<ul><li>Prior 91.9</li></ul><p style=““ class=“text-align-justify“>The index falls to a six-month low in December, as inflation and worker shortages remain major impediments for business owners. Of note, it was the twelfth month running that the index holds below the 49-year average of 98. Looking at the details, roughly 32% of owners reported that inflation was their single most important problem – unchanged since November.</p>

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

<ul><li>2-year Treasury yields +4.2 bps to 4.241%</li><li>10-year Treasury yields +4.4 bps to 3.561%</li><li>30-year Treasury yields +2.6 bps to 3.676%</li></ul><p style=““ class=“text-align-justify“>This is helping to underpin USD/JPY slightly at the moment, with the pair now up 0.2% to 132.15 from around 131.70 levels earlier in the session. There is still a state of flux among major currencies as broader markets remain more cautious and tentative but bonds are slipping a little on the session, with stocks also holding slightly lower.</p><p style=““ class=“text-align-justify“>All eyes are on the upcoming remarks by Fed chair Powell but as mentioned <a target=“_blank“ href=“https://www.forexlive.com/news/tentative-mood-as-markets-await-powell-20230110/“ target=“_blank“ rel=“follow“>here</a>, we might not even get anything significant from Powell later on. As such, just be wary of that possibility and that could very well cause a turn in market sentiment when Wall Street steps into the fray.</p>

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

<ul><li>To ensure steady, orderly property financing</li><li>To ask banks to further optimise credit structure</li></ul><p style=““ class=“text-align-justify“>The vow to ensure support for domestic demand is pretty much just reaffirming their ongoing support for the economy, as seen with credit conditions <a target=“_blank“ href=“https://www.forexlive.com/news/china-december-m2-money-supply-118-vs-122-yy-expected-20230110/“ target=“_blank“ rel=“follow“>here</a>.</p>

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

<p style=““ class=“text-align-justify“>In case you missed it, Eamonn had the data release earlier in the day <a target=“_blank“ href=“https://www.forexlive.com/centralbank/japan-data-december-tokyo-area-cpi-core-core-is-27-yy-20230109/“ target=“_blank“ rel=“follow“>here</a>. The core reading came in at 4.0% y/y, which is the highest since April 1982 with the core-core reading rising to 2.7% y/y in December, up from 2.5% y/y in November.</p><p style=““ class=“text-align-justify“>While the report only measures inflation in Tokyo, it very much presents the likelihood that overall inflation in Japan had stayed above the 2% target by the BOJ through December.</p><p style=““ class=“text-align-justify“>The Japanese central bank will announce their next policy decision on 18 January and while policymakers aren’t likely to spring another surprise on markets, it is widely expected that they will raise their inflation forecasts at least.</p><p style=““ class=“text-align-justify“>However, as long as inflation data continues to show up like what we saw today, it will be harder and harder for the BOJ to keep ignoring the prospects of having to shift their policy stance.</p>

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

<ul><li>Prior +12.4%</li><li>New yuan loans ¥1.4 trillion vs ¥1.1 trillion expected</li><li>Prior ¥1.2 trillion</li></ul><p style=““ class=“text-align-justify“>The numbers continue to support the narrative that China is aiding the market recovery at least, particularly so after having been crippled by its previous zero-Covid policy. For some context, the new yuan loans issued throughout 2022 is a record, coming in at ¥21.3 trillion. Considering the re-opening, I doubt Chinese authorities will let up until they have a fair sense of confidence that the economy can hold its own.</p>

