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The Bank of Japan's fourth quarter tankan survey is due at 2350 GMT on Thursday. Big manufacturers' confidence in business conditions in Japan stood at a decade high in the third quarter, with fourth quarter projections indicating that positive momentum is to be maintained.

The Tankan big manufacturers index is expected to come in at 24 in Q4, reflecting its fifth consecutive quarterly rise and standing at its highest in 11 years. This compares to Q3's 22. Strong demand from foreign markets, in conjunction with corporate profitability exceeding expectations, are seen as boosting business confidence in the world's third largest economy. The Tankan big non-manufacturers index, a separate measure gauging sentiment in the services sector, is anticipated to remain at 23, its highest in two years.

It is not just overseas demand supporting sentiment though, but domestic as well. In the third quarter of the year the Japanese economy grew by 2.5% on an annualized basis, far exceeding forecasts of 1.5% and recording its seventh straight quarter of positive economic growth, the longest such stretch since the period between Q2 1999 and Q1 2001 during which the Japanese economy grew for eight straight quarters. The 2020 Tokyo Olympic Games are also promoting - and are expected to continue doing so - activity and sentiment in the nation.

Data on capital expenditure by big corporations are expected to show an increase in spending for the current fiscal year to March 2018 by 7.5% on an annualized basis, slightly below Q3's respective number of 7.7%.

Beyond the aforementioned releases, the respective data for small manufacturers and non- manufacturers will also be made public at 2350 GMT, with polls projecting an improvement in the numbers relative to the third quarter.

The tankan survey results may not be perceived as a typical market mover, but still more upbeat figures could lend some support to the yen. A strengthening Japanese currency relative to the US dollar - resulting in a weakening dollar/yen pair - could find support around the current level of the 200-day moving average at 111.63.

On the other hand, weaker-than-anticipated results could spur forex market participants to push dollar/yen higher. In such an event, the pair could meet resistance around 112.86, this being the current level of the 50-day moving average. Notice that price action is currently taking place close to this level. Stronger bullish movement might meet a barrier around December 12's one-month high of 113.74. Also, one should not disregard that beyond the release, US-related news definitely have the capacity to steer the pair in either direction.

December 17 (2350 GMT) will also see the release of Japanese trade data - exports, imports and trade balance - for the month of November. For the most part throughout 2017, year-on-year exports and imports grew by double digits in the months that preceded.

NZDUSD surged more than 1% on Wednesday to hit its highest level since October 20 at 0.7027. The strong up-move happened after a break out of a consolidation phase and has shifted the bias to the upside, though today's down move is attempting to threaten the positive bias.

Short-term trend signals on the 4-hour chart (20 and 50-period moving averages) are bullishly aligned and NZDUSD is expected to find support on dips for now.

The market became overbought following the peak at 0.7027 as was indicated by the RSI crossing above 70 and there was a subsequent pullback for the pair towards 0.6985 today. This level is expected to act as a strong short-term support and corresponds to the 23.6% Fibonacci retracement of the rise from the December 11 low of 0.6827 to Wednesday's 0.7027 peak.

A deeper retracement will risk eliminating the bullish bias but as long as NZDUSD remains above 0.6900 there is room for a push towards the key 0.7100 area. A clear break above Wednesday's high would indicate the market has clearly moved into a bullish phase.

USD/JPY has posted slight gains in the Thursday session. In North American trade, USD/JPY is trading at 112.64, up 0.10% on the day. On the release front, Japanese indicators were positive. Flash Manufacturing PMI improved to 54.2, and Revised Industrial Production rebounded with a gain of 0.5%, matching the forecast. Later in the day, Japan releases the Tankan Manufacturing and Non-Manufacturing Indices, with both indicators expected to improve to 24 points.

There were no surprises from the Federal Reserve, which raised rates on Wednesday, bringing the benchmark rate to a range between 1.25% and 1.50%. This marked the third rate hike in 2017, testimony to the strong performance of the US economy. The Fed statement was optimistic about the economy, noting that the labor market "remained strong". It also lowered its unemployment forecast in 2018 from 4.1% to 3.9%, and revised growth for 2018 from 2.1% to 2.5%. Despite this rosy prognosis, the dollar was broadly down after the announcement. Why? One reason is the sore point in the economy – inflation. The Fed has not changed its September forecast for rate hikes next year, with the Fed dot plot indicating that three rate hikes are projected for 2018. This disappointed some investors who would like to see four increases next year. As well, the rate statement said that the Fed did not expect the tax reform legislation to have any long-term effect on the economy, contradicting White House claims that the legislation would trigger substantial growth in the economy.

