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In focus today

In the euro area, the Sentix indicator will give us the first indication of the European investor confidence in December.

Overnight, the Reserve Bank of Australia (RBA) will have a monetary policy meeting. We expect an unchanged rate decision, which is the clear base case by consensus as well. Markets price in a very slim (10%) chance of RBA initiating its rate cutting cycle.

The rest of the week will be eventful with several key releases. In China, the top leadership will meet on Wednesday and Thursday to discuss the economic priorities for the coming year. Wednesday's star of the show is the US CPI for November, and Bank of Canada also announces its rate decision on the same day. On Thursday, the Swedish inflation is out in the morning, followed by the SNB's monetary policy decision. The ECB announces their deposit rate on Thursday afternoon. Early on Friday, the BoJ's extensive quarterly Tankan Business survey is released.

Economic and market news

What happened overnight

In China, inflation for November was weaker than expected printing 0.2% y/y (cons: 0.5%), and -0.6% m/m (cons: -0.4%). Lower fresh food prices and continued factory deflation contributed to the weaker inflation.

What happened since Friday

In the US, the job market rebounded on Friday after the impact of hurricanes and strikes. Non-farm payrolls for November came in higher than expected at 227k (cons: 200k). Additionally, September and October numbers were revised up by a total of 56k. The unemployment rate, less affected by one-offs, crept up to 4.2% in November. At the same time, labour force participation edged down to 62.5%, contrasting with the stronger-than-expected job growth. Wage growth was unchanged at 0.4% m/m (cons: 0.3% m/m). The uptick in the unemployment rate supports our call for a 25bp cut at next week's meeting.

After the release, various Fed policymakers shared their views. The SF Fed President Daly (a hawk and a voting member) said the labour market is strong and indicated no objection to a December rate cut. However, she called for a more cautious approach as the policy rate near its settling point. The Fed Governor Bowman (a hawk and a voting member) and the Cleveland Fed President Hammack (a voting member) echoed a gradual, cautious stance amid the still-elevated inflation and sound labour market. Lastly, the Chicago President Goolsbee (a dove and a non-voting member) mentioned that he expects rates to come lower over the next year and noted that an unexpected jump in inflation or a surprise tightening of the job market could alter the Fed's course.

The University of Michigan's consumer sentiment survey showed that the consumer sentiment rose for the fifth straight month in December, climbing to 74. Consumers' inflation expectations were more mixed, as 1-year expectations increased to 2.9% (prior: 2.6%), whereas 5-year expectations declined slightly to 3.1% (prior: 3.2%).

In the euro area, compensation per employee, the ECB's preferred wage growth measure, declined to 4.4% y/y in Q3 - much in line with their September staff projection estimate of 4.5%. With quarterly growth at 0.9% q/q SA, momentum is also easing, supporting the view of underlying inflation converging towards the 2% target.

The labour market remained resilient in Q3 with employment up 0.2% q/q. However, hours worked were unchanged at 0.0% q/q indicating that more people are working on short-term schemes, and the overall labour market is stagnant. That said, there were marked differences across countries, with employment rising in Spain, but declining in Germany. While we expect the labour market to cool further in the year ahead, the overall labour market should remain strong in a historical context, which will support private consumption.

Lastly, GDP data revealed surprisingly strong domestic demand with investments rising 2.0% q/q (cons: -0.5%) and household consumption up 0.7% q/q (cons: 0.6%). While these dynamics bode well for growth, as domestic demand is projected to be the main growth driver next year, we remain cautious since data is volatile on a quarterly basis. In fact, we have revised down our forecast for growth in H1 due to continued struggle in the manufacturing sector, cautious consumers and the weak German economy. For more details, please see Research euro area - Still breathing, 5 December.

In Germany, industrial production for October surprised to the downside, printing -1.0% m/m SA (cons: 1.2%), reflecting the struggling German manufacturing sector.

In Norway, manufacturing production came in at -1.6% m/m, taking the 3M/3M to -0.6 %. Hence, it seems like the strong momentum in the manufacturing sector during Q3 is fading, in line with the signals from leading indicators. The slowdown is based on both mainland exports and oil-related industries. For now, the manufacturing sector will add some downside during Q4.

In the Middle East, President Bashar al-Assad's regime collapsed as Syrian rebels seized the capital, Damascus. Assad and his family are reportedly in Moscow, where they have been offered asylum. The ending of the Assad family's iron-fisted rule is yet another loss for the Russia-Iran axis, and a victory for Turkey who has been long supporting Syrian opposition. The new regime may struggle to rebuild the nation's foreign relations. The main armed opposition group - Hayat Tahrir Al-Sham (HTS), originally an offshoot of Al-Qaeda, is designated a terrorist group by both the US and the EU. The Gulf states also oppose HTS. Hence, uncertainty prevails.