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

<p class=“MsoNormal“>UPCOMING
EVENTS:</p><p class=“MsoNormal“>Tuesday: Fed
Chair Powell.</p><p class=“MsoNormal“>Thursday: US
Jobless Claims, US CPI.</p><p class=“MsoNormal“>Last Friday
was incredible. Not because of another good <a target=“_blank“ href=“https://www.forexlive.com/news/us-december-non-farm-payrolls-223k-vs-200k-expected-20230106/“ target=“_blank“ rel=“follow“>NFP
report</a>, but because the <a target=“_blank“ href=“https://www.forexlive.com/news/ism-december-us-services-496-vs-550-expected-20230106/“ rel=“follow“>ISM
Services PMI</a> showed a huge dive into contractionary territory. </p><p class=“MsoNormal“>The labour
market, which is a lagging indicator, remains tight and that will keep the Fed
uncomfortable in easing monetary conditions. Remember that they see <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“>4.6%
unemployment this year keeping rates at 5%</a>. </p><p class=“MsoNormal“>But if we
look at leading indicators, the Fed may very well overtighten and act too late
when unemployment starts to shoot up fast. </p><p class=“MsoNormal“>The market
took the miss in average hourly earnings and the big miss in ISM Services PMI
as good news, but I think the reaction is wrong. </p><p class=“MsoNormal“>There’s this
hope among participants that the recession will be mild or short, which makes a
deep recession an out of consensus call and something that is not priced in. That’s
where we are going in my opinion. </p><p class=“MsoNormal“>If inflation
indeed falls but the Fed keeps at it, which is what they will most likely do
based on comments from the officials and their focus on the lagging labour
market, then real rates, which is the ultimate form of tightening, will go up
and stay there when there will be a need for them to fall. </p><p class=“MsoNormal“>Historically,
the burst of asset bubbles precedes a deflationary period. For this reason, the
next thing the Fed may be fighting with is deflation. </p><p class=“MsoNormal“>Looking
ahead the Fed will hike by 25 bps at the next meeting barring any upside surprise
in the CPI report. </p><p class=“MsoNormal“>Given the
recent data, I think the USD dump out of those reports was a wrong reaction. The
market seems to be trading on the mild recession hopes at the moment. Technically,
the price action doesn’t look healthy for an upside continuation as there’s
clearly a loss of momentum.</p><p class=“MsoNormal“>Looking at
the other markets, my highest conviction is in bonds. I strongly feel that
we are about to see a strong bull market in bonds. </p><p class=“MsoNormal“>Fighting the
Fed is usually a bad idea, but at tops and bottoms, it can be done and the bond
market in my opinion will do that. The market expects rate cuts by the end
of 2023, I think rate cuts will be bigger than the market currently expects.
</p><p class=“MsoNormal“>Tuesday: Fed Chair
Powell speaks in Sweden and after the recent economic data, the market will
want to hear what the Fed Chair has to say. I don’t expect him to be on the
dovish side. He may acknowledge improvements on the inflation side but complain
about the labour market. So, all in all, I expect him to basically reaffirm
his last stance. </p><p class=“MsoNormal“>Thursday: As I
mentioned last week, I expect the labour market data now to be more important
for the market than the inflation data. We saw this new development last
week as well when the <a target=“_blank“ href=“https://www.forexlive.com/news/us-december-adp-employment-235k-vs-150k-expected-20230105/“ target=“_blank“ rel=“follow“>ADP</a>
and <a target=“_blank“ href=“https://www.forexlive.com/news/us-initial-jobless-claims-204k-vs-225k-estimate-20230105/“ target=“_blank“ rel=“follow“>Jobless
Claims</a> reports moved the market more than they used to last year.
</p><p class=“MsoNormal“>Initial
Jobless Claims are expected to come at 220K and Continuing Claims at 1708K. </p><p class=“MsoNormal“>The Headline
CPI Y/Y is expected to fall to 6.5% from the prior 7.1% and the M/M reading to
remain unchanged at 0.1%. The Core CPI Y/Y is expected to fall to 5.7% from the
prior 6% and the M/M figure to tick up to 0.3% from the prior 0.2%. </p><p class=“MsoNormal“>If the data
comes out as expected or misses, we can be sure the Fed hikes by 25 bps at the
next meeting. A beat would make the market uncertain on the magnitude of the
next hike with a possible split between 25 bps and 50 bps. </p><p class=“MsoNormal“>This article
was written by Giuseppe Dellamotta.</p>

