US PPI came in at 0.1% mom, 0.8% yoy, versus expectation of 0.2% mom, 0.8% yoy. PPI core came in at 0.1% mom, 1.4% yoy, versus expectation of 0.2% mom, 1.5% yoy.
Canada capacity utilization rose to 76.5% in Q3, below expectation of 77.8%.
Johnson: UK looks very, very likely to leave EU on World Trade terms
UK Prime Minister Boris Johnson told reporters today that there are “two key things” stuck in the Brexit trade negotiations with the EU. The UK is now “very very likely ” to come out of the EU “on World Trade terms”, i.e., no-deal Brexit.
“There are two key things where we just can’t seem to make progress and that’s this kind of ratchet clause they’ve got in to keep the UK locked in to whatever they want to do in terms of legislation, which obviously doesn’t work,” Johnson said. “And then there is the whole issue of fish where we’ve got to be able to take back control of our waters.”
“It is looking very, very likely that we will have to go for a solution that I think would be wonderful for the UK, and we’d be able to do exactly what we want from January 1 – it obviously would be different from what we’d set out to achieve but I have no doubt this country can get ready and, as I say, come out on World Trade terms,” he added.
ECB Vasiliauskas doesn’t prefer shooting out stimulus with a machine gun
ECB Governing Council member Vitas Vasiliauskas said he has reservation about the new easing package, which could provide too much extra stimulus for the economy. Though, he considered the decision good and positive yesterday. He added, “my position was that we need to shoot selectively rather than with a machine gun, without care.”
Another Governing Council member Robert Holzman said the PEPP limit “can be used up but the expectation is that it will not be fully used.”. He emphasized, “PEPP limit is a backstop, we do not want to pump more into the market than necessary.”
EU von der Leyen: Positions remain apart on fundamental issues with UK
European Commission President Ursula von der Leyen said after the EU summit “positions remain apart on fundamental issues” in the the post-Brexit trade negotiations with the UK. They would decide on Sunday “whether we have conditions for an agreement, or not”. But, “one way or the other, in less than three weeks, it will be new beginnings for old friends”.
She insisted that EU’s proposals would not undermine UK’s sovereignty. On the level playing field, “this is not to say that we would require the UK to follow us every time we decide to raise our level of ambition, for example, in the environmental field,” she added. “They would remain free – sovereign if you wish – to decide what they want to do. We would simply adapt the conditions for access to our market accordingly the decision of the United Kingdom, and this would apply vice versa.”
GBP/CHF heads to 1.1598 support as no-deal Brexit fear intensifies
Sterling is back under heavy selling pressure today, as Reuters reported the European Commission President Ursula von der Leyen told the 27 EU leaders that the probability of a no-deal Brexit is higher than of a deal. UK Prime Minister Boris Johnson also said openly yesterday that there is a “strong possibility” of a no-deal.
The Pound is breaking some near term technical levels everywhere, including 1.3223 support in GBP/USD, 137.90 support in GBP/JPY and 0.9142 resistance in EUR/GBP. GBP/CHF also drops through 1.1797 support decisively today, confirm that the rebound from 1.1598 has completed at 1.2003. Further fall should now be seen as long as 1.1977 resistance holds, towards 1.1598 support.
For the moment, we’re seeing price actions from 1.2259 as a sideway pattern. Thus, strong support could be seen around 1.1598 to bring rebound. However, it should be noted that GBP/CHF has been clearly capped by 55 week EMA, maintaining medium term bearishness. Hence, sustained break of 1.1598 would raise the chance that it’s actually resuming long term down trend through 1.1102 low.
Bundesbank: Exports to be a solid pillar of German economic recovery
Germany’s Bundesbank said economy recovery is “likely to b e interrupted for the time being as the coronavirus pandemic “flared up again in autumn”. Though, a “similarly severe impairment” as in Spring is “not to be expected.
It projects GDP to dropped -5.5% this year. For 2021 and 2022, strong economic growth of 3% and 4.5% is expected, then slow down to 1.8% in 2023. “GDP will already reach its pre-crisis level again in early 2022”.
“Due to the economic upturn in key partner countries, German exports should be a solid pillar of the economic recovery,” Bundesbank added.
ECB Villeroy: Aim of PEPP is not to invest a certain amount each month
ECB Governing Council member Francois Villeroy de Galhau told BFM Business radio the aim of the  Pandemic Emergency Purchase Programme (PEPP) was not “to invest a certain amount each month, but rather a result”. “We will do less if the financing conditions remain favorable like today. If the opposite is needed, we will do more,” he said.
ECB announced yesterday to raise the envelop of the PEPP by EUR 500B, and extend the program by 9 months through March 2022.
Villeroy also reiterated that “we do not have an exchange rate target … but we have a strong vigilance about the effects of the exchange rate on inflation. We are ready as a result of this vigilance to use all our instruments.”
