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The Canadian dollar continues to improve, and has posted considerable gains in the Wednesday session. Currently, USD/CAD is trading at 1.2644, down 0.33% on the day. On the release front, there are no Canadian events this week. In the US, there are two key indicators on Wednesday. The markets are expecting a strong release from CB Consumer Confidence, with an estimate of 128.2 points. Pending Home Sales is forecast to decline by 0.4%.

USD/CAD is down 1.9% since December 20, as the Canadian dollar continues to rally. The currency shrugged off a weak Canadian GDP report on Friday, which came in at 0.0%, shy of the estimate of 0.2%. There is plenty of slack in the Canadian economy, although red-hot growth south of the border has helped, as 75% of Canadian exports are sent to the U.S. The GDP release was a disappointment, but key consumer indicators beat their estimates last week. Retail Sales sparkled with a gain of 0.8% in October, well above the forecast of 0.4%. This was the indicator's highest gain since April. As well, CPI improved to 0.3%, a five-month high. This edged above the estimate of 0.2%.

The US economy received an excellent report card late last week, as Final GDP posted a strong gain of 3.2%, just shy of the Preliminary GDP reading of 3.3%. With the US economy posting growth above 3% for another quarter, the Federal Reserve remains on track for another rate hike in January. The CME Group has pegged the odds of a January hike at 100%, and if the economy continues its current pace, the Fed could raise rates up to four times in 2018. Inflation remains a sore point, as the Fed target of 2.0% remains well out of reach. Fed Chair Janet Yellen and other FOMC members have said they expect that the strong labor market will lead to higher inflation, but the Fed has demonstrated that it is willing to press ahead with rate hikes despite low inflation.

Here are the latest developments in global markets:

FOREX: A strong rally in metal and oil prices on Tuesday continued to support the loonie, the aussie and the kiwi against the dollar during early European trading hours on Wednesday. The aussie and the kiwi hit fresh two-month highs at $0.7768 (+0.53%) and $0.7073 (0.50%) respectively, while dollar/loonie extended its downleg towards a three-week low at 1.2650 (-0.30%). The euro rose to an intra-day high of $1.1890 (0.25%) and the pound reached a one-week high of $1.3413 (+0.25%). The dollar was flat versus the yen at 113.27, while the dollar index was weaker overall, trading at 93.11 (-0.16%).

STOCKS: Losses in tech shares drove European stocks lower on Wednesday, following comments stating that iPhone X demand in the first quarter could come below expectations. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.05% at 1000 GMT. The Spanish IBEX 35 declined by 0.20%, falling for the second consecutive session. The German DAX 30 and the French CAC 40 were steady, whereas the British FTSE 100 was up by 0.12%.

COMMODITIES: Oil prices retreated from more than two-year peaks reached on news of a pipeline blast in Libya. Moreover, the UK's most important Forties pipeline returned to operation but will fully resume its activities in early January. WTI crude lost 0.70% on the day, falling to $59.55 per barrel and Brent slipped by 1.13% to $66.26. Gold increased by 0.20% to $1,285.60 per ounce.

Day ahead: US consumer confidence & housing data due; Japan reports on retails sales and IP later in the session

Wednesday is anticipated to be a relatively quiet day for trading in a holiday-shortened week.

Looking at the calendar, US data on consumer confidence and pending home sales are expected to come out at 1500 GMT, while the American Petroleum Institute will report on the US crude oil inventories for the week ending Friday 22 at 2145 GMT.

According to forecasts, consumer confidence is projected to drop to 128.1 in December after reaching a 17-year high in the previous month, while pending home sales are anticipated to slow down by 0.5% m/m in November, following October's growth by 3.5%. The dollar, which is on track to finish the year in the red as it has already lost 9.0% versus its major counterparts in the year to date period, could weaken in the wake of worse-than-expected stats.

At 2350 GMT, Japan will publish figures on retail sales and flash estimates on industrial production. Growth in industrial output is projected to stand flat at 0.5% m/m in November but retail sales are said to surge by 1.1% y/y in November. However, the safe-haven yen is likely to show a moderate reaction to the data as increasingly as of late the currency has been more sensitive to monetary policy announcements rather than to economic releases.

