0625 as buyers look to build on a shallow upside break while other major currencies are mostly little changed against the dollar.</p>

This article was written by Justin Low at www.forexlive.com.

<p class=“MsoNormal“>Following the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/“ target=“_blank“ rel=“follow“>more
hawkish than expected FOMC meeting</a>, the market and the Dow Jones went into risk-off
mode breaking down and selling off for a few days. The market is now fearing
the risk of overtightening from the Fed as economic conditions deteriorate and
the Fed seems to be resolute to keep financial conditions tight for longer. The
absolute worst for the stock market is a too tight monetary policy and a deep
recession. </p><p class=“MsoNormal“>In fact, the Fed has been
complaining about the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-non-farm-payrolls-263k-vs-200k-expected-20221202/“ target=“_blank“ rel=“follow“>“extremely
tight” labour market</a> for several times, they can’t have the confidence
in loosening their stance until they see the unemployment rate picking up. So,
in the end that leads to a “hard landing” scenario especially since the actual
layoffs were always bigger than the Fed forecasts. </p><p class=“MsoNormal“>DOW JONES Technical Analysis</p><p class=“MsoNormal“>In the chart above we can see how
the market cheered initially as the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-cpi-71-yy-vs-73-expected-20221213/“ target=“_blank“ rel=“follow“>CPI
report missed</a> again expectations but soon after went into
defensive mode as the FOMC event approached. The market was right, and the Fed
was more hawkish than expected causing a risk-off <a target=“_blank“ href=“https://www.forexlive.com/Education/understanding-market-sentiment-20220217/“ target=“_blank“ rel=“follow“>sentiment</a> in the following days. The price
broke down and kept falling until the selling pressure waned.</p><p class=“MsoNormal“>In the 1-hour chart above we can
see how the price <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-divergence-20220429/“ target=“_blank“ rel=“follow“>divergence</a> with the <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-relative-strength-index-rsi-20220426/“ target=“_blank“ rel=“follow“>RSI</a> was signalling a loss of
momentum to the downside. In such instances generally the price pullbacks to a
previous swing level or the top/bottom of the swing where the divergence
started. In the chart above the price retraced back to the top (orange line) of
the whole divergent move. </p><p class=“MsoNormal“>This is also a previous broken <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>support</a> area (blue) that now may turn <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a>. In fact, the price is diverging
with the RSI again showing some struggle right at the resistance. A break to downside
through the blue trendline and the orange line would give sellers more control
again.</p><p class=“MsoNormal“>On the daily chart above we can
see how the CPI spike couldn’t break the resistance area at 35200-35400. After
the FOMC the price broke down through the blue <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-trendlines-20220406/“ target=“_blank“ rel=“follow“>trendline</a> and the previous swing low
support zone. </p><p class=“MsoNormal“>As the selling pressure waned,
the price pull backed and it’s currently retesting the previous broken support
that now may turn resistance. On a downward continuation the clear targets are
the swing low at 31761 and further down the October low at 28650.</p>

This article was written by ForexLive at www.forexlive.com.

<p style=““ class=“text-align-justify“>The drop is also weighing on bond yields elsewhere, with 10-year Treasury yields also down 2 bps to 3.645% on the day. For now, it looks like the BOJ is managing to keep a hold of the new red line that was drawn this week at 0.50%. But let’s see how things unfold once we get past the holiday season and the turn of the year.</p><p style=““ class=“text-align-justify“>The constant run up by the market against the previous red line at 0.25% for months eventually proved too hot to handle for Kuroda & co. so they might have to face up against such pressures again soon enough.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>A glance at the major indices in Europe shows that:</p><ul><li>Eurostoxx +0.2%</li><li>Germany DAX +0.2%</li><li>France CAC 40 +0.2%</li><li>UK FTSE +0.4%</li><li>Spain IBEX +0.3%</li></ul><p style=““ class=“text-align-justify“>This comes as S&P 500 futures are marginally positive, up 3 points, or 0.1%, on the day currently. Overall, risk sentiment is holding up and finding some bit-part relief following the selloff from last week. That said, the technical outlook remains on the ropes as pointed out earlier <a target=“_blank“ href=“https://www.forexlive.com/news/a-bit-of-relief-for-equities-but-the-coast-is-not-clear-just-yet-20221222/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>Elsewhere, a retreat in 10-year Japan government bond yields to 0.41% is pinning Treasury yields lower as well. In turn, the greenback is slightly lower across the board. USD/JPY is down 0.4% to just below 132.00 while GBP/USD is keeping a slight bounce just above its 200-day moving average of 1.2078 to trade around 1.2090 currently.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior +3.2%</li><li>Market index 212.5 vs 210.7 prior</li><li>Purchase index 182.5 vs 182.6 prior</li><li>Refinance index 371.4 vs 350.5 prior</li><li>30-year mortgage rate 6.34% vs 6.42% prior</li></ul>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>I think it might be safe to say that we’re in the year-end stretch now. There isn’t much to explain the drop in the pound today, with most other major currencies not doing a whole lot – the kiwi being the outlier as noted earlier <a target=“_blank“ href=“https://www.forexlive.com/news/light-changes-among-major-currencies-for-the-most-part-20221221/“ target=“_blank“ rel=“follow“>here</a>. Equities are faring better on the day but the pound is finding itself offered with GBP/USD falling by 0.7% to 1.2100.</p><p style=““ class=“text-align-justify“>The pair is now running towards another test of its 200-day moving average (blue line) at 1.2083 and that remains a key line in the sand in terms of limiting any further downside momentum.</p><p style=““ class=“text-align-justify“>For buyers, they have to keep price above that level to stay in the game. Otherwise, a firm break below that will see sellers start to flex their muscles and target a push towards 1.2000 first in the next leg.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior -19</li></ul><p style=““ class=“text-align-justify“>UK retail sales unexpectedly picked up in December but the sales balance for January is seen falling back to -17. That points to expectations that consumer spending will slide again to start 2023 as cost-of-living pressures continue to permeate across the UK economy.</p>

This article was written by Justin Low at www.forexlive.com.