Yesterday, Russia finally responded to the EU’s price cap on its oil exports, saying that they will simply stop exporting their oil to parties that ‘directly or indirectly use the mechanism of setting a price cap’. The latter announcement gave a minor boost to crude oil yesterday, but the barrel of American crude remained offered into the 50-DMA, near $81.60pb, and the price is back below the $80pb this morning. BUT, an eventual decrease in Russian oil supply gives support to the oil bulls’ in the medium run, along with other factors as China reopening and cold winter in America. Important to note: If the Chinese reopening story is positive for oil and commodity prices - and for the massively battered Chinese stocks, it’s bad news for global inflation. This is why we don’t see the US stocks gain on China reopening news, but we rather see them under a decent pressure, as the surge in Chinese demand will certainly boost inflation through higher energy and commodity prices. And in response to higher inflation, the central banks will continue hiking rates. As a result, the sovereign bond yields are higher, the stocks are lower, while the US dollar is mixed. Apple is down to lowest levels since summer 2021, and Tesla’s deep dive deepens by the day.

AUD/USD Current Price: 0.6745 The poor performance of global equities limited the bullish potential of AUD/USD. Raising government bond yields reflects renewed inflation-related concerns. AUD/USD is at risk of losing the 0.6700 level in the upcoming sessions. The AUD/USD pair posted gains for a third consecutive day, hitting on Wednesday an intraday high of 0.6800 but settling in the 0.6740 price zone. The pair advanced throughout the first half of the day despite the poor performance of Asian and European equities, retreating during US trading hours as Wall Street followed the lead of their overseas counterparts. The focus stayed on government bond yields and renewed concerns about potentially higher inflation. The Australian 10-year bond yield increased by more than 20 bps, while the US one held around the multi-week high posted on Tuesday. AUDUSD short-term technical outlook The daily chart for AUD/USD pair shows that it trades around a flat 20 SMA despite being unable to clear the dynamic resistance area. The 200 SMA heads firmly lower, far above the current level, while the 100 SMA stands directionless at around 0.6650, providing support. Technical indicators, in the meantime, have turned flat around their midlines, reflecting the absence of directional strength. In the near term and according to the 4-hour chart, the pair keeps developing above all of its moving averages, although the 100 SMA heads south while converging 20 and 200 SMAs advance below it. Technical indicators have retreated from near overbought readings, heading south but holding within positive levels, falling short of anticipating a steeper decline.   Support levels: 0.6715 0.6670 0.6630 0. Resistance levels: 0.6775 0.6810 0.6850 View Live Chart for the AUD/USD

EUR/USD Current Price: 1.0648 Financial markets returned after the long weekend with optimism. US macroeconomic data failed to impress, giving the US Dollar a short-lived boost. EUR/USD quickly bounced from an intraday low of 1.0611, indicating that bulls are in control. The EUR/USD pair started the day with a bullish gap, advancing up to 1.0669, a one-week high, ending the day not far below the latter. It filled the gap after Wall Street’s opening, as poor US data temporarily boosted the greenback. Nevertheless, optimism prevailed. Financial markets were in risk-on mode amid news coming from China at the beginning of the day. The country upwardly revised its Gross Domestic Product (GDP) estimate for 2021, up to 8.4% from 8.1%. Additionally, the government continues to ease covid-related restrictions, which will mitigate the negative impact limitations had on the economy. Finally, the China Immigration Administration announced it would resume issuing visas for mainland citizens travelling abroad. The EU did not publish macroeconomic figures, but the US released the November Trade Balance, which posted a deficit of $83.3 billion, improving from the previous deficit of $98.8 billion. Wholesale Inventories for the same month were up 1%, worse than the 0.7% expected, while the October Housing Price Index remained pat. Finally, the December Dallas Fed Manufacturing Business Index contracted to -18.8 from -14.4 in the previous month. On Wednesday, the macroeconomic calendar will remain scarce, as the US will only release minor figures, including November Pending Home Sales and the December Richmond Fed Manufacturing Index. EUR/USD short-term technical outlook The EUR/USD pair holds on to modest gains and its bullish stance, according to technical readings in the daily chart. The pair stands above all of its moving