WTI Oil The WTI oil advances for the second consecutive day and probing again through strong resistance at $81.91, provided by the top of thick daily cloud and 50% retracement of $93.72/$70.09, where recent attacks failed several times to register firm break higher. The price is standing comfortably above psychological $80 level, now acting as solid support, with fresh advance being underpinned by optimism about Chinese demand recovery, while the latest better than expected US GDP data, additionally brightened the outlook. Technical picture on daily chart is bullish and contributes to positive fundamentals, though strong bullish momentum has lost traction, adding to warning that bulls continue to face strong headwinds at $81.91 pivot and may again fail to clearly break this barrier. Another upside rejection would keep the price within the recent range, but biased higher while above $80 level. On the other hand, weekly close above $81.91 would signal extension of the bull-leg from $72.44 (Jan 5 low) and expose targets at $83.32/$84.69 (Dec 1 high / Fibo 61.8% of 93.72/$70.09 descend). Traders shift focus towards the next week’s meeting of OPEC+, though the cartel is unlikely to make any change to its current production policy. Res: 82.70; 83.32; 84.38; 84.69. Sup: 81.04; 80.76; 80.00; 79.43. Interested in WTI Oil technicals? Check out the key levels

AUDUSD is set for its third monthly gain, having been trading bullish almost every single week since the slump to a 30-month low of 0.6169 in mid-October,

Outlook: We get a flood of data today but the important bits are the University of Michigan Jan consumer sentiment and inflation expectations, and personal income and spending and the associated PCE price index, with core expected up 0.3% m/m and 4.4% from 4.7% in November. We also get the Atlanta Fed’s first estimate of Q1 GDP, which will be fun. A big drop in core PCE inflation would buttress the consensus viewpoint that the Fed is nearing the end of the road with only 50 bp to go, in two tranches, then a pause and then a cut in late Q3 or Q4. Never mind what any other central bank is going to do—this is dollar negative. If the core comes in closer to 4.7% again, however, all hell will break loose. Should traders cover dollar shorts? To make matters more complicated, we will get trimmed means and sticky prices from a bunch of regional Feds, too. For kicks, see the last data from the Cleveland Fed, which explains that its median PCE inflation is the rate of those things whose expenditure weight is in the 50th percentile of price changes. In other words, not some vastly expensive thing that hardly anyone buys. That means it will include eggs, which core excludes as food. “Benefits: By omitting outliers (small and large price changes) and focusing on the interior of the distribution of price changes, the median PCE inflation rate can provide a better signal of the underlying inflation trend than either the all-items PCE price index or the PCE price index excluding food and energy (also known as the core PCE price index). Eyeballing the chart, it looks like 3-4% is about as much as we can expect in any reasonable timeframe. The probability of hitting 2% before year-end is very, very low. So, if the Fed is telling the truth, we will not be getting a cut this year as so many insist. It’s getting to the point, though, that the late-year 2023 cut is irrelevant. Far more interesting is the rising acceptance that outright recession might not be in the cards—but inflation can persist well into 2024. This is stagflation and it’s the very devil to deal with. That means we need to follow things like capital spending, capacity utilization and business sentiment to be able to predict the end of that. Maybe insider stock sales, too. Off on the side is layoffs in tech spreading like a virus to toys and other sectors. Not that the Fed is peopled by grinches, but this is good news for the Fed. It means wage hikes will end, at least in some places, removing “wage-push” inflation worries. We fully expect to start seeing essays on how the Fed will do only 25 bp before pausing, not 50. We have said before that the case for a strong dollar is pretty good in the long run. Assuming we get some interesting dollar short-covering now, we have to remember to call it a pushback and not a trend reversal. We don’t see full reversal on the chart yet, and of course that’s the perpetual problem with charts—like the best data, they lag. Besides, all the really juicy big news is next week--the Fed, ECB, and BOE meetings, with payrolls as the cherry on top. Are the big players positioning on a Friday for those events? It’s complicated. If the BoE does 50 bp as expected, it will be nearing its terminal rate, but the ECB, seen as also doing 50 bp this time, will have farther to go. according to those who know how to read swaps prices. We don’t expect those forecasts to manifest in FX today. But we plan to hide under the covers on Monday. Tidbit: We would never pick a fight with Goldman Sachs, but it’s the latest to project that Europe will escape recession this year. You have to wonder what assumptions they used for the prices of gas and oil. Granted, the price of gas is now under the level of a year ago and oil is cheap, but can we really expect warm weather to keep helping? Well, maybe. For natgas in particular, Norway, the US and North Africa are filling the gap of lost Russian supplies. In fact, Russia the giant gas station is losing even that traction, the last gem in a denuded crown. Tidbit:  We are starting to see money supply stories, the latest from Reuters, now that M2 is falling like a rock, down for the 5th month and bigger amounts all the time. Year-over-year, M2 is down by over $530 billion since last March. Before then, from March 2020, M2 rose dramatically by $6.3 trillion or 40%, from pre-pandemic levels. This is QE on steroids.  We have to remember...

