eFXplus DATA

• AUD/USD elicited fresh support near 0.7150 during the European morning
• Bids around 0.7150 also propped the pair in Asia and last Thursday
• There is a large 0.7150 option expiry Tuesday, A$710mn strike
• 0.7182 was Asian session high after China IP data beat nL1N1ZL01N
• One of the roles of the AUD is to be a liquid proxy for the CNY nL1N1ZI16J
• AFR-China the swing factor for RBA rate cut, re: view from some economists

USD/JPY's rebound from a 103.10 low on Jan.
3 has been accompanied by rising oil prices, and with USD/JPY and crude oil reaching strong resistance levels, there's reason to bet on peaks for both.
The USD/JPY break lower at the start of this year began with the pair dropping through 110, forcing traders to lower their expectations, so the approach to 110 will have traders on high alert.
In December, Japan's bigger companies raised expectations for the average USD/JPY rate from 107.40 to 109.41.
The rapid drop to 103.10 will have shocked them and will lead to active hedging -- i.e., JPY buying -- to cover the risk of another rise.
Brent crude has reached the base of a thick daily Ichimoku cloud ($63.17-$72.12 a barrel) which represents strong resistance.
Should oil break up, the scope of that rally is around $9 a barrel.
With U.S. rates rebounding, that'll shift expectations for USD/JPY ranges, but initially bet resistance holds.

• China's 2018 growth slows to 28-year low, more stimulus seen nL3N1ZL2CH
• This likelihood of more China stimulus keeps USD/JPY's bias on the upside
• The 30-DMA at 110.30 is unmasked, a close above would be very bullish
• Though there are decent offers ahead of 110 that have to potential to cap
• Japan recession risk up on US-China trade war, global slowdown nL3N1ZH24T
• Expected reduced FX liquidity as U.S. financial markets closed on Monday

• Friday's sharp decline took price back to the daily cloud top, 1.2868
• Dip into the cloud early Mon then modest rebound off the 10DMA 1.2843
• Daily cloud, 1.2868-1.2717, falling and thickening could drag on price
• Close inside seen pivotal for the week: could open up drop to the base
• Daily momentum easing and stochs bear cross
• Weekly doji adding to bearish risk following 5-week bull run

• AUD/USD dips to 0.7150 early in the day on expectations of soft China data
• But China IP beats forecasts and takes AUD/USD up to 0.7182 briefly
• Techs turning bearish as 5 DMA crosses below 10 DMA, momentum studies mixed
• Interim support at 0.7135/45, close below 21 DMA at 0.7113 would be negative
• Resistance clearly defined at recent highs and 76.4 Fibo at 0.7225/35
• Recent moves have been USD driven, but AUD resilient on US-China trade hopes

EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is under mild downward pressure, could test the 1.1330 support.

We have held the same view since last Wednesday (16 Jan, spot at 1.1415) wherein “EUR is under mild downward pressure and could test the 1.1330 support”. Since then, EUR has edged lower and on last Friday, it made a ‘fresh’ low of 1.1350. The price action reinforces our view and we continue to see chance for 1.1330 to be tested. A dip below this level is not ruled out but in view of the lackluster momentum, the next major support at 1.1300 is unlikely to yield. On the upside, only a move above 1.1460 (no change in key level) would indicate that the current mild downward pressure has eased.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is still trading within a broad range.

GBP surged strongly last Thursday (17 Jan) and edged above the major 1.3000 level, touching a high of 1.3006. We indicated on Friday (18 Jan, spot at 1.2975), a “NY close above 1.3000 would suggest the start of a sustained rebound” in GBP. However, GBP did not move above 1.3000 again as it fell sharply from a high of 1.2994 last Friday. The build-up in momentum fizzled out quickly and it appears that GBP is not ready for a sustained up-move just yet. In other words, the current movement suggests GBP is still trading within a broad sideway trading range for now, expected to be between 1.2750 and 1.2980.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Consolidation phase in AUD could persist.