averages, with the 20 Simple Moving Average  (SMA) still heading north above the longer ones and below the current level. The Momentum indicator advances modestly after bouncing from its midline, while the RSI consolidates around 65, showing no signs of upward exhaustion. The 4-hour chart shows that the pair is neutral-to-bullish. Buyers are defending the downside at around a flat 20 SMA, currently at 1.0620. The 100 SMA is also directionless, although below the shorter one, while the 200 SMA advances far below the current level. Finally, technical indicators have lost their directional strength and hover within neutral levels. Support levels: 1.0620 1.0580 1.0535 Resistance levels: 1.0695 1.0740 1.0785 View Live Chart for the EUR/USD

MARKETS Stocks are lower on Tuesday as US markets reopen after Christmas. At the same time, concerns over the well-entrenched 2022 wall of worry list, including Fed policy endgame, inflation, growth, and the prospect of a recession in 2023, dominate investors' psyches during the final trading days of the year. Investors hoping for a year-end rally are likely disappointed as holiday cheer seems in short supply. Traditionally, the last week of the year is one of the lightest regarding scheduled information.  Almost everyone is becoming one with their couch, and liquidity is in short supply. But, like so much of the post-pandemic normal, this week is shaping up to be anything but dull. While the scheduled data docket remains empty, unscheduled headlines from China, TSLA weighed on US equities Tuesday, with investors assuming a more defensive stance.  Yields on 10-year Treasuries rose to 3.85%, and 'growth' sectors like Tech, Communication Services, and Consumer Discretionary are getting dented. While some of what we are seeing could result from seasonally low liquidity, there are a few things to consider if you plan on making it to your screens. TSLA is the worst-performing stock in the S&P 500 on Tuesday as new reports that it is extending a scheduled shutdown of a factory in Shanghai amidst rising COVID cases, in addition to concerns about softening demand for its vehicles, weigh on the stock TSLA's decision to extend the shutdown also comes on the heels of China's move to significantly relax its COVID policy, a critical step to fully reopening the economy while also putting pressure on its medical system. And while a full China reopening could provide a much-needed and timely boost to the global economy, it may come with unwelcome ambiguous strings attached. The good news is that inflation subsides as China reprises its role as a supplier of low-cost goods globally and supply chain bottlenecks ease. Still, the bad news is as growth accelerates through Q1, China's insatiable demand for raw materials and all things energy will push up prices of those commodities, much of to the consternation of the Fed and ECB. Indeed, reopening is rekindling some inflationary spirits.  Taking a step back, inflation, growth, the Fed, and the risk of a recession all remain in the background. Investors still seem skeptical of the sustainability of the recent moderation in inflation while staying focused on the Fed reaction function and whether that policy response spirals the US economy into a downturn.  ASIA FOREX China's reopening is CNY positive, where the improved growth expectations in 2023 might outweigh unfavourable factors such as domestic inflation and a deterioration in goods and services trade balances.  Traders are turning more bullish on the Thai Baht as Thailand may benefit the most from the international tourism channel if China removes visa restrictions and outbound travel gradually normalizes. OIL  As we head into the first month of 2023 in an ambivalent environment where supply tightness and recession fears pull traders in different directions, I suspect the market's intense rollercoaster ride should continue in 2023. But it is amazing, given the wild swings this year, that oil prices have basically come full circle, and  we are back to Brent trading mid $ 80s, almost precisely where we started in 2022 China's High-frequency mobility data in December and Emerging Industries PMI (EPMI) pointed to weaker growth momentum during the frontloaded "exit wave" on the back of surging infections. They may ultimately provide a reality check to the speculative reopening froth-consuming prompt oil markets. Although the NHC stopped releasing Covid data, oil traders are using the experience from Hong Kong and Taiwan, suggesting daily new cases may peak sometime in mid to late January in mainland China, which should be good news for oil markets. But there remain significant uncertainties regarding how households and multi-national corporations react to the large "exit wave" of COVID infections in the near term and how they behave in the post-COVID regime later next year.

