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Daily Pivots: (S1) 1.1859; (P) 1.1901 (R1) 1.1967; More....

EUR/USD's rally continues today and edges higher to 1.1956 so far. Intraday bias remains on the upside and rise from 1.1553 should target a test on 1.2091 high. Break there will resume medium term up trend from 1.0339 and target 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494, which is close to 1.2516 long term fibonacci level. We'd expect strong resistance from there to bring reversal. On the downside, touching 1.1860 support will turn intraday bias neutral first. But break of 1.1712 support is needed to indicate completion of rise from 1.1553. Otherwise, outlook will remain cautiously bullish in case of retreat.

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 1.1393) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

There isn't a clear new direction in the forex markets today. Euro remains firm against as supported by economic outlook, and improving political situation in Germany. But the common currency is out-performed by commodity currencies. On the other hand, Dollar's recovery quickly lost momentum, with EUR/USD continuing to gyrate higher. The greenback is only performing slightly better than Swiss Franc, which trades as the weakest one so far. Overall, trading is rather quiet. Traders are holding their bets ahead of inflation data from US, Eurozone and Japan. Also, the development with US Senate tax bill and Germany coalition talks, as well as Brexit negotiations will also be the drivers later in the week.

Yen on the other hand, is out performing Europeans and Dollar.

Fed Governor Jerome Powell, President Donald Trump's nomination for the next Fed chair, will appears before the Senate Banking Committee on Tuesday for confirmation hearing. Powell's comments will be scrutinized for hints on how monetary policy direction would change in post-Yellen era. And more importantly, his view on inflation will catch most attentions. Meanwhile, current Fed chair Janet Yellen will also testify before Congress.

Tax plan to be floored in Senate

For now, the voting in Senate for the Republican's tax bill this week is the first hurdle to overcome. With a slim 52 majority, Republicans can only afford to lose two votes. Ron Johnson is so far the only Republican that's openly against the last version of the plan. In Johnson's view, large corporations are the ones getting most benefits, leaving small businesses behind. Also, the tax plan is not without oppositions from other Senate Republicans. Bob Corker is very concerned with raising deficit in the long-run. Susan Collins is unhappy that repeal of Obamacare individual mandate is tied to the plan.

It's reported that Senate Republicans are considering some last-minute changes to the tax bill to secure the votes before flooring this week. President Donald Trump hinted changes as he tweeted "the Tax Cut Bill is getting better and better". Generally, it's seen that this week is "make or break" for the tax plan.

Merkel will try to bring SPD back to grand coalition

A breakthrough in German politics was seen as SPD has agreed to discuss with CDU/CSU over the possibility of forming a government. While both a repeat of the grand coalition or a support of a CDU/CSU minority government are possible, it is believe that the former is more likely. On CDU/CSU side, Chancellor Angela Merkel got support from her allies for the grand coalition. Daniel Günther, A CDU member and Minister President of Schleswig-Holstein said that effectiveness won't come from a minority government but "instead an alliance with a parliamentary majority. That is a grand coalition." Leader of the Christian Social Union Horst Lorenz Seehofer also said that "an alliance of the conservatives and the SPD is the best option for Germany - better anyway than a coalition with the Free Democrats and the Greens, new elections or a minority government."

However, negotiations for rebirth of grand coalition is not necessarily easier than the Jamaican one, with migration and refugees issues also key points of contentions. According to Ralf Stegner, the SPD's deputy, his party objects that the upper limit policy on refugee arrivals", noting this "goes against the constitution and the Geneva Refugee Convention". Stegner added that the SPD "won't agree to an additional limit on the right to family reunification". Meanwhile, Alexander Schweitzer, SPD's leader in Rhineland Pfalz, requests more investment in education, housing and broadband, and relief to indebted communities. He warned that a new grand coalition remains "out of reach", unless CDU/CSU changes agrees to concede in the above important issues. Foreign Minister Sigmar Gabriel, the former leader of the SPD, sounded non committal as he said that no one should take the grand coalition for granted. But he added that Germany needs "a sufficiently courageous, majority-equipped government that is capable of action" as the leader in EU.

Merkel will meet with SPD leader Martin Schulz, CSU leader Seehofer and President Frank-Walter Steinmeier on Thursday.

UK PM May has one more week to improve Brexit offers

As requested by European Council President Donald Tusk, UK Prime Minister Theresa now has only a week left to come up with a improved offer for Brexit negotiation. EU officials will check the progress to see if sufficient progress was made to move on to trade talk during the December 14/15 summit. UK is starting to soften its stance on the divorce bill and it's reported that May is ready to double the amount offered. But the topic of Irish border has come to spotlight during the weekend.

UK's international trade secretary Liam Fox warned that "we can't come to a final answer to the Irish question until we get an idea of the end state." That is, according to Fox, the decision on Irish border won't be made before reaching a trade agreement with EU. And Fox blamed that "the quicker we can do that the better, and we are still in a position where the EU doesn't want to do that."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1859; (P) 1.1901 (R1) 1.1967; More....

EUR/USD's rally continues today and edges higher to 1.1956 so far. Intraday bias remains on the upside and rise from 1.1553 should target a test on 1.2091 high. Break there will resume medium term up trend from 1.0339 and target 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494, which is close to 1.2516 long term fibonacci level. We'd expect strong resistance from there to bring reversal. On the downside, touching 1.1860 support will turn intraday bias neutral first. But break of 1.1712 support is needed to indicate completion of rise from 1.1553. Otherwise, outlook will remain cautiously bullish in case of retreat.