We have held the same view since last Monday (14 Jan, spot at 0.7205) wherein the “recovery in AUD has room to extend to 0.7270”. Since then, AUD has traded mostly sideways and the prolonged consolidation has resulted in a loss in upward pressure. From here, the weakened underlying tone suggests AUD is unlikely to threaten 0.7270. The recent consolidation phase would likely persist for a while more. In other words, AUD is expected to continue to trade sideways, likely between 0.7090 and 0.7230.

NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD under mild downward pressure, could grind lower to 0.6710.

We highlighted last Thursday (17 Jan, spot at 0.6775) that “NZD is under mild downward pressure and could grind lower to 0.6710”. NZD has weakened since then but not by much and the 0.6710 level is still not tested. However, there is no change to our outlook and as the underlying tone has weakened further, a dip below 0.6710 would not be surprising. That said, we do not expect the next support at 0.6675 to come into the picture for now. On the upside, only a move above 0.6805 (level previously at 0.6850) would indicate that a short-term bottom is in place.

USD/JPY: Neutral (since 09 Oct 18, 113.10): Scope for USD to test 110.00.

We have expected USD to strengthen since last Thursday (17 Jan, spot at 109.00) but were of the view that sustained move above 109.40 is unlikely. We added, “only an unlikely NY closing above 109.40 would suggest USD is ready to challenge 110.10”. USD touched 109.88 last Friday before ending the day on a firm a note at 109.76 (+0.48%). While the advance appears to be running ahead of itself, there is scope for USD to test 110.00 in the coming days (odds for a move to the next resistance at 110.40 are not high). That said, in order to maintain the current build-up in momentum, USD has to extend its gain soon (say within these couple of days) or the current upward pressure would ease quickly. Conversely, a move below 108.90 would indicate a short-term top is in place.

• GBP/USD flat in Asia, trades a range of 1.2848/85
• Plenty of conflicting Brexit headlines, but no clear path forward
• May to present Plan B today, but seems little changed from Plan A
• 5 & 10 DMAs flattening, momentum studies mixed - slightly bullish outlook
• 76.4 Fibo at 1.2995 and recent highs around 1.3000 clear resistance
• Close below 10 DMA @1.2842 would suggest further weakness to 21 DMA @1.2759
  

• AUD/USD blips higher on stronger than expected China data
• Q4 and 2018 GDP as expected at 6.4% and 6.6% respectively
• But IP data beat expectations handily
• Retail sales 8.2% vs 8.2 fcast, IP 5.7% vs 5.3% fcast
• AUD/USD down to 0.7150 ahead of data that was expected to be weak
• Jumps to 0.7182 after data, but back down close to NY close now at 0.7165

• +0.1% early, after a USD led 0.9% fall and inside day on Friday
• May plans Irish backstop changes to get Brexit deal support nFWN1ZI0ZC
• Germany's Maas sceptical on UK-Ireland backstop talks nL8N1ZK0SI
• Neutral momentum studies, 5, 10 & 21 DMAs climb - positive setup
• Targets a test of 1.3086/89, 76.4% Sep/Jan fall and 200 DMA
• NY 1.2858 low & London 1.2962 high initial support/resistance

• AUD/USD treads cautiously into the release of key China data Monday
• China set to post slowest growth in 28 years in 2018 nL3N1ZH281
• Pair buffeted by conflicting reports on progress of U.S.-China trade talks
• Trump, Kudlow optimism nL1N1ZJ08T nL1N1ZI1SM negated by talk of reviews
• EXCLUSIVE-U.S. demands regular review of China trade reform nL1N1ZI1KR
• Consolidation in 0.7135/45 to 0.7225/35 range persists, fresh leads awaited

• A shade firmer after falling 0.3% Friday, USD led, as UST yields bounced
• Merkel wants orderly Brexit nL8N1ZJ0BM UK/Irish talks sceptic nL8N1ZK0SI
• New Bavarian CSU head wants a fresh start with Merkel's CDU nL8N1ZJ0EF
• Six days of lower lows leaves momentum studies 5, 10 & 21 DMAs edging lower
• Modest bearish setup targets a return to the 1.1300 range base
• NY 1.1353 low and 1.242BLN of 1.1400 strikes support/resistance

Danske Research discusses its expectations for next week's ECB policy meeting.