German stock markets are open after a two-day break, and the DAX has lost ground in the Wednesday session. Currently, the index is at 13,040.50, down 0.25% on the day. There are no eurozone or German indicators on the schedule, so traders can expect a quiet Wednesday session.

European stock markets dropped considerably after last week's election in Catalonia. The DAX has declined 1.8% since the election, as investors reacted negatively to the results, which showed a majority for the pro-independence parties. The vote is a stinging rebuke for Spanish Prime Minister Mariano Rajoy, who imposed direct rule on the region after Catalan leader Carles Puidgemont declared independence from Spain. Rajoy's heavy-handed approach has not hampered the pro-independence movement, and Spain could be headed for more political turmoil in the coming months.

It's a light week on the fundamental side, so investors will be keeping a close eye on Germany Final CPI, which will be released on Friday. The markets are predicting a strong gain of 0.5%. In November, the indicator improved to 0.3%, marking a 4-month high. In the eurozone, annual average inflation also inched higher to 1.5% in November, up from 1.4% in October. This marked a multi-year high. In a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.

• Markets Flat in Thin Trade;
• Oil Off its Highs After Libya Outage;
• Bitcoin Recovers But Remains Well Below Pre-Christmas Highs.

Markets Flat in Thin Trade

It's been a relatively flat start to trading on Wednesday, broadly speaking, and US futures suggest more of the same is to come.

This period between Christmas and New Year is often very quiet, with politicians and central banks endeavouring to wrap everything up ahead of the holiday period. With the US having got tax reform over the line last week and kicked the budget issue back to January at the last minute, investors have been left with little to turn their attention to.

News flow aside, trade during this week is often very thin with large numbers of people taking the week off and the lack of volatility we've seen so far isn't exactly drawing traders back in. With the data calendar not looking particularly full over the coming days, I don't hold much hope for conditions improving dramatically.

Oil Off its Highs After Libya Outage

There are pockets of the market where we have seen some volatility though, most notably oil, which hit a two and a half year high yesterday on reports of supply disruptions in Libya. A reported pipeline explosion could reduce production by between 70,000 and 100,000 barrels a day, which was significant enough to trigger the surge in thin trade.

Oil prices had already been lifted by an outage in the Forties pipeline, affecting 400,000 barrels a day, although repairs have since taken place. While these stories have had temporary impacts on the oil price, I wonder how much higher prices can now go in the longer term, with efforts to rein in production having been largely priced in. US production is on the rise again which will remain a challenge for the industry and could cap any rallies next year.

Bitcoin Recovers But Remains Well Below Pre-Christmas Highs

Bitcoin is going to continue to fascinate traders heading into the new year and while volatility by its own standards has been tame today, it's likely to remain very active. Speculators appetite for Bitcoin has been tested in the run up to Christmas, with price having fallen from around $20,000 to not far from half that less than a week later, depending on the exchange.

While prices have since rebounded back to around $15,000, it will be interesting to see whether we see the kind of wild gains that we've become accustomed to in the coming months, or whether the recent decline has shaken people's confidence in the cryptocurrency.

Brent crude oil futures for February printed six positive daily closes and added more than 7% to its performance extending their gains to a 2-½-year high of 67.06. The upward tendency started after the retest of the ascending trend line, which has been holding since October.

The next level to have in mind is the 161.8% Fibonacci extension level at 68.15, with the low at 62. and the high at 65.80. On the downside, if the price fails to rise further, it could hit again the 65.80 support barrier and then continue its bullish movement.

From the technical point of view, in the very short-term timeframe, the three simple moving averages are pointing up, while the technical indicators are holding within the overbought zones. The RSI indicator is flattening and the MACD oscillator is moving higher above its trigger line.

Having a brief look on the daily timeframe, the RSI is trying to jump above the 70 level and the MACD is standing above the zero and trigger lines, indicating that the outlook for the next few days is a further upside potential move.