In South Korea, President Yoon Suk Yeol survived the impeachment on Saturday, as members of his party, People Power party (PPP), boycotted the vote. PPP has announced that Yoon will be excluded from his duties, also saying that they would find a "more orderly, responsible" way to negotiate Yoon's exit.

Equities: Global equities were higher on Friday, with the MSCI world index ending last week 1.5% higher. Cyclicals outperformed defensives by 1% on Friday and a total of almost 4% last week. This is extraordinary, especially considering that 7 out of 10 sectors were lower last week. Hence, we currently have a very narrowly led market, particularly by the three heavyweight sectors: technology, consumer discretionary, and communications services. The AI, growth, and technology-led rally also resulted in large caps outperforming small caps last week. That said, looking outside the news catching US, we had Stoxx 600 outperforming the S&P500 last week and European markets showing broad-based sector gains. With the NFP data coming in benign on Friday, the VIX took another leg lower, down to 12.6. In the US on Friday: Dow -0.3%, S&P 500 +0.3%, Nasdaq +0.8%, and Russell 2000 +0.5%. Asian markets are mostly lower this morning, led by South Korea, with the government crisis continuing. US and European markets show very little change this morning, and financial markets are barely taking notice of the Syrian news over the weekend.

FI: It has been an eventful week in the financial markets on the back of the political turmoil in France, where the French government bond market has showed strong resilience against the political turmoil and the spread between 10Y OATs relative to Bunds has tightened.

FX: The USD opened steady following the collapse of the Syrian government, entering a week marked by US CPI data and monetary policy decisions from the ECB, SNB, RBA, and BoC. EUR/USD remained largely stable after Friday's consensus-aligned jobs report, trading within the 1.05-1.06 range. USD/JPY eased to around the 150 level, reflecting lower US yields post-NFP. EUR/CHF is trading just below 0.9290, with markets turning attention to Thursday's SNB meeting. Meanwhile, EUR/SEK saw upward momentum on Friday, hovering near 11.55. NOK struggled at the end of last week, with EUR/NOK rising from the low 11.60s to just below 11.80.

Daily Pivots: (S1) 1.4057; (P) 1.4111; (R1) 1.4211; More...

Focus stays on 1.4177 resistance in USD/CAD. Decisive break there will resume larger up trend. Next target is 1.4391 projection level. Rejection by 1.4177 will delay the bullish case and bring more consolidations. But outlook will continue to stay bullish as long as 1.3980 support holds.

In the bigger picture, up trend from 1.2005 (2021) is in progress. Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391. Now, medium term outlook will remain bullish as long as 1.3418 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.6356; (P) 0.6407; (R1) 0.6441; More...

Intraday bias in AUD/USD stays neutral a this point. Current fall from 0.6941 is in progress for 0.6348 support. Firm break there will target 0.6269 support next. On the upside, above 0.6455 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another fall.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term consolidation to the down trend from 0.8006. More sideway trading could be seen above 0.6169, but overall outlook will stay bearish as long as 0.6941 resistance holds. Firm break of 0.6169 will resume the down trend to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806 next.

Daily Pivots: (S1) 149.33; (P) 150.01; (R1) 150.66; More...

USD/JPY is staying in consolidation from 148.64 and intraday bias stays neutral. Further fall is in favor as long as 151.94 resistance holds. On the downside, below 148.64 will strengthen the case that rise from 139.57 has already completed at 156.754. Deeper fall should then be seen to 61.8% retracement of 139.57 to 156.74 at 146.12 next. Nevertheless, firm break of 151.94 resistance will revive near term bullishness and bring retest of 156.74 high.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8743; (P) 0.8781; (R1) 0.8825; More…

Breach of 0.8796 support turned resistance suggests that USD/CHF's corrective pullback from has completed at after drawing support from 55 D EMA (now at 0.8738). Intraday bias is back on the upside for retesting 0.8956 high. However, considering head and shoulder top pattern, firm break of the EMA will argue that whole rise from 0.8401 might have completed, and bring deeper decline to 61.8% retracement of 0.8401 to 0.8956 at 0.8613 next.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 1.0530; (P) 1.0580; (R1) 1.0618; More...

Intraday bias in EUR/USD is turned neutral again with current retreat. Rebound from 1.0330 short term bottom could still extend higher. But outlook will remain bearish as long as 55 D EMA (now at 1.0717) holds. On the downside, break of 1.0471 minor support will turn bias to the downside for retesting 1.0330 low. Firm break of 1.0330 will resumed the decline from 1.1213, and sustained trading below 1.0404 key fibonacci level will carry larger bearish implication.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2704; (P) 1.2758; (R1) 1.2793; More...

