US TSYS: Leaning Bear Flatter As Fed Muses On QT End

• Goldman Sachs highlight four key elements to watch in the December CPI report:
• i) “our forecast assumes a 34bp drag on headline inflation from the start of the GST/HST tax holiday in mid-December, but we acknowledge significant uncertainty around how the cumulative 70bp tax holiday drag will be distributed across the December and January inflation releases.”
• ii) “we expect a spike in energy inflation, but soft food inflation due to the sales tax holiday on several food items such as restaurant meals.”
• iii) “we forecast an uptick in homeowners’ replacement cost inflation—reflecting higher new house prices—and a slight moderation in rent prices, as asking prices declined for the third consecutive month.”
• iv) “we expect mortgage interest cost inflation will continue to moderate following rate cuts.”

• RES 4: 0.6429 High Dec 12
• RES 3: 0.6384 High Dec 13               
• RES 2: 0.6335 50-day EMA   
• RES 1: 0.6302 High Jan 6
• PRICE: 0.6261 @ 16:49 GMT Jan 20 
• SUP 1: 0.6131 Low Jan 13   
• SUP 3: 0.6100 Round number support
• SUP 3: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
• SUP 4: 0.5994 1.618proj of the Sep 30 - Nov 6 - 7 price swing

A bearish trend condition in AUDUSD remains intact and the latest recovery appears corrective. The pair has recently breached 0.6179, Dec 31 low, maintaining the price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. Scope is seen for an extension towards 0.6100. Resistance at 0.6229, the 20-day EMA, has been pierced. The next resistance to watch is 0.6335, the 50-day EMA.

• Desjardins warn that the December CPI report will “need to be carefully parsed as the GST holiday will drive at most 12% of the basket materially lower.”
• They see headline CPI falling -0.3% M/M for an unchanged 1.9% Y/Y. “Were it not for the tax holiday, base effects would probably have pushed headline inflation up to 2.2% from 1.9%.”
• “The GST holiday aside, some components of inflation could rebound in December due to particularly aggressive Black Friday discounts that held back price growth in November.”
• “The Bank of Canada’s preferred measures of core inflation rely on pre‐tax data and so will be shielded from any adjustments to taxes.”
• “Still, the trimmed-mean measure now includes mortgage interest costs, which is biasing the calculation higher. As such, we will be looking at the Bank of Canada’s core measures excluding shelter to get a better gauge of underlying inflationary pressures.”