AUD/USD Current Price: 0.6743 Broad US Dollar weakness and firmer gold prices supported AUD/USD. Easing US inflation and China’s focus shift to growth boosted the market mood. The risk of an AUD/USD bearish breakout decreased in the near term. The Australian Dollar advanced against its American rival on Tuesday, with AUD/USD peaking at 0.6775, to later settle in the 0.6740 price zone. The pair was all about US Dollar weakness, and optimism, given that the Australian macroeconomic calendar had nothing to offer and will remain empty throughout the week. Higher gold prices also supported the Aussie, as the bright metal peaked at a fresh three-week high, retaining gains despite easing from such a high. The better market mood was triggered last Friday by further signs inflation in the US eased, as the annual core PCE Price Index printed at 5.5% YoY in November, down from 6.1% in the previous month. The upbeat sentiment was reinforced on Monday by news that China will ease further covid-related restrictions, fueling speculation the local government would now focus on boosting economic growth. AUDUSD short-term technical outlook The daily chart for AUD/USD pair shows that it left an unfilled gap at the opening at 0.6657 and could test the level in the upcoming sessions. The same chart shows that the pair struggles to overcome a flat 20 SMA while buyers defend the downside at around 0.6657, where the pair has the 100 SMA. Technical indicators, in the meantime, hover around their midlines without clear directional strength. The risk of another leg lower is still latent, although with the pair holding above 0.6700, it may take some time before a bearish breakout. The 4-hour chart shows that the pair briefly traded above a mildly bearish 100 SMA but also that it settled below it. Furthermore, the 20 and 200 SMAs converge at around 0.6715, providing a strong dynamic support level. Finally, the Momentum indicator bounced from its midline, while the RSI indicator consolidates at around 55, further limiting the chances of a downward move in the near term. Support levels: 0.6715 0.6670 0.6630 0. Resistance levels: 0.6740 0.6775 0.6810 View Live Chart for the AUD/USD

Notes/observations - Risk appetite trying to end the year on a positive note. - China planning to drop quarantine requirements for inbound travelers. Asia - China to remove all covid-related quarantine regulations and lift restrictions on international flights from Jan 8th, 2023; Govt downgrades Covid-19 from category A to a category B disease. - Japan PM Kishida announced restrictions for arrivals from China. - Japan Nov Jobless Rate: 2.5% v 2.5%e. - Japan Nov Retail Sales M/M: -1.1% v +0.2%e; Y/Y: 2.6% v 3.9%e. - Japan govt sells 2-year JGB with positive yield (1st time since 2015). - BOJ Gov Kuroda reiterated stance that recent policy change was not tightening. - Japan PM Kishida stated that would watch economic situation to decide on next BOJ Governor; Premature to talk about reviewing BOJ-Japan govt accord; Reiterates govt stance that recent BOJ move on YCC tolerance band was not exit from easing, but way to make easing sustainable. - North Korea drone briefly flew over South Korea's capital Seoul city; In total, five North Korean drones crossed the border (1st time since 2017). Ukraine conflict - Russia Pres Putin: We are ready to negotiate some acceptable outcomes on Ukraine with all parties involved in the conflict; The aim of special military operation is unification of the Russian nation. Europe - ECB's Knot (Netherlands) stated that the tightening cycle had