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Small Business Optimism jumped 3.7 points in November to 107.5, with 8 of the 10 components posting increases. The gain brought Small Business Optimism to its highest level in 34 years.

Small Business Owners Are Looking Forward to Tax Reform

The improved prospects of meaningful tax reform have provided a significant boost to small business confidence. The National Federation of Independent Business (NFIB) Index of Small Business Optimism rose 3.7 points in November to 107.5, bringing the closely watched index to its second-highest level in its 44-year history. Eight of the 10 components of the survey increased during the month, with most of the gain coming from a 16-point jump in Expected Business Conditions and a 13-point rise in Sales Expectations. The improvement in small business confidence is meaningful and suggests employment growth and business fixed investment should maintain strong momentum going into the new year.

Taxes and regulation have consistently ranked as two of the most important problems facing small business owners. A great deal of progress has already been made at reducing the impact of existing regulations and slowing the pace of new regulations, which is one of the reasons why small business confidence had improved as much as it had before the tax debate began. Now, with the prospects of meaningful tax reform seemingly within reach, small business confidence has risen even further.

Business owners' focus on taxes and regulations is understandable. Small business owners tend to wear many hats. Business owners often simultaneously serve as the chief operating officer, head of human resources, chief compliance officer and top sales person. The more time business owners devote to figuring out how to comply with regulations or minimize their taxes, the less time they have to grow their business.

With regulations being scaled back and taxes set to be cut, more business owners report that now is a good time to grow their business. The proportion of firms stating that now is a good time to expand rose 4 points to 27 percent in November, which is back to its high for this cycle. While plans to expand increased, plans to make additional capital outlays in the next six months slipped 1 point in November to a still solid 26 percent. Plans to increase employment rose 6 points in November.

While hiring plans rose, actual hiring moderated. Thirteen percent of firms reported hiring workers, while 10 percent said they reduced employment. Fifty-two percent of business owners either hired workers or tried to hire workers, but 44 percent reported they had few or no qualified applicants. Difficulty finding qualified workers has become a more critical problem for business owners, particularly for construction firms and manufacturers.

The improvement in Small Business Optimism suggests tax reform may provide a more meaningful boost to economic growth in 2018. Small Business Optimism picked up well ahead of the economy as a whole in 2017, and major changes in the index have proven to be a reliable leading indicator, particularly for capital spending and employment.

The Euro fell to the session low at 1.1741 after better than expected US PPI data sent dollar higher across the board.

Fresh easing broke below pivotal support at 1.1756 (converged 30/55SMA's) and generating bearish signal for test of Friday's spike low at 1.1730 and possible extension towards next important supports at 1.1709/06 (Fibo 61.8% of 1.1553/1.1961 rally/daily cloud base).

Long upper shadows on daily candles of Monday/today, additionally weigh on near-term action.

Fed's verdict tomorrow would confirm negative scenario for the euro on hawkish rate hike.

Res: 1.1756; 1.1792; 1.1810; 1.1833
Sup: 1.1730; 1.1706; 1.1661; 1.1650

USD/CAD - 1.2852

Trend:  Near term up

 
New strategy             :

Buy at 1.2765, Target: 1.2915, Stop: 1.2705

Position: -

Target:  -

Stop:-

The greenback met resistance at 1.2880 and minor consolidation is in store, however, reckon downside would be limited to 1.2750-60 and bring another rise, above 1.2880 would extend the rebound from 1.2623 towards resistance at 1.2917 but break there is needed to confirm upmove has resumed for headway to 1.2975-80 (61.8% Fibonacci retracement of 1.3547-1.2061), then towards psychological resistance at 1.3000.

In view of this, would not chase this rise here and would be prudent to buy on subsequent pullback as 1.2750-60 should limit downside. Only below 1.2705-10 would abort and prolong choppy trading, bring weakness to 1.2650-55, however, downside should be limited and price should stay above said support at 1.2623, bring another rebound later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

EURUSD: The pair looks to resume its short term downtrend following its upside price rejection. Resistance comes in at 1.1800 level with a cut through here opening the door for more upside towards the 1.1850 level. Further up, resistance lies at the 1.1900 level where a break will expose the 1.1950 level. Conversely, support lies at the 1.1700 level where a violation will aim at the 1.1650 level. A break of here will aim at the 1.1600 level. Below here will open the door for more weakness towards the 1.1550. All in all, EURUSD faces further downside pressure short term.