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

<p class=“MsoNormal“>Last week the <a target=“_blank“ href=“https://www.forexlive.com/news/us-december-non-farm-payrolls-223k-vs-200k-expected-20230106/“ target=“_blank“ rel=“follow“>NFP
report</a> showed once again that the labour market is tight and resilient, impacting the S&P500.
What caught the market’s attention though was the data on Average Hourly
Earning (i.e. wages). </p><p class=“MsoNormal“>They missed expectations and the
prior numbers were revised downwards. The market interpreted that as a
goldilocks scenario: strong labour market without wage inflation. </p><p class=“MsoNormal“>What followed was totally
unexpected. The <a target=“_blank“ href=“https://www.forexlive.com/news/ism-december-us-services-496-vs-550-expected-20230106/“ target=“_blank“ rel=“follow“>ISM
Services PMI</a> dived into contractionary territory for the first
time since 2 and a half years. This is a leading indicator for the Services
sector, which is about 80% of the US economy. The market rallied even more on
hopes that the Fed would stop rate hikes very soon and start cutting rates
earlier. </p><p class=“MsoNormal“>The market may be underestimating
the Fed’s resolve in keeping conditions tight for longer. </p><p class=“MsoNormal“>In fact, Fed speakers doubled
down on their intention of keeping rates higher for longer after the reports as
their focus is more on the labour market now and they want to see unemployment picking
up before having the confidence in easing monetary conditions. </p><p class=“MsoNormal“>If that doesn’t happen (which is
unlikely), they will probably keep at it until they see the CPI/PCE Y/Y near
their 2% target. In that case though, it would be too late.</p><p class=“MsoNormal“>S&P500 Technical Analysis</p><p class=“MsoCaption“>Daily chart of the S&P500.</p><p class=“MsoNormal“>On the daily chart above, we can
that the price came back to the old <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>support</a> in the 3920-3940 area that now
acts as <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a>. If the price manages to break
that zone, buyers will be in control and target the blue <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-trendlines-20220406/“ target=“_blank“ rel=“follow“>trendline</a> or even a breakout higher. </p><p class=“MsoNormal“>If the price gets rejected from
that zone, sellers will regain control and target at least the support at 3800
if not even lower to the October low at 3506.</p><p class=“MsoNormal“>Zooming in to the 1-hour chart,
we can see the rangebound market of the past few weeks. The <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“>support</a> is in the 3790-3810 area and the
<a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“>resistance</a> is in the 3920-3940 area. We can also see more clearly
the two possible scenarios: </p><p class=“MsoListParagraphCxSpFirst“>·
Break above and run to the <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-trendlines-20220406/“>trendline</a> in the 4000 price zone.</p><p class=“MsoListParagraphCxSpLast“>·
Fail and fall back to the <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“>support</a> in the 3800 price zone. </p><p class=“MsoCaption“>On the 5-minutes chart, we can see that the buying
momentum out of the two economic reports is waning as depicted by the <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>.
This may give a higher probability for the 2nd scenario to play out
as the price may not have enough strength to break up.</p>

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

<p style=““ class=“text-align-justify“>The dollar was weaker across the board coming into European trading but higher bond yields helped to underpin USD/JPY to push higher at the start of the session, with the pair moving up from 131.65 to a high of 132.65 before easing slightly in the past 15 minutes or so. In the bigger picture, the pair is coming off a push lower on Friday after testing the late December highs near 134.50 – after having bounced off 130.00 last week:</p><p style=““ class=“text-align-justify“>In a sense, one can argue that price action is consolidating in between the levels highlighted as buyers and sellers continue to do battle. On a day when the dollar seems to be running lower across the board, USD/JPY is bucking the trend so that tells us that the playbook isn’t so straightforward.</p><p style=““ class=“text-align-justify“>The bond market remains a key driver as well and 10-year Treasury yields are up 2.6 bps to 3.597% on the day. Be mindful that Japanese markets are closed today and will resume trading tomorrow with a keen focus on 10-year Japanese government bond yields as well, after having tested the BOJ’s limit at the end of last week <a target=“_blank“ href=“https://www.forexlive.com/news/boj-being-tested-once-again-20230106/amp/“ target=“_blank“ rel=“follow“>here</a>.</p><p style=““ class=“text-align-justify“>Going back to USD/JPY, here is a look at the near-term chart:</p><p style=““ class=“text-align-justify“>Sellers managed to seize near-term control on a break below the 100-hour moving average (red line) in early trading today but buyers have turned it around to switch the near-term bias to being more bullish again in European trading. That comes after a break back above both the 100 and 200-hour (blue line) moving averages.</p><p style=““ class=“text-align-justify“>The state of flux in the near-term control highlights that price action is still rather unsettled and that is arguably exemplified by the consolidation between 130.00 and 134.50 (you can even call it 135.00) for the time being.</p><p style=““ class=“text-align-justify“>As the pair continues to toss and turn, eventually we’ll see it fall off on one side and that will make for a good trending move to catch. And we might not have to wait too long for a trigger with the US CPI data coming up on Thursday.</p>

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

<ul><li>Prior 6.5%</li></ul><p style=““ class=“text-align-justify“>Euro area unemployment keeps steady in November, suggesting that labour market conditions are still fairly solid despite rising risks of a recession.</p>

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

<ul><li>Prior -21.0</li></ul><p style=““ class=“text-align-justify“>Euro area investor morale rises for a third straight month, moving to its highest level since June last year. That said, the negative reading continues to reflect a rather challenging and poor economic outlook for the most part. Sentix notes that:</p><p style=““ class=“text-align-justify“>“January data indicates a further improvement but there is virtually no change in the assessment of the current situation, with only the expectations values signalling a greater easing of the situation.“</p>

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