only passed halfway point and needed to be there for longer. Energy - Russia Dep PM Novak: Oil production to reach 490-500Mt during 2023. Speakers/fixed income/fx/commodities/erratum  Equities Indices [Stoxx600 +0.22% at 428.40, FTSE closed, DAX +0.53% at 14,015.45, CAC-40 +0.81% at 6,557.38, IBEX-35 +0.42% at 8,304.00, FTSE MIB +0.30% at 23,949.00, SMI +0.45% at 10,853.50, S&P 500 Futures +0.65%]. Market Focal Points/Key Themes: European indices open higher across the board, but paird gains as the session wore on; UK, Ireland closed for holiday; better performing sectors include materials and financials; lagging sectors include industrials and consumer discretionary; no major corporate events expected in the upcoming US session, Canada closed for holiday. Equities - Financials: Banca Monte Paschi [BMPS.IT] +1% (ECB drops dividend ban). - Healthcare: METabolic EXplorer [METEX.FR] -18% (financing; targets), Gedeon Richter [RIG2.DE] -4% (Hungary tax raise for drugmakes). - Industrials: Volkswagen [VOW3.DE] +1% (China reopening). - Technology: Mycronic [MICR.SE] +1.5% (order). - Real Estate: Unibail-Rodamco-Westfield [URW.NL] -1% (divestment). Speakers - Russia Fin Min Siluanov announced that it would only purchase Chinese yuan (CNY) for the Wellbeing fund in 2023. - Taiwan President Tsai Ing-Wen noted that China continuous expansion had threatened regional security: Announced it would extend mandatory military service to 1 year from 2024. - Taiwan govt extended central bank governor Yang term to Feb 2028. Currencies/fixed income - USD was on the defensive again as risk appetite rose after China announced it would scrap its COVID-19 quarantine rule for inbound travelers. The move was viewed as major step towards reopening its borders. - USD/JPY back above 133 as various Japanese officials continued to downplay the recent tweak in BOJ policy. PM Kuroda and BOJ Gov Kuroda both downplayed any near-term exit from ultra-loose monetary policy. Economic data - (FI) Finland Dec Consumer Confidence: -18.5 v -16.9 prior; Business Confidence: -8 v -8 prior. - (TH) Thailand Nov Customs Trade Balance: -$1.3B v -$0.1Be. - (NO) Norway Nov Retail Sales M/M: +0.9% v -0.2% prior. - (CZ) Czech Dec Business Confidence: 3.9 v 4.5 prior; Consumer Confidence Index: -32.0 v -30.8 prior; Composite Confidence (Consumer & Business): -3.3 v -2.6 prior. - (TW) Taiwan Nov Leading Monitoring Indicator: 12 v 18 prior. - (CH) Swiss weekly Total Sight Deposits (CHF): 542.7B v 542.9B prior; Domestic Sight Deposits: 506.4B v 510.2B prior. Fixed income issuance - None seen. Looking ahead - (RO) Romania Nov M3 Money Supply Y/Y: No est v 7.0% prior. - 05:15 (CH) Switzerland to sell 12-month Bills; Avg Yield: % v -0.740% prior; Bid-to-cover: x v 4.25x prior. - 05:25 (EU) Daily ECB Liquidity Stats. - 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills; Avg Yield: % v 13.73% prior; bid-to-cover: x v 1.35x prior (Dec 20th 2022). - 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €1.28B with 23 bids recd). - 06:00 (BR) Brazil Dec FGV Construction Costs M/M: 0.3%e v 0.1% prior. - 06:45 (US) Daily Libor Fixing. - 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed). - 07:30 (BR) Brazil Nov Total Outstanding Loans (BRL): No est v 5.215T prior; M/M: No est v 1.0% prior; Personal Loan Default Rate: No est v 5.9% prior. - 08:00 (UK) No Daily Baltic Dry Bulk Index (Boxing Day). - 08:30 (US) Nov Advance Goods Trade Balance: -$96.3Be v -$99.0B prior. - 08:30 (US) Nov Preliminary Wholesale Inventories M/M: 0.4%e v 0.5% prior; Retail Inventories M/M: -0.1%e...