Outlook: We get a flood of data today but the important bits are the University of Michigan Jan consumer sentiment and inflation expectations, and personal income and spending and the associated PCE price index, with core expected up 0.3% m/m and 4.4% from 4.7% in November. We also get the Atlanta Fed’s first estimate of Q1 GDP, which will be fun. A big drop in core PCE inflation would buttress the consensus viewpoint that the Fed is nearing the end of the road with only 50 bp to go, in two tranches, then a pause and then a cut in late Q3 or Q4. Never mind what any other central bank is going to do—this is dollar negative. If the core comes in closer to 4.7% again, however, all hell will break loose. Should traders cover dollar shorts? To make matters more complicated, we will get trimmed means and sticky prices from a bunch of regional Feds, too. For kicks, see the last data from the Cleveland Fed, which explains that its median PCE inflation is the rate of those things whose expenditure weight is in the 50th percentile of price changes. In other words, not some vastly expensive thing that hardly anyone buys. That means it will include eggs, which core excludes as food. “Benefits: By omitting outliers (small and large price changes) and focusing on the interior of the distribution of price changes, the median PCE inflation rate can provide a better signal of the underlying inflation trend than either the all-items PCE price index or the PCE price index excluding food and energy (also known as the core PCE price index). Eyeballing the chart, it looks like 3-4% is about as much as we can expect in any reasonable timeframe. The probability of hitting 2% before year-end is very, very low. So, if the Fed is telling the truth, we will not be getting a cut this year as so many insist. It’s getting to the point, though, that the late-year 2023 cut is irrelevant. Far more interesting is the rising acceptance that outright recession might not be in the cards—but inflation can persist well into 2024. This is stagflation and it’s the very devil to deal with. That means we need to follow things like capital spending, capacity utilization and business sentiment to be able to predict the end of that. Maybe insider stock sales, too. Off on the side is layoffs in tech spreading like a virus to toys and other sectors. Not that the Fed is peopled by grinches, but this is good news for the Fed. It means wage hikes will end, at least in some places, removing “wage-push” inflation worries. We fully expect to start seeing essays on how the Fed will do only 25 bp before pausing, not 50. We have said before that the case for a strong dollar is pretty good in the long run. Assuming we get some interesting dollar short-covering now, we have to remember to call it a pushback and not a trend reversal. We don’t see full reversal on the chart yet, and of course that’s the perpetual problem with charts—like the best data, they lag. Besides, all the really juicy big news is next week--the Fed, ECB, and BOE meetings, with payrolls as the cherry on top. Are the big players positioning on a Friday for those events? It’s complicated. If the BoE does 50 bp as expected, it will be nearing its terminal rate, but the ECB, seen as also doing 50 bp this time, will have farther to go. according to those who know how to read swaps prices. We don’t expect those forecasts to manifest in FX today. But we plan to hide under the covers on Monday. Tidbit: We would never pick a fight with Goldman Sachs, but it’s the latest to project that Europe will escape recession this year. You have to wonder what assumptions they used for the prices of gas and oil. Granted, the price of gas is now under the level of a year ago and oil is cheap, but can we really expect warm weather to keep helping? Well, maybe. For natgas in particular, Norway, the US and North Africa are filling the gap of lost Russian supplies. In fact, Russia the giant gas station is losing even that traction, the last gem in a denuded crown. Tidbit:  We are starting to see money supply stories, the latest from Reuters, now that M2 is falling like a rock, down for the 5th month and bigger amounts all the time. Year-over-year, M2 is down by over $530 billion since last March. Before then, from March 2020, M2 rose dramatically by $6.3 trillion or 40%, from pre-pandemic levels. This is QE on steroids.  We have to remember...