Intraday bias in GBP/USD is turned neutral again with current retreat. Rebound from 1.2486 short term bottom could still extend higher. But outlook will stay bearish as long as 55 D EMA (now at 1.2846) holds. On the downside, below 1.2615 minor support will bring retest of 1.2486 first. Firm break there will target 1.2298 cluster support zone. However, sustained break of 55 D EMA will argue that the near term trend has reversed, and targets 1.3047 resistance for confirmation.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.

Dollar and Yen saw modest recoveries in Asian session, driven by the cautious tone in financial markets as traders positioned themselves ahead of a crucial week for economic data and central bank announcements. Risk sentiment was subdued, with equities weakening on concerns over weaker inflation data from China. Adding to the caution, Fitch Ratings downgraded its growth forecasts for China for 2025 and 2026, citing risks from US tariffs and persistent domestic economic weaknesses.

In South Korea, political uncertainty has further weighed on investor sentiment. President Yoon Suk Yeol survived an impeachment vote over the weekend but faces mounting calls for resignation from within his own People Power Party. Yoon is also reported to be under criminal investigation for charges of treason and abuse of power related to his brief imposition of martial law last week. The turmoil has dragged KOSPI to its lowest level in over a year, exacerbating regional market jitters.

Looking ahead, the week’s major highlights include rate decisions from the RBA, BoC SNB, and ECB, alongside the pivotal release of US CPI data on Wednesday. With expectations of significant central bank action and economic data releases, volatility across forex markets is anticipated.

A focal point will be the performance of EUR/CHF, as traders assess the relative dovishness of ECB and SNB. Both central banks are expected to cut rates, but any dovish surprises from the ECB, particularly in its updated economic projections, could weigh heavily on Euro.

Technically, EUR/CHF staged a quick rebound after diving through 0.9209 key support back in November, but lacked follow through momentum for rally beyond 0.93 mark. The down trend from 0.9928 remains in force with the cross staying well clear of falling 55 D EMA. Any extra dovishness in this week's ECB meeting, particular around the new economic projections, would drive EUR/CHF for at least a retest of 0.9209 low.

In Asia, at the time of writing, Nikkei is down -0.10%. Hong Kong HSI is down -0.58%. China Shanghai SSE is down -0.22%. Singapore Strait Times is down -0.11%. Japan 10-year JGB yield is down -0.0084 at 1.045.

China's CPI falls to 0.2% yoy in Nov, PPI down -2.5% yoy, deflation pressures persist

China's CPI decelerated from 0.3% yoy to 0.2% yoy in November, below market expectations of 0.5% yoy, and marking its lowest level in five months. Persistent deflationary pressures highlight the urgency for stronger fiscal measures to reinvigorate the economy.

Food prices was the primary driver of inflation, surging by 1% yoy, with notable increases in vegetable and pork prices at 10% yoy and 13.7% yoy, respectively. However, core inflation, which excludes volatile food and energy prices, edged up only marginally to 0.3% yoy from 0.2% yoy.

Meanwhile, PPI improved, registering a -2.5% yoy decline in November compared to -2.9% in October, beating expectations of -2.9% yoy. While this marked the 26th consecutive month of negative readings, the moderation was attributed to a combination of existing and incremental policy measures alongside a recovery in domestic demand for industrial goods.

RBA hold, ECB and SNB cut, plus US CPI

This week’s financial calendar is packed four central bank meetings from RBA, BoC, SNB, and ECB, alongside key economic data such as US CPI, UK GDP, Japan’s Tankan survey, and Australia’s employment report.

RBA is widely anticipated to leave its cash rate unchanged at 4.35%. October’s monthly CPI held steady at 2.1%, a welcome development for policymakers concerned about resurgence in inflation pressures. However, with trimmed mean CPI jumping from 3.2% to 3.5%, there is no immediate catalyst for RBA to shift its cautious stance.

The decision for RBA to commence policy easing cycle would hinge on the upcoming quarterly CPI data for Q4, due in late January. By the February meeting, RBA will have a clearer picture of inflation trends and updated economic projections.

This week’s Australian employment report will also be critical, as RBA has consistently flagged tight labor market conditions as a significant obstacle to achieving disinflation.

BoC is widely expected to continue with aggressive policy easing, with another 50bps rate cut to 3.25%. Recent data indicated that unemployment rate spiked to an 8-year high (outside of the pandemic period) of 6.8^ in November. This at the same time inflation, including headline and core measures, were relatively steady at or be slightly above 2%. There is enough room for BoC to expedite interest rate to neutral. The key going forward is whether there is any indication on where the terminal rate would be.