When the Bank of Japan implemented its radical stimulus plan, one of the primary goals was to eliminate deflation and push prices higher. Years later, however, the BoJ's inflation target of 2 percent remains elusive. However, the program has led to a sharp depreciation in the yen. This has led to sharp denunciations from the US and other countries, and criticism that the Bank was manipulating the yen was especially sharp when the dollar rose to around 120 yen. A weak yen has been a boon for exports and helped revive the manufacturing sector. A chief economist at the NLI Research Institute went as far as saying that the low yen has been a major accomplishment for the BoJ. According to this view, the BoJ is reluctant to signal the possibility of a taper of stimulus, since that could trigger a sharp rise in the yen. Clearly, the BoJ is closely following yen fluctuations, and currency movement will continue to be an important factor for the BoJ.

The Euro was sharply lower in the US session as the greenback received fresh boost from upbeat US retail sales which rose by 0.8% in November, strongly beating forecast for 0.3% increase.

US weekly jobless claims also surprised by falling to 225K vs forecasted rise to 239K, adding to fresh dollar's strength.

Fresh weakness commenced after extension of post-Fed rally stalled on approach to pivotal barrier at 1.1867 (Fibo 61.8% of 1.1961/1.1717 downleg) and accelerated after better than expected US data.

The latest move is generating negative signal after repeated failure to close above daily cloud top and subsequent weakness forming the right shoulder of H&S pattern on daily chart.

The H&S neckline lies at 1.1715 and break lower is needed to complete the pattern and signal further downside.

Daily studies are gaining negative tone as RSI turned south and probes below its 7-day MA and 14-day momentum is deeply in the negative territory.

Near-term bears are taking a breather above daily Kijun-sen (1.1773) where temporary footstep was found.

Prevailing bearish near-term tone could be expected while the price stays below 1.1800 (converging 10/100SMA's in attempt to form bear-cross.

Daily cloud top (1.1823) remains a key barrier and sustained break higher is needed to revive bulls.

Res: 1.1800; 1.1823; 1.1867; 1.1878
Sup: 1.1773; 1.1759; 1.1715; 1.1709

• European equity markets currently trade with small losses, recovering somewhat after the ECB meeting. US stock markets open with limited gains.
• Businesses across the euro zone are ending 2017 on a near seven-year high, with demand and price pressures picking up and forward-looking indicators pointing to a busy start to 2018. The EMU composite PMI climbed to 58.0 this month, its highest since February 2011 and beating the 57.2 forecast.
• Black Friday gave UK retailers a stronger-than-expected boost last month as discounts spurred Britons to snap up electrical appliances and other household products. The volume of goods sold in stores and online jumped 1.1% from October, the most in seven months. Sales excluding auto fuel rose 1.2%.
• US retail sales rose more than forecast in November (0.8% M/M from an upwardly revised 0.5% M/M). Core retail sales and the retail control group (which feeds into GDP) also rose by 0.8% M/M from upward revision to 0.4% M/M in October. US weekly jobless claims unexpectedly dropped to 225k, remaining near historically low levels.
• The ECB kept its policy rates unchanged as expected. The forward guidance on asset purchases and interest rates also remained the same. The central bank significantly raised the economic outlook in its new projections, citing greater confidence in the recovery. New inflation forecasts remain rather low though.
• Bank of England policy makers left interest rates unchanged, moving into a holding pattern after November saw their first hike in a decade. The MPC reiterated that "further modest increases" would probably be needed over the next few years if the economy performed as expected, without providing additional detail on the timing.
• The Norges Bank kept its policy rate unchanged at 0.5%. EUR/NOK declined from 9.85 to 9.75 as the central bank said in its monetary assessment report that "on the whole, the changes in the outlook and the balance of risks imply a somewhat earlier increase in the key policy rate." The central bank referred to "after autumn 2018".
• The Swiss National Bank expects inflation in Switzerland to exceed its target in three years -an indication of when it might exit its ultra-loose monetary policy. The SNB kept that policy in place, saying the Swiss franc weakened this year but remained"highly valued".
• Turkey's central bank raised the highest of the four interest rates it uses to set policy by a less-than-expected 50 bps, its first rate hike in eight months after inflation hit a 14-year peak last month. The Turkish lire tumbled with EUR/TRY rising from 4.5 to 4.6.