The cross eased to 0.8800 support on Tuesday after rejection at 0.8850 zone where upside attempts in past few sessions were repeatedly rejected. Resistance is marked by sideways-moving 30SMA and reinforced by falling 20SMA which is attempting to form bear-cross and increase pressure. Today's action was contained at 0.8800 by converged 10/200 SMA's which are also on track to form death-cross and signal fresh extension lower on break. Overall bearish daily techs keep the downside at risk with firm break below 0.8800 and 0.8778 pivots (200SMA/daily Tenkan-sen) needed to signal reversal and trigger stronger retracement of two-day 0.8689/0.8848 rally. Plethora of resistances provided by daily MA's (20/30/55 SMA) and thick daily cloud, continues to weigh on near-term action. Only sustained break above 0.8850/60 resistance zone would provide relief and signal extension of recovery rally from 0.8689 (08 Dec low).

Res: 0.8850; 0.8860; 0.8877; 0.8912
Sup: 0.8785; 0.8748; 0.8726; 0.8689

Daily Pivots: (S1) 1.1750; (P) 1.1780 (R1) 1.1799; More....

Intraday bias in EUR/USD remains neutral at this point. Focus stays on 1.1712 cluster support (61.8% retracement of 1.1553 to 1.1960 at 1.1708). Decisive break there will indicate that rebound from 1.1553 has completed at 1.1960. In that case, deeper fall would be seen to 1.1553 and possibly below to extend the decline from 1.2091. Meanwhile, with 1.1712 support intact, break of 1.1814 minor resistance will retain near term bullishness. And in that case, intraday bias will be turned back to the upside for 1.1960. Break will target 1.2091 high.

In the bigger picture, rise from 1.0339 medium term bottom is seen as a corrective move for the moment. Therefore, in case of another rally, we'd be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. Meanwhile, sustained trading below 55 week EMA (now at 1.1423) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Daily Pivots: (S1) 1.3302; (P) 1.3366; (R1) 1.3403; More....

GBP/USD dips mildly as consolidative trading from 1.3549 continues. Intraday bias remains neutral at this point. As long as 1.3220 support holds, we'd continue to favor another rise. On the upside, break of 1.3549 will target 1.3651 high next. However, firm break of 1.3220 will turn near term outlook bearish for 1.3038 key support level.

In the bigger picture, while the medium term rebound from 1.1946 low was strong, it's limited below 1.3835 key support turned resistance. As long as 1.3835 holds, we'd view such rebound as a correction. That is, we'd expect another leg in the long term down trend through 1.1946 low. However, sustained break of 1.3835 should at least send GBP/USD to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.

Daily Pivots: (S1) 0.9897; (P) 0.9919; (R1) 0.9942; More....

USD/CHF recovers mildly after drawing support from 4 hour 55 EMA. But it's staying in consolidation from 0.9977. Intraday bias remains neutral for the moment. We'd holding on to the view that correction from 1.0037 has completed at 0.9734 already. Also, rise from 0.9420 might be resuming. On the upside, above 0.9977 will target 1.0037 high first. Break will extend the rise from 0.9420 to 61.8% projection of 0.9420 to 0.9734 from 1.0047 at 1.0115 next. Nevertheless, firm break of 0.9881 support will dampen this immediate bullish case and turn bias to the downside for 0.9734 instead.

In the bigger picture, range trading continues between 0.9420/1.0342. At this point, 0.9420 appears to be a strong support level. Therefore, in case of decline attempt, we don't expect a firm break of this level. Nonetheless, strong break of 1.0342 is also needed to confirm upside momentum. Otherwise, medium term outlook will stay neutral.

Daily Pivots: (S1) 113.30; (P) 113.49; (R1) 113.74; More...

USD/JPY is staying in consolidation in tight range below 113.68 temporary top. Intraday bias remains neutral at this point. As long as 111.98 support holds, further rally is expected in the pair. On the upside, above 113.68 will extend the rise from 110.83 to 114.73 resistance first. Decisive break there will resume whole rise from 107.31. More importantly, that will confirm completion of medium term correction from 118.65 at 107.31. In that case, retest of 118.65 should be seen next. However, break of 111.98 support will extend the correction from 114.73 with another fall, possibly to 61.8% retracement of 107.31 to 114.73 at 110.14 before completion.

In the bigger picture, we're holding on to the view that correction from 118.65 is completed a 107.31. And medium term rise from 98.97 (2016 low) is resuming. Sustained break of 114.73 should affirm our view and send USD/JPY through 118.65. However, break of 107.31 will dampen this will and extend the medium term fall back to 98.97 low.