SNB is likely to cut its policy rate, but the magnitude remains uncertain—either 25bps or a more aggressive 50bps. November inflation ticked up slightly to 0.7% but remains muted, while growth continues to lag due to weak demand from neighboring economies. A 25bps cut seems more probable, especially with ECB leaning toward a modest 25bps reduction rather than a 50bps move. SNB might prefer to conserve its monetary ammunition to counter any upward pressure on the Swiss Franc if ECB accelerates its easing pace later.

ECB faces a similarly delicate balancing act. While a 25bps cut to the deposit rate to 3.00% is broadly expected, since recent commentary suggests a 50bps move is unlikely to gain majority support. ECB is expected to reiterate its data-dependent, meeting-by-meeting approach. Nevertheless, the new economic projections may reveal how much downside risks are there for growth and inflation in 2025, providing hints about the urgency—or lack thereof—behind more aggressive easing measures.

In the US, November CPI report is the centerpiece of the economic docket. Headline inflation is expected to inch up from 2.6% to 2.7%, with core inflation holding steady at 3.3%. Such results, barring a significant upside surprise, are unlikely to prevent Fed from delivering a 25bps rate cut at its December meeting. However, the sticky steady inflation figures would strengthen the argument for a pause in January. That would also offer Fed an opportunity to assess the economic impact of the incoming administration’s policies.

Here are some highlights for the week:

• Monday: Japan GDP final; China CPI, PPI; Swiss SECO consumer climate; Eurozone Sentix investor confidence.
• Tuesday: RBA rate decision, Australia NAB business confidence; China trade balance; Germany CPI final; US NFIB small business index.
• Wednesday: New Zealand manufacturing sales; Japan BSI manufacturing index, PPI; US CPI; BoC rate decision.
• Thursday: Australia employment; SNB rate decision; ECB rate decision; Canada building permits; US PPI.
• Friday: New Zealand BNZ manufacturing; Japan Tankan survey; Germany trade balance; UK GDP, production, trade balance; Eurozone industrial production; Canada manufacturing sales, wholesale sales; US import prices.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2704; (P) 1.2758; (R1) 1.2793; More...

Intraday bias in GBP/USD is turned neutral again with current retreat. Rebound from 1.2486 short term bottom could still extend higher. But outlook will stay bearish as long as 55 D EMA (now at 1.2846) holds. On the downside, below 1.2615 minor support will bring retest of 1.2486 first. Firm break there will target 1.2298 cluster support zone. However, sustained break of 55 D EMA will argue that the near term trend has reversed, and targets 1.3047 resistance for confirmation.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.

China's CPI decelerated from 0.3% yoy to 0.2% yoy in November, below market expectations of 0.5% yoy, and marking its lowest level in five months. Persistent deflationary pressures highlight the urgency for stronger fiscal measures to reinvigorate the economy.

Food prices was the primary driver of inflation, surging by 1% yoy, with notable increases in vegetable and pork prices at 10% yoy and 13.7% yoy, respectively. However, core inflation, which excludes volatile food and energy prices, edged up only marginally to 0.3% yoy from 0.2% yoy.

Meanwhile, PPI improved, registering a -2.5% yoy decline in November compared to -2.9% in October, beating expectations of -2.9% yoy. While this marked the 26th consecutive month of negative readings, the moderation was attributed to a combination of existing and incremental policy measures alongside a recovery in domestic demand for industrial goods.

Key Highlights

• EUR/USD started a recovery wave above the 1.0520 resistance zone.
• A key rising channel is forming with support near 1.0500 on the 4-hour chart.
• GBP/USD is attempting to recover above the 1.2750 resistance zone.
• Crude Oil prices are again moving lower and might decline below $66.50.

EUR/USD Technical Analysis

The Euro started a recovery wave above the 1.0450 and 1.0500 levels against the US Dollar. EUR/USD climbed above 1.0520 to move into a short-term positive zone.

Looking at the 4-hour chart, the pair surpassed the 38.2% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low. The pair recovered above the 1.0600 resistance level and the 100 simple moving average (red, 4-hour).

On the upside, the pair could face resistance near the 1.0635 level. It is close to the 50% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low.

The first major resistance is near the 1.0665 level and the 200 simple moving average (green, 4-hour). A close above the 1.0665 level could set the tone for another increase. The next major resistance could be the 1.0800 level, above which the price could climb higher toward the 1.0880 resistance.

On the downside, immediate support sits near the 1.0520 level. The next key support sits near the 1.0450 level. Any more losses could send the pair toward the 1.0420 level.

Looking at Oil, the bears remained in action below the $72.50 resistance, and they might aim for a drop below $65.00 in the near term.

Upcoming Economic Events:

• US Wholesale Inventories for Feb 2024 (preliminary) – Forecast +0.2%, versus +0.2% previous.