EUR/USD continues to have a quiet week. Currently, EUR/USD is trading at 1.1887, up 0.24% on the day. In economic news, there are no eurozone events on the schedule. In the U.S, the markets are expecting a strong release from CB Consumer Confidence, with an estimate of 128.2 points. Pending Home Sales is forecast to decline by 0.4%.

Recent US housing reports beat expectations, and the markets are hoping for a similar result from Pending Home Sales. Last week, Housing Starts came in at 1.30 million, beating the forecast of 1.25 million. On Tuesday, New Home Sales sparkled, with a gain of 733 thousand. This easily beat the estimate of 654 thousand, and was the highest reading since September 2007.

The week of Christmas is light on fundamentals, with only a handful of economic indicators. On Friday, Germany releases Final CPI, with the markets forecasting a strong gain of 0.5%. If Final CPI meets or exceeds the estimate, the euro should gain some ground against the US dollar. In November, the indicator improved to 0.3%, marking a 4-month high. In the eurozone, annual average inflation also inched higher to 1.5% in November, up from 1.4% in October. This marked a multi-year high. In a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.

European stock markets are trading marginally higher
Bitcoin crossed briefly below 11K on Friday and crosses above 16K yesterday

A thin volume trading is a general theme across the markets. European stock markets are trading marginally higher. Most traders are away on their holiday and we do not expect much action in the markets, however, the general portfolio rebalancing trade would be the most common feature between now and the end of this year.

Markets are looking at the energy market and crude oil crossing the $60 mark has engaged some traders. We have not seen the oil prices crossing this mark in the past two years. A pipe blast in Libya is the major reason behind the move.

The roller coaster ride for cryptocurrency is something which many would pay attention today. Bitcoin crossed briefly below 11K on Friday and crosses above 16K yesterday. Perhaps, it may be safe to say that the miserable five days sell off for the crypto King, Bitcoin, may be over. As long as we stay above the recently formed bottom, the path of least resistance is skewed to the upside.

The demand for Bitcoin is unlimited while supply is capped and if this continues to be the case, we do see the Bitcoin price touching the 40K mark in late 2018 or early 2019. Rival currencies such as Litecoin and ethereum have also bounced back up from their lows because the typical theme of rising tide lifts all the boats is supporting the sentiment. The biggest exchange for Bitcoin, Coinbase, issued a warning yesterday on their site by informing traders it is experiencing high volume and transaction processing time may be delayed by several hours.

As we trade towards the final days of the year, the market is seeing lighter volume due to the shortened week. The Economic Calendar is light for the days ahead. However there are still data releases and traders are taking positions.

US Oil Rig Counts from Baker Hughes was released on Friday evening. The headline number remained unchanged at 747. Natural Gas came in at 184 against the previous figure of 183. Totals were 931 against the previous 930. WTI Crude moved very little after the data release and finished the session on Friday at around $58.31. However, Oil gained after a pipe line in Libya was sabotaged on Boxing Day. The explosion damaged a pipe line feeding the port of Es Sider and reducing supply by 90,000 bpd. The price gained $1 to trade at the highest levels since June 2015 and stopped short of the $60.00 mark.

US S&P/Case-Shiller Home Price Indices (YoY) (Oct) was out on Tuesday at 6.4% v 6.3% from a previous reading of 6.2%. GBPUSD moved higher with the data from 1.33502 to 1.33677. An hour and 30 minutes later, Dallas FED Manufacturing Business Index (Dec) data came in at 29.7 v 20.0 expected. The previous data was 19.4. This sent GBPUSD higher again to the 1.33748 area where there was a brief pause before the next leg up commenced.

Coming up on Thursday 28th, US initial Jobless Claims are expected to come in at 240K, down from the previous 245K. US EIA Crude Oil Stocks data will be out. The Forecast is for -5.504M compared to -6.495M last week.

EURUSD is up 0.19% overnight, trading around 1.18811.

USDJPY is little changed in early session trading at around 113.197.

GBPUSD is flat trading around 1.33833.