AUD overpowers CAD and NZD as iron ore prices skyrocket
Australian Dollar surges broadly today and even over-powers other commodity currencies. Surging iron ore prices are seen as a factor driving the moves. Iron ore entered a stage of parabolic rally after authorities at Pilbara Ports, the world’s largest iron ore export terminal, issued a cyclone warning, exacerbating an already tight market.
AUD/NZD’s strong rebound now argues that corrective fall from 1.1043 might have completed at 1.0418, just ahead of 61.8% retracement of 0.9994 to 1.1043 at 1.0395. Break of 55 day EMA is a bullishness and further rise is expected as long as 1.0568 support holds. Focus is now on key resistance at 38.2% retracement of 1.1043 to 1.0418 at 1.0657. Decisive break there will firm affirm near term bullish reversal and target 61.8% retracement at 1.0804 and above.
AUD/CAD’s break of 0.9617 resistance also indicates resumption of rebound from 0.9247. It’s possibly that rise from 0.8066 is resuming too. But AUD/CAD would need to take out 0.9696 high to confirm. In the case, next upside target is 38.2% projection of 0.8066 to 0.9696 from 0.9247 at 0.9870. Break of 0.9456 support would extend the consolidation form 0.9696 with another falling leg instead.
BoC Beaudry: Could reassess the effective lower bound, but still positive, policy rate
In a speech, BoC Deputy Governor Paul Beaudry reiterated in a speech that “whatever the outcome, the Bank remains committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”
“The exit strategy for our QE program is tied to our inflation goals. We will pursue quantitative easing until our economic recovery is well underway,” he added.
He also emphasized, “should things take a more persistent turn for the worse, we have a range of options at our disposal to provide additional monetary stimulus… It could also include reassessing the effective lower bound, which would allow for the possibility of a lower — but still positive — policy rate.”
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New Zealand BusinessNZ manufacturing rose to 55.3, ending 2020 on a positive note
New Zealand BusinessNZ Performance of Manufacturing Index rose to 55.3 in November, up 2.9 pts. Production rose 3.4 pts to 55.4. New orders surged 4.8 pts to 57.6. However, Employment dropped -0.9 pts to 51.5.
BusinessNZ’s executive director for manufacturing Catherine Beard said, “overall, the sector is shaping up to end 2020 on a positive note, which would be a considerable contrast to what was seen during the first half of the year.”
BNZ Senior Economist, Doug Steel said that “as a measure of change, the PMI suggests that the manufacturing sector continues to move in the right direction after getting hit hard earlier in the year by COVID related restrictions.”
RBNZ Orr: Adding house prices considering could make monetary policy less effective
RBNZ published a detailed response to request from Finance Minister Grant Robertson regarding adding consideration of house prices into monetary policy. Governor Adrian Orr warned, “adding house prices to the monetary policy objective would be unique internationally, which could make monetary policy less effective and impact financial market efficiency.”
Instead, “if you wish to strengthen the Reserve Bank’s role in relation to house prices, our recommendation is that this would be best achieved by amending our financial policy remit.” “There are considerably less trade-offs between the Reserve Bank’s financial policy objective, of a sound and efficient financial system, and stable house prices,” Orr wrote. “It would also enable the Reserve Bank to use financial policies that can be specifically targeted at key drivers of the housing market.”
UK Johnson: Get ready for that Australian option with EU
UK Prime Minister Boris Johnson warned yesterday’s that there’s now a “strong possibility” of leaving the EU with no-deal. He has asked the cabinet to “make those preparations”. though, negotiation will continue until the newly set deadline of Sunday.
He said, “I do think we need to be very, very clear. There is now a strong possibility – a strong possibility – that we will have a solution that is much more like an Australian relationship with the EU than a Canadian relationship with the EU.”
“What I told the cabinet this evening is to get on and make those preparations. We’re not stopping talks, we’ll continue to negotiate but looking at where we are I do think it’s vital that everyone now gets ready for that Australian option,” Johnson said.
CAD/JPY breaks 81.91 high, takes AUD/JPY and NZD/JPY higher
CAD/JPY leads commodity Yen crosses generally higher today. CAD/JPY’s break of 81.91 resistance suggests resumption of whole rise from 73.80. Near term outlook will stay bullish as long as 81.16 support holds. Next target is 61.8% projection of 73.80 to 81.91 from 77.91 at 82.92.
AUD/JPY also breaches 78.46 high, suggesting that rise from 59.89 is resuming. Near term outlook will stay bullish as long as 76.90 support holds. Next target is 38.2% projection of 59.89 to 78.46 from 73.13 at 80.22.
Now, we’s have to see if NZD/JPY with catch up with a break of 74.03 resistance too. In that case, next target is 100% projection of 63.45 to 71.66 from 68.86 at 77.07.