Rates

ECB lifts growth outlook, but hushes on inflation

Global core bonds lost ground today with US Treasuries underperforming German Bunds. Last night's sell-the-rumour, buy-the-fact reaction on the Fed's well-flagged rate hike proved to be short-lived. The central bank still intends to continue its tightening cycle in coming years, which is far from discounted in markets. EMU (December PMI survey) and US (November retail sales; weekly jobless claims) printed very strong. They added to bearish bond sentiment without having a direct impact. The ECB kept policy unchanged, but significantly upgraded its growth outlook, inflicting additional losses on the Bund. Dovishness on inflation limited the downside though. Overall, we think that losses could have been bigger given developments today and last night.

At the time of writing, changes on the US yield curve rise by 1.5 bps (30-yr) to 3.9 bps (5-yr). The German yield curve shifts 0.2 bps (30-yr) to 3 bps (5-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 5 bps (Spain/Portugal) with Greece outperforming (-12 bps).

The ECB kept its policy rates unchanged as expected. The forward guidance on asset purchases and interest rates also remained the same. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases. There was no discussion on cutting this link. The GC confirmed that from January 2018 it intends to continue to make net asset purchases under the asset purchase programme (APP), at a monthly pace of €30 bn, until the end of September 2018, or beyond, if necessary, and in any case until the GC sees a sustained adjustment in the path of inflation consistent with its inflation aim.

The ECB significantly raised the economic outlook in its new projections, citing greater confidence in the recovery. The central bank forecasts above trend growth in 2017 (2.4% from 2.2%), 2018 (2.3% from 1.8%), 2019 (1.9% from 1.7%) and 2020 (1.7%). Risks for this scenario are broadly balanced. Downside risks are mainly related to global factors and developments in FX markets. The central bank expects that the output gap will close in the course of next year. There has been a "significant" reduction in economic slack, which is an upgrade from the October assessment of a "gradual" reduction.

The strong economic momentum signals that inflation will pick up, but the ECB judges that an ample degree of monetary stimulus is therefore still needed. Headline CPI is likely to moderate in coming months because of the evolution in energy prices before gaining upward momentum. Core inflation is expected to rise gradually over the medium term. New inflation forecasts remain rather low though despite the upbeat economic outlook and despite the ECB's increasing confidence that inflation will return to target. The new forecasts (especially for 2020) give Draghi enough room to manoeuver and defend the current easy monetary policy stance. The ECB expects inflation to average 1.5% in 2017 (from 1.5%), 1.4% in 2018 (from 1.2%), 1.5% in 2019 (from 1.5%) and 1.7% in 2020. Muted wage growth keeps the ECB cautious.

Currencies

Diffuse news flow confines USD trading to tight ranges

There was plenty of eco and central bank news to guide global FX trading today. However, no theme succeeded to dominate trading. Eco data were strong both in the US and in EMU. The ECB also failed to bring a straightforward story to give euro trading a clear direction. EUR/USD trades currently slightly north of 1.18 area. USD/JPY hovers in the 112.60.70 area.

Asian equities opened mixed overnight, but ceded gradually ground. Chinese data printed close to expectations. The PBOC raised the rate for some reverse-repurchases, confirming its intention to curb (excessive) leverage. The dollar stabilized after yesterday's setback. EUR/USD traded in the 1.1825 area. USD/JPY changed hands in the 112.60/70 going into the start of European trading.

European markets initially didn't know how to react to yesterday's developments in the US. European PMI's (both manufacturing and services) confirmed that the EU economy is firing on all cylinders, moving higher from already exceptional levels. Core bond yields drifted gradually back north after yesterday's correction in the US. Interest rate differentials between the US and Europe remained slightly tighter compared to the levels on the screens yesterday before the Fed/CPI data. However they didn't narrow any further. EUR/USD traded sideways in an extremely tight range, roughly between 1.1810/45 going into the ECB policy decision and the US retail sales data.