USDCHF is largely unchanged this morning trading around 0.98897

Gold is unchanged in early morning trading at around $1,282.50.

WTI is down 0.17%, trading around $59.76.

Major data releases for today:

At 07:00 GMT Swiss UBS Consumption Indicator (Nov) is expected with the prior number of 1.54.

At 11:00 GMT Swiss ZEW Survey – Expectations (Dec) will be released. The previous number was 40.7. Any deviation from this number may create volatility in Swiss Franc crosses.

At 15:00 GMT US Pending Home Sales (MoM) (Nov) expected at -0.5% from a prior reading of 3.5%. Pending Home Sales (YoY) (Nov) data will also be released. Last month this figure was 1.2%. USD pairs may see movement in price action as a result of data missing forecasts.

Notes/Observations

European market steady following holiday break - Various companies' comments on impact from US tax reform

Asia:

China Nov Industrial Profits Y/Y: 14.9% v 25.1% prior (slowest rise since April)

PBoC: Skips OMO operation for 4th straight session; Net drain CNY40B v CNY50B drain prior

PBoC Adviser Sheng said to forecasts CNY currency (CNY) yuan consolidation after recent gains from mid-December

China delays 3-way summit with Japan and South Korea; Japan Chief Cabinet Sec Suga later stated that was aiming for summit with China and South Korea next spring

Japan Nov Annualized Housing Starts: 951K v 934Ke; Y/Y: -4.2% v -2.5%e

Europe:

Russia said to limit US open skies access, starting Jan 1st; in response to planned US curbs

Economic Data:

(CH) Swiss Nov UBS Consumption Indicator: 1.67 v 1.68 prior

(FI) Finland Dec Consumer Confidence: 24.0 v 23.0 prior; Business Confidence: 18 v 15 prior

(CZ) Czech Dec Business Confidence: 17.1 v 16.2 prior; Consumer Confidence: 7.5 v 7.8 prior,

(ES) Spain Nov Adjusted Retail Sales Y/Y: 2.0% v +0.8%e; Retail Sales (unadj) Y/Y: +2.9% v -1.2% prior

(CH) Swiss Dec Credit Suisse Expectations Survey: 52.0 v 40.7 prior

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR110B indicated in 3-month, 6-month and 12-month bills

(IT ) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated range in Zero Coupon Oct 2019 CTZ bonds; Avg Yield: -0.221% v -0.337% prior; Bid-to-cover: 2.11x v 2.19x prior

(IT ) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: -0.457% v -0.436% prior; Bid-to-cover: 1.43x v 1.86x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 closed, FTSE closed, DAX closed, CAC-40 closed, IBEX-35 closed, FTSE MIB closed, SMI closed, S&P 500 Futures +0.1%]

Market focal points/key themes: European stocks open mixed, but tracked higher as the session progressed; trading light in holiday session; tech stocks impacted by reports of disappointing iPhone sales; energy stocks supported as crude hovered near two-year high; materials supported by increases in commodity prices, including gold and copper (highest since 2014); IWG confirms press speculation has received a potential takeover offer; attention turning to upcoming Redbook index and pending home sales in the US

Equities

Consumer discretionary [International Workplace Group IWG.UK +30.9% (potential takeover offer)]

Energy [Saipem SPM.IT +3.3% (contract awards)]

Financials [Banca Carige CRGI.IT -3.4% (completed capital increase), Banco BPM BAMI.IT +2.7% (CEO comments)]

Healthcare [Nanobiotix NANO.FR +7.7% (IND from FDA), Poxel POXEL.FR +3.6% (initiates Phase III trial), Qiagen QIA.DE -1.2% (US tax impairment)]

Industrials [AB Volvo VOLVA.SE +0.4% (Geely acquires Cevian's stake), Vallourec VK.FR +3.4% (analyst action)]

Technology [AMS AMS.CH -10.0% (iPhone sales), Dialog Semi DLG.DE -4.7% (iPhone sales), STMicroelectronics STM.FR -2.1% (iPhone sales)]