NIESR expects -1.5% fall in UK GDP in Q4
NIESR estimated that UK economy activity fell by -9.3%, a smaller drop than during the full lockdown in Spring. As for Q4, there would be a -1.5% decline in activity, following 9.7% mom growth in December. They now expect GDP at year end to be some -8.5% lower than it was at the end of 2019.
“Today’s ONS data show that the fourth quarter got off to a ponderous start even before the second lockdown in England was imposed. Survey data suggest that although the economic impact of the second lockdown in November was smaller than the first, it does seem more likely than not that the final quarter of the year will show little or no overall growth in GDP with the recovery shuddering to a halt. While the rollout of the vaccine offers some positive momentum, the final act of Brexit is likely to offset that in the early months of 2021.” Rory Macqueen Principal Economist – Macroeconomic Modelling and Forecasting
US initial jobless claims surged to 853k, continuing claims rose to 5.8m
US initial jobless claims rose 137k to 853k in the week ending December 5, well above expectation of 723k. Four-week moving average of initial claims rose 35.5k to 776.0k.
Continuing claims rose 230k to 5757k in the week ending November 28. Four-week moving average of continuing claims dropped -260k to 5936k.
CPI came in at 0.2% mom, 1.2% yoy in November. CPI was core at 0.2% mom, 1.6% yoy.
ECB President Lagarde press conference live stream
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USD/CAD downside breakout, EUR/CAD heading back to 1.5313 low
USD/CAD breaks through 1.2768 temporary low as brief consolidations completes. Current down trend should now target 100% projection of 1.3389 to 1.2928 from 1.3172 at 1.2711 next. Break will target 161.8% projection at 1.2426.
EUR/CAD is also breaking 1.5447 support to confirm completion of whole rebound from 1.5313, at 1.5710. Fall from there should now target a test on 1.5313 low. Also such decline is seen as the third leg of the corrective pattern form 1.5978, break of 1.5313 should bring a test on lower channel support (now at 1.5247).
 
ECB raises PEPP envelop by EUR 500B, extends to March 2022
ECB announced a package of measures today, including expanding and extending the pandemic emergency purchase programme (PEPP). The measures are “to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability.” ECB also stands ready to ” stand ready to adjust all of its instruments, as appropriate”
The central bank left main refinancing rate unchanged at 0.00% as widely expected. Marginal lending rate and deposit rate are held at 0.25% and -0.50% respectively. The  asset purchase programme (APP) purchase will continue at a monthly pace of EUR 20B.
The envelop of the pandemic emergency purchase programme (PEPP) is raised by EUR 500B to a total of EUR 1850B. The program will also be extended to “at least the end of March 2022”. The third series of targeted longer-term refinancing operations (TLTRO III).is extended by 12 months to June 2022, with three additional operations to be conducted between June and December 2021. The  total amount that counterparties will be entitled to borrow in TLTRO III operations from 50 per cent to 55 per cent of their stock of eligible loans. ECB also decided to extend the collateral easing measures to June 2022. Four additional pandemic emergency longer-term refinancing operations (PELTROs) will be offered in 2021.
EU announces targeted contingency measures in case of no-deal Brexit
The European Commission announced today a set of “targeted contingency measures” in case of no-deal Brexit on January 1, 2021. The measures aim at ” ensuring basic reciprocal air and road connectivity between the EU and the UK, as well as allowing for the possibility of reciprocal fishing access by EU and UK vessels to each other’s waters.”
President von der Leyen said: “Negotiations are still ongoing. However, given that the end of the transition is very near, there is no guarantee that if and when an agreement is found, it can enter into force on time. Our responsibility is to be prepared for all eventualities, including not having a deal in place with the UK on 1 January 2021. That is why we are coming forward with these measures today”.
UK and EU to go the extra mile in Brexit talks, GBP/CHF and EUR/GBP gapped but range bound
UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to “go the extra mile” and extend the Brexit trade negotiations beyond Sunday’s deadline. “Despite the exhaustion after almost a year of negotiations, despite the fact that deadlines have been missed over and over, we think it is responsible at this point to go the extra mile,” they said in a joint statement. “We have accordingly mandated our negotiators to continue the talks and to see whether an agreement can even at this late stage be reached,” they added. UK delegation are expected to stay in Brussels until at least Tuesday.
GBP/CHF opens notably higher today but it’s kept well below 55 day EMA, staying on the lower half of the medium term range. Bias is turned neutral for now. We’d maintain that firm break of 1.2203 resistance is needed to confirm underlying bullish development in the cross. Meanwhile, firm break of 1.1598 support is needed to confirm bearish development, probably due to confirmation of no-deal Brexit. Otherwise, we’ll just wait-and see what’s next.
Similarly, EUR/GBP opens lower but it’s held well above 55 day EMA, in the upper side of recent range. Break of 0.8861 support is needed to confirm completion of the choppy rebound from 0.8670. Otherwise, another rise through 0.9229 and 0.9291 resistance zone is expected, at a later stage.