The ECB as expected left its policy unchanged. The ECB substantially raised the growth forecasts for 2017/2019, but the 2020 inflation forecast remained at a relatively soft 1.7%. The ECB president also said that the forward guidance was not discussed today, but it might become an issue in the coming months. At the same time of the start the ECB press conference, US retail sales printed much stronger than expected and US jobless claims declined to a very low 225 000. So, plenty of divergent information for EUR/USD traders. For now, the dollar wins on points. EUR/USD trades again in the low 1.18 area. However, the picture remains highly indecisive. USD/JPY tries to move away from the post-Fed overnight low, supported by strong EMU and US eco data. However, the move also fails to gain traction, probably as equities are struggling. The pair hovers in the 112.75 area. Conclusion: plenty of (mostly good) news, but no clear direction for the dollar.

BoE fails to guide sterling trading

As was the case for EUR/USD trading, there was also no unequivocal story to guide sterling trading. UK November retail sales beat the consensus by a wide margin, but had only a temporary positive impact on sterling. The BoE as expected left is policy unchanged. The Bank sees last week's Brexit deal as reducing the chances of disorderly UK departure. However, the BoE also sees tentative signs that the economy might be slowing into the yearend. There were no specific indications that the BoE considers a next rate hike in the near/foreseeable future. UK PM May attends the EU summit in Brussels and tries to convince the 27 EU leaders to approve the proposal to move to the next stage of the negotiations. The deal is likely to be approved tomorrow. However, even in that scenario, plenty of hurdles will have to be removed. The conclusion for EUR/GBP is quite similar than to EUR/USD: plenty of interesting news but no clear story for sterling trading. EUR/GBP hovers around the 0.88 pivot. Cable trades in the 1.34 area.

USD/CHF - 0.9902

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9875

Kijun-Sen level                    : 0.9875

Ichimoku cloud top                 : 0.9910

Ichimoku cloud bottom              : 0.9908

Original strategy :

Exit long entered at 0.9860,

Position : - Long at 0.9860

Target :  -

Stop : -

New strategy  :

Buy at 0.9870, Target: 0.9970, Stop: 0.9835

Position : -

Target :  -

Stop : -

Although the greenback fell marginally to 0.9840, renewed buying interest emerged there and dollar has staged another rebound, consolidation with upside bias is seen for further gain to 0.9935-40 but break there is needed to retain bullishness and signal low is formed, bring further gain towards resistance at 0.9978, however, only break there is confirm recent upmove has resumed and extend headway to psychological resistance at 1.0000.

In view of this, we are looking to buy dollar again on pullback as 0.9865-70 should limit downside. Below said support at 0.9840 would extend the fall from 0.9978 top for retracement of recent rise to 0.9820, then towards 0.9790-95, having said that, near term oversold condition should limit downside and price should stay above 0.9755-60, bring rebound later.

GBP/USD - 1.3408

Most recent candlesticks pattern   : N/A

Trend                                 : Sideways

Tenkan-Sen level                 : 1.3433

Kijun-Sen level                    : 1.3404

Ichimoku cloud top              : 1.3351

Ichimoku cloud bottom        : 1.3338

Original strategy :

Buy at 1.3350, Target: 1.3450, Stop: 1.3315

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3350, Target: 1.3450, Stop: 1.3315

Position : -

Target :  -

Stop : -

As cable found good support at 1.3303 earlier this week and has staged a strong rebound, suggest low has been made there and consolidation with mild upside bias is seen for this rebound from 1.3303 to extend gain to 1.3475-80, then 1.3500, however, near term overbought condition would limit upside and price should falter below indicated resistance at 1.3432, bring another decline later.

In view of this, we are looking to buy cable on dips as 1.3345-50 should limit downside. Below 1.3320-25 would defer and suggest the rebound from 1.3303 has ended, bring retest of this level first, break there would extend the fall from 1.3550 top to 1.3280 and later 1.3250 but price should stay well above previous support at 1.3221.