"With no new policy signals expected next week, we stick to our three-stage rocket to orbit view for the EUR/USD. (see here) We have long been hinting that the next big move in EUR/USD will be higher on valuation grounds but stress that a rebound is a three-stage-rocket – and Fed ‘on hold’ is only the first stage to orbit.

With the break of October 2018 highs justified based on higher long real yield spread, EUR/USD ranges have moved higher with 1.15 now more likely to be the midpoint going forward. As Q1 progresses, we expect the second stage to be reached and 1.20 to be in sight,' Dankse argues. 

"Furthermore, we note that even though the EUR/USD has range-traded recently, the effective EUR has shown signs of weakening on a broader scale. In the past few months, the year-on-year appreciation pace has fallen markedly and is now up by only 0.5% y/y (from 10% y/y in October 2018). In our view, a weaker euro is good for the ECB and its narrative," Danske adds. 

• Bank of Italy lowers 2019 GDP f/c & stated Italy probably in a recession
• German & Italy GDP concerns suggests EU's core economies are faltering
• Risk rally sharply lifts UST yields & US$, EUR/USD hits a new short-term low
• Pair falls below the 55-DMA and nears the daily cloud base
• China sales & GDP, DE ZEW, Euro zone PMIs & ECB are key risks next week
• Dovish results could see EUR/USD driven towards 2018's low nL1N1ZI0RZ

Consolidation of AUD/USD gains suggests new highs are due but key risks from China loom which could alter the bullish view.
China's December retail sales and industrial production reports as well as Q4 GDP are due Jan 21.
AUD/USD longs will likely exit if results come in below forecast and bolster perceptions that global growth is waning.
Bearish pressure on AUD/USD could see 0.7145 and 0.7110/15 supports break and key support in the 0.7050/80 zone tested.
A break below 0.7050 would downgrade bull sentiment and AUD/USD could trade below 0.70000.
In-line or above forecast results will have a bullish effect as they could indicate the economic soft patch is over.
Risk assets, the emerging market complex and high beta currencies such as aussie would, therefore, gain.
A bullish outcome could drive AUD/USD above 0.7230/50 resistance and put the pair on track for a test of the 200-DMA.
U.S.-Sino trade talks at the end of January are another key risk.
Sharp rallies by AUD/USD to recent headlines suggesting trade progress indicate what lies ahead should solid progress be made.
A trade deal could drive AUD/USD above December's high.

Societe Generale Research discusses GBP outlook and maintains a tactical bullish bias, expressing that via staying short EUR/GBP* in cash targeting a move towards 0.8650.

"We like shorts in EUR/GBP and longs in GBP/USD via options. A no-deal Brexit is still a significant risk, but a deal that leaves the UK in some form of customs union, or a second referendum, would be very sterling-supportive. This morning’s papers tell us that the Prime Minister has so far resisted pressure to put her red lines on the bonfire and has antagonised parliamentary colleagues of almost all persuasion. That will have to change to avoid disaster but it (almost certainly)," SocGen argues.

--

*Recorded in eFXplus Orders

CIBC Research discusses the reaction to today's Canadian CPI print for the month of December.

"Headline inflation bucked expectations for a soft print, but only because of a recent methodology change to the way airline fares are calculated. Inflation accelerated to a pace of 2.0% on the back of a -0.1% monthly change in CPI. The consensus had been looking for a relatively unexciting 1.7% headline rate. But, according to the new methodology, airline fares were up 22% on the month, which contributed to a seasonally-adjusted 0.4% gain in CPI ex-food and energy, an upside surprise versus the consensus.

That effect shouldn't last though, as the methodology change is only exacerbating seasonal trends, and will therefore likely be reversed in January. Looking through all the volatility, the BoC's three core measures remained steady from the prior month, averaging just a touch below 2%. All told, the loonie is rallying off the higher than expected headline, but could come back after investors digest the details,' CIBC argues. 

EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is mild downward pressure, could test 1.1330 support.