Speakers

France PM Macron saw labor reform impact within 18-24 months and reiterates his view that view that 2017 budget deficit to GDP ratio to comply with 3% limit

Germany Foreign Min Gabriel: Reiterates SPD won't join coalition if Merkel blocks EU reform

Bank of Spain (BOS) Monthly Report: Sees growth losing intensity in coming years. Q4 GDP growth seen at 0.8% as exports help to offset some of the uncertainty in Catalonia

Nigeria Central Bank: Jan monetary policy meeting uncertain as MPC lacks quorum

India govt official stated that it could meet FY17/18 fiscal deficit target if central bank (RBI) and State-run banks paid an additional dividend

South Korea Ministry of Strategy and Finance Semi-annual economic outlook maintained its 2018 GDP growth forecast at 3.0% while trimming 2018 CPI from 1.8% to 1.7%

Pipeline feeding into Libya Es Sider Port said to need about a week to repair; loadings down approx 50% following the blast

Currencies

FX markets saw little price movement as quiet trading persisted in the aftermath of the Christmas holiday with overall volumes very thin. Dealer began assessing possible trends for 2018 noting that monetary policy convergence could weigh on the USD in 2018 as central banks other than the Fed had begun moving away from monetary stimulus, or started to raise interest rates.

Both the EUR/USD and GBP/USD pairs were slightly higher by 0.2%

Canadian dollar did register a 3-week high in wake of rise in oil prices aided by reports of an explosion at a Waha Oil pipeline that fed into the key Es Sider terminal in Libya

China's off-shore Yuan currency fell for the 1st time in three sessions and off its 3-month high after PBoC Adviser Sheng suggested that CNY currency (CNY) yuan would consolidate after recent gains from mid-December

Fixed Income

Bund futures trade 161.97, up 20 ticks

Guilt futures trade 124.77, up 17 ticks

Corporate issuance - closed for the year

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

06:00 (RU) Russia to sell combined RUB35B in OFZ 2020 and 2024 bonds

06:30 (CL) Chile Central Bank's Traders Survey - 06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Nov Total Formal Job Creation: +22.0Ke v +76.6K prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:05 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

08:55 (FR) France Debt Agency (AFT) to sell combined €3.3-4.5B in 3-month and 6-month BTF Bills

09:00 (MX) Mexico Nov Trade Balance: -$0.4Be v -$2.1B prior

09:00 (EU) Weekly ECB Forex Reserves:

10:00 (US) Dec Consumer Confidence: 128.0e v 129.5 prior

10:00 (US) Nov Pending Home Sales M/M: -0.5%e v +3.5% prior; Y/Y: No est v 1.2% prior

10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills

11:30 (US) Treasury to sell 2-Year Floating Rate Notes

12:00 (FR) France Nov Net Change in Jobseekers: No est v +8.0K prior, Total Jobseekers: No est v 3.484M prior

13:00 (US) Treasury to sell 5-Year Notes

14:00 (AR) Argentina Oct Economic Activity Index (Monthly GDP) M/M: No est v 0.1% prior; Y/Y: 4.7%e v 3.8% prior

16:00 (KR) South Korea Jan Business Manufacturing Survey: No est v 82 prior; Non-Manufacturing Survey: No est v 80 prior

16:30 (US) Weekly API Oil Inventories

The euro continues to remain in demand against the U.S dollar, with the pair now pushing back towards the 1.1900 handle. The EURUSD trades around the 1.1880 level, with dip buyers helping to create bullish technical higher price-lows on the charts. The U.S dollar is under marginal selling pressure, as Asian investors move into riskier asset classes, with commodity related currencies leading the way. The main event for financial markets on Wednesday will be the release of U.S Consumer Confidence and Pending Homes sales data later today.

The EURUSD remains intraday bullish while trading above the 1.1880 level, buyers may now target towards the 1.1900 and 1.1940 resistance levels.

Should the EURUSD pair start to dip below the 1.1880 level, sellers may push the euro towards the 1.1860 and 1.1830 levels.