Dollar trades with an undertone for most of the day, but it's trying to regain some ground after stronger than expected up stream inflation data. Nonetheless, momentum is so far too weak for the greenback to resume recent rebound. Traders will still likely wait for tomorrow's CPI data and FOMC statement/projections before making up their minds. Meanwhile, Sterling also fails to ride on stronger than expected CPI data and is stuck in tight range. Commodity currencies remain the strongest ones for today and for the week.

US PPI hit near 6 year high

US headline PPI rose 0.4% mom, 3.1% yoy in November, versus expectation of 0.4% mom, 3.0% yoy. The annual rate is notably higher than October's 2.8% yoy. That's also the fastest pace in nearly six years since January 2012. PPI core rose 0.3% mom, 2.4% yoy, versus expectation of 0.2% mom, 2.4% yoy. Annual rate of PPI core was unchanged from October's figure, which was the fastest since 2014.

UK CPI above 3% for the first time since nearly six years.

UK CPI accelerated to 3.1% yoy in November, up from 3.0% yoy and beat expectation of 3.0% yoy. Core CPI was unchanged at 2.7% yoy. The Office for National Statistics Head of Inflation Mike Prestwood comments and said that "CPI inflation edged above 3 per cent for the first time in nearly six years, with the price of computer games rising and airfares falling more slowly than this time last year. These upward pressures were partly offset by falling costs of computer equipment." BoE Governor Mark Carney is required write a letter on inflation should CPI exceeds 1% above the 2% target. But such letter would be released later in February, together with the Quarterly Inflation Report.

Also from UK, RPI slowed to 3.9% yoy. PPI input accelerated to 7.3% yoy, PPI output rose to 3.0% yoy, PPI output core also jumped to 2.2% yoy. House price index rose 4.5% yoy in October, slowed from 5.4% yoy.

German ZEW weakened but economic outlook stays positive

German ZEW economic sentiment dropped to 17.4 in December, down from 18.7, below expectation of 17.9. Current situation gauge, nonetheless, improved to 89.3, up from 88.8 and beat expectation of 88.7. Eurozone ZEW economic sentiment also dropped to 29.0, down from 30.9 and below expectation of 30.2. ZEW President Achim Wambach said in the press release that "overall, the outlook for the German economy in the coming six months remains positive. The current state of uncertainty surrounding the government formation in Germany has not had any significant impact on the assessment of the economic outlook. Financial market experts, however, expect to see negative effects resulting from this with regard to the Brexit negotiations as well as EU reforms."

Australia business conditions dropped sharply

Australia NAB business conditions dropped sharply by -9 to 12 in November, down from 21. Business confidence dropped -2 to 6, down from 8. NAB chief economist Alan Oster noted that "we expected to see last month's spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders." Also, "we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment."

For Australia, sluggish wage growth is a key concern for keeping inflation low. But Oster noted that "we saw some tentative signs of higher wages in the survey, although that does appear to be weighing on the confidence of some firms as well." However, "prices are rising the most in mining, while retail and personal services prices are the softest - a reflection of the cautious spending behavior by consumers."

Also from Australia house price index dropped -0.2% qoq in Q3, below expectation of 1.5% qoq.

From Japan, Domestic CGPI rose 0.4% mom, 3.5% yoy in November. Tertiary industry index rose 0.3% mom in October.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.30; (P) 113.49; (R1) 113.74; More...

USD/JPY is staying in consolidation in tight range below 113.68 temporary top. Intraday bias remains neutral at this point. As long as 111.98 support holds, further rally is expected in the pair. On the upside, above 113.68 will extend the rise from 110.83 to 114.73 resistance first. Decisive break there will resume whole rise from 107.31. More importantly, that will confirm completion of medium term correction from 118.65 at 107.31. In that case, retest of 118.65 should be seen next. However, break of 111.98 support will extend the correction from 114.73 with another fall, possibly to 61.8% retracement of 107.31 to 114.73 at 110.14 before completion.

In the bigger picture, we're holding on to the view that correction from 118.65 is completed a 107.31. And medium term rise from 98.97 (2016 low) is resuming. Sustained break of 114.73 should affirm our view and send USD/JPY through 118.65. However, break of 107.31 will dampen this will and extend the medium term fall back to 98.97 low.

Economic Indicators Update