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 1.1393) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
23:50	JPY	Corporate Service Price Y/Y Oct	0.80%	0.90%	0.90%
15:00	USD	New Home Sales Oct		627K	667K

GOLD: The commodity looks to extend upside pressure as it was seen following through higher on Monday. On the downside, support comes in at the 1,290.00 level where a break will turn attention to the 1,280.00 level. Further down, a cut through here will open the door for a move lower towards the 1,270.00 level. Below here if seen could trigger further downside pressure towards the 1,260.00 level. Conversely, resistance resides at the 1,300.00 level where a break will aim at the 1,310.00 level. A turn above there will expose the 1,320.00 level. Further out, resistance stands at the 1,330.00 level. All in all, GOLD looks to strengthen further on correction.

The British pound continues to press higher against the U.S dollar, with price-action now testing towards the former weekly high, at 1.3360. The GBPUSD pair currently trades around the 1.3350 level, with dip buyers stepping in earlier at the key 1.3307 level. Moving into the U.S session, the key 1.3400 price region may act as the natural upside target above the 1.3360 level for sterling buyers. Tuesday also promises to be volatile day for the GBPUSD pair, with BOE Governor Mark Carney speaking, and the release of the BOE Financial Stability Report.

The GBPUSD pair remains technically bullish while trading above the 1.3307 level. Further intraday upside towards the 1.3400 and 1.3430 levels seems entirely possible today.

Should the GBPUSD pair start to slip much below the 1.3307 technical level, further selling towards the 1.3268 level appears most likely.

The U.S dollar remains under heavy selling pressure against the Japanese yen, with risk-off trading sentiment the prevalent market theme on Monday. The USDJPY pair trades close to the 111 handle, as Chinese stock markets continue to tumble, with credit yields also widening. On Friday we saw the pair slowly push towards and then rejected from the USDJPY 200-day moving average, signaling a lack of overall buying demand. We are likely to see full trading volumes return on Tuesday, as North American desks start to fully open.

The USDJPY pair is likely to remain under pressure while trading below the 111.72 level. Any upside attempts above 111.72, look likely to be capped by the 112.20 resistance level.

Should price action decline below the 111.07 technical level, intraday sellers may look to test the 110.66 level, with a possible deeper decline all the way towards 110.00.

Copper price moved lower on Monday, pulling back from nearly one-month high at $3.1750, posted on uninterrupted six-day rally.

Dip was so far contained by strong support at $3.1198 (Fibo 38.2% of $3.0305/$3.1750 upleg), which guards another significant support at $3.1087, provided by top of ascending daily cloud.

Deeper correction cannot be ruled out as daily RSI is heading lower while slow stochastic has turned south and is about to emerge from overbought territory.

Overall structure is bullish and positive sentiment maintained by strong demand for the metal from China, its biggest consumer, despite signs of resilience in country’s industrial sector.

Extended corrective action should be ideally contained by daily cloud top ($3.1087) with deeper dips not to exceed daily Tenkan-sen ($3.1027) to keep bulls intact.

Res: 3.1395, 3.1477, 3.1541, 3.1750
Sup: 3.1198, 3.1087, 3.1027, 3.0857

WTI is holding in red at the beginning of the week, after hitting fresh high at $59.02 (the highest since late June 2015) last Friday.

Oil price maintained strong bullish sentiment in past couple of weeks on strong signals of oil market rebalancing and hopes that OPEC-led output cut agreement will extend.

Traders booked some profits from last week’s strong rally, as overbought daily studies suggest corrective easing before oil price resumes towards psychological $60 barrier which also marks initial target.

Meeting of oil ministers of OPEC and other big oil producers on 30 Nov in Vienna is in focus this week, as markets expect major oil producers to extend their current production cut program beyond its expiration in march 2018.

Meanwhile, oil price may extend corrective easing towards initial support at $57.90 (former top of 08 Nov), with extended dips to be contained by rising 10SMA (currently at $56.97).

Res: 59.02,59.82,60.00,60.27
Sup: 58.34,57.90,56.79,56.53

Notes/Observations

Political clouds dispersing across Europe; optimism abound as Germany's Social Democrat party agreed to discuss forming a "grand coalition" with Chancellor Merkel and her Christian Democratic party.

Tightening financial conditions in China weighs upon Far east markets; Shanghai Composite having its worst 3-day decline since Jun 2016

OPEC and Non-Opec members said to be leaning towards an extension of the current production cut agreement at this Thursday’s meeting

Asia:

Japan Govt said to compile FY17/18 extra budget of €2.7-2.9T; with construction bond issuance of ~¥1T

BOJ’s Suzuki reiterates view that must maintain powerful monetary easing; yield Control changes is possible when CPI is near 2% level

China Oct Industrial Profits Y/Y: 25.1% v 27.7% prior

Europe:

German Chancellor Merkel: Europe needed a strong Germany, so it needed a new govt in place as soon as possible. Caretaker govt will be able to carry out the day to day business of the govt

CDU’s Guenther: Firm intention of having an effective Govt. Firmly believed this was not a minority Govt and that it was an alliance with a parliamentary majority, a grand coalition

CSU’s Seehofer: Alliance of Conservatives and SPD is the best choice for Germany – better than coalition of FDP and Greens, new election or minority Govt

EU's Tusk: sufficient progress in Brexit talks at Dec council is possible, but a huge challenge remained. Set Dec 4th deadline for UK effort before the summit; PM May agreed on the timeline

UK PM has agreed to pay more than £40B when UK leaves the EU but the final bill will be kept secret from the public even after final deal is done in 2019

Ireland PM Varadkar: we