EUR eked out another ‘fresh’ low of 1.1367 yesterday (17 Jan) before recovering to end the day little changed at 1.1395 (-0.01%). The price action reinforces our view that EUR is “under mild downward pressure” and we continue to see chance for a test of the 1.1330 support. However, the next support at 1.1300 is a major level and is unlikely to yield so easily. On the upside, only a move above 1.1460 (level was at 1.1480 yesterday) would indicate that the current mild downward pressure has eased.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): NY close above 1.3000 would suggest start of a sustained rebound.

On Wednesday (16 Jan, spot at 1.2870), we held the view “GBP could continue to gyrate within a broad 1.2600/1.3000 range for the next couple of weeks”. However, the solid surge in GBP that quickly hit 1.3001 yesterday (17 Jan) came as a surprise. Upward momentum has improved considerably and if GBP were to register a daily closing above 1.3000 in NY, it would suggest the start of a sustained rebound. All in, we expect GBP to stay underpinned from here unless it moves below the ‘key support at 1.2860.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Recovery in AUD has room to extend to 0.7270. No change in view.

Despite the relatively deep pull-back in AUD yesterday (NY close of 0.7167, -0.50%), it is too early to expect a short-term top. We continue to hold the view that the recovery from the ‘flash crash’ low has room to extend to 0.7270. That said, yesterday’s price action has dented the upward momentum and the prospect for 0.7270 to be tested has diminished. On the downside, a move below 0.7120 would indicate last week’s 0.7235 high is a short-term top.

NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD under mild downward pressure, could grind lower to 0.6710.

There is not much to add to yesterday’s (17 Jan) update. As highlighted, despite the relatively large decline on Wednesday (16 Jan), there is only a slight improvement in downward pressure. For now, we continue to hold on the view that barring a move above 0.6850, NZD is expected to grind lower to 0.6710 in the coming days. The prospect for a sustained decline below 0.6710 remains low.

USD/JPY: Neutral (since 09 Oct 18, 113.10): USD could test 109.40 but a sustained up-move appears unlikely. No change in view.

While USD moved above the top of our expected 107.00/109.00 sideway-trading range and closed at a post-‘flash crash’ high of 109.08 (+0.38%), we have doubts about the sustainability of the current short-term USD strength. That said, a test of 109.40 is not ruled out but only an unlikely NY closing above this level would suggest USD is ready to challenge 110.00. Meanwhile, USD could stay underpinned for the next few days and only a move below 108.40 would suggest the current mild upward pressure has eased.

• AUD/USD elicited support at 0.7176 after breaking below 0.7186 (Asia base)
• 0.7176 is 61.8 pct of Thursday's rise from 0.7147 (one-week low) to 0.7222
• Thursday's high was posted after a WSJ report on Mnuchin/China tariffs
• See: nL1N1ZH1F8 nL1N1ZH1FI. SSEC closed up 1.4 pct today nZZN2RHO00
• China trims 2017 GDP growth rate ahead of Q4 GDP data Monday nL3N1ZI17D
• Thursday's AUD/USD high was four pips shy of Tuesday's intra-week peak

• EUR/USD marginally bearish bias although down move is losing momentum
• Further highs below daily cloud top at 1.1420 will encourage bears
• Close under 55-DMA @ 1.1385 should spark fresh selling
• Marginal break of 76.4% retr 2019 rally @ 1.1371 suggest deeper drop
• Full retrace is 1.1310. 76.4% bigger rally since Nov 2018 is 1.1301
• Close back over 21-DMA 1.1427 needed to refresh early year bullish view

• Modest rebound in USD/ZAR feeding through to firmer GBP cross
• Dovish tilt to SARB rhetoric after Thurs no change call in the mix
• Brexit noise favouring GBP but fragile as uncertainty still stalks
• However, GBP/ZAR near good technical resistance-fade-stop levels
• 17.9265 sell-off high from Jan 14, 17.9348 cloud base and 18.0063 200DMA
• Look for a return to Jan 15 or Dec 4 lows, 17.4896 and 17.3184 respectively