Stocks are edging to the downside as Friday’s session draws to a close in London, as some bullish momentum fades into the weekend, says Chris Beauchamp, chief market analyst at online trading platform IG. Stocks mixed but on track for weekly gains “Despite the best efforts of various parties, the monthly PCE index never seems to quite generate the excitement of the CPI reading, despite the former being the Fed’s preferred measure. Thus today’s data passed largely without much notice, but then with three big central bank meetings, a payrolls report and major tech earnings next week the market has much bigger fish to fry. Stocks have managed to notch up a decent performance for the week, shrugging ff Microsoft’s earnings, and it is now up to the FANGs to provide fresh bullish momentum.” Dollar pushes higher “Given the decline in the greenback this month, it may well be that markets are being too dovish in their expectations for next week’s Fed decision. While the 25bps hike is more or less nailed on, it is the commentary around it that provides the potential to trip up the unwary. Risk assets have done well so far this month, but next week’s action-packed timetable poses a significant hurdle to short-term gains.”

EUR/USD rallies as ECB may remain firm The euro climbs as the ECB is catching up with its policy normalisation. The central bank is set to raise its key rate by 50 bps this week. The main driver of volatility will be its forward guidance as the debate on the pace of tightening is still open among policymakers. Officials have said that the rate outlook is data dependent, and easing CPI and positive PMI last month could fuel rate hike speculation. The market is currently split between 25 and 50 bps in March, so hawkish statements out of the press conference would prompt participants to price aggressively. The pair is heading towards 1.1180 with 1.0780 as a fresh support. GBP/USD steadies as BoE to raise by 50bp The pound retreats as the market repositions ahead of the BoE meeting. The dollar’s broader weakness does not mean that Sterling is in a better shape with UK inflation still in double digits in December. The BoE is expected to lift its rate by 50 bps then another 25 bp in March. What rattles traders is that Britain's economy is more brittle than its US counterpart. Contraction in the latest GDP and PMIs point to a possible recession, though a milder one than previously feared. Looking forward, there is growing concern that higher interest rates could stifle growth. The pair is testing 1.2500 with 1.1900 as the closest support. XAU/USD rises in hopes of Fed pivot Gold finds support from hopes of slower interest rate hikes by the Fed. The fact that higher interest rates have not dented investors’ appetite for the non-yielding metal suggests that they may be labelling the restrictive conditions as ‘transitory’. Still, a technical snapback cannot be ruled out given the metal’s ascent lately, the downside risk would be a lack of a dovish undertone. Buyers might be looking for an excuse to take profit, which means that a 25 bp rate hike as expected may actually lead to textbook ‘buy the rumour, sell the news’. April 2022’s high of 1995 is the current ceiling and 1895 a fresh support. Nasdaq 100 bolstered by robust data The Nasdaq 100 rallies as recession fears recede amid encouraging economic data. Recent indicators have made investors realise that things are not that bad and a combination of decent growth and easing prices might be the right mix for a soft landing. Despite the Fed’s assertiveness, the fact that other major central banks are talking about pausing their hike cycles definitely helps dissipate some of the pessimism. The market has priced in a smaller increase of 25 bps at the Fed meeting, which has been reflected in more risk-taking in the past few weeks. 12200 is the immediate resistance and 11300 the first support.