EUR/USD - 1.1803

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1829

Kijun-Sen level                  : 1.1805

Ichimoku cloud top             : 1.1765

Ichimoku cloud bottom      : 1.1749

Original strategy  :

Exit short entered at 1.1835,

Position : - Short at 1.1835

Target :  -

Stop : -

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Yesterday’s strong rebound due to dollar’s broad-based weakness after Fed suggests a temporary low has been formed at 1.1717, hence consolidation above this level would be seen with mild upside bias and gain towards 1.1880 cannot be ruled out, however, near term overbought condition should prevent sharp move beyond 1.1900 and price should falter well below resistance at 1.1940, bring retreat later.

In view of this, would be prudent to stand aside in the meantime. Below 1.1775-80 would suggest an intra-day top is formed instead, bring weakness to 1.1750 but break of 1.1735-40 is needed to revive bearishness and signal the rebound from 1.1717 has ended, bring retest of this level.

Retail sales surged in November, giving more credence to the strong consumer confidence numbers. Retail sales surged 0.8 percent after an upward revision, from 0.2 percent to 0.5 percent in October.

Gasoline Sales Helped but Overall Retail Sales Were Strong

With the 0.8 percent increase in retail and food services sales in November, plus the upwardly revised October number, from 0.2 percent to 0.5 percent, the last quarter of the year is shaping up to be all that we had envisioned: this holiday season will be a merry one. Furthermore, the strength in retail sales gives credence to the strong increase we have seen for consumer confidence during the past year. That is, the U.S. consumer was highly upbeat going into the last quarter of the year.

The only negative reading for retail sales in November was motor vehicle & parts dealers' sales, which declined 0.2 percent. This was expected as the increase in automobile sales that followed hurricanes Harvey and Irma as people replaced hurricane damaged cars faded away.

It is true that gasoline station sales were up considerably, 2.8 percent, likely due to the recent increase in gasoline prices. However, sales at furniture & home stores were up a strong 1.2 percent while purchases at electronics & appliance stores were up a strong 2.1 percent. Meanwhile, sales from nonstore retailers surged 2.5 percent, which shows the continuous improvement of online retailers and their advance over the more traditional retail sales distribution channels. Furthermore, sales at building material & garden equipment & supplies dealers were also up a strong 1.2 percent, perhaps as a consequence of the rebuilding after the hurricanes, while sales at sporting goods, hobby, book & music stores were up 0.9 percent.

Clothing & clothing accessories stores' sales were up 0.7 percent while health & personal care stores' sales were up 0.4 percent. Meanwhile, sales at food & beverage stores inched up 0.2 percent while general merchandise stores' sales were flat. However, within this sector, sales at department stores, which is one of the weakest sectors of retail, managed to increase 0.3 percent during the month.

Rounding out the report, food services & drinking places' sales, which represent the service side of the retail report, increased a strong 0.7 percent. This sector had been slowing down for some time.

Strong Control Group Sales Good News for PCE and GDP

Perhaps the most market-changing release in November was the very strong control group sales print. Control sales, which are retail sales less food services, gas, automobiles and building materials, and used for the calculation of GDP, surged 0.8 percent in the month. Furthermore, October control group sales were also upwardly revised, from 0.3 percent to 0.4 percent. This means that we should expect another strong performance by the U.S. consumer during the last quarter of the year. The biggest question would probably be: where are consumers getting the money for this strong consumer performance with income growth remaining low?

USD/JPY - 112.63

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 112.73

Kijun-Sen level                  : 112.92

Ichimoku cloud top             : 113.44

Ichimoku cloud bottom      : 113.40

Original strategy  :

Exit long entered at 112.60,

Position :  - Long at 112.60

Target :  -

Stop : -

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the greenback recovered after finding support at 112.46, yesterday’s selloff suggests top has been formed at 113.75, hence upside would be limited to the Kijun-Sen (now at 112.96) and downside risk remains for the retreat from 113.75 to extend weakness to 112.30-35, however, near term oversold condition should limit downside and support at 111.99 should remain intact.

In view of this, would be prudent to stand aside in the meantime. Above previous support at 113.12 (now resistance) would suggest low is possibly formed, bring a stronger rebound to 113.40-45 but price should falter below resistance at 113.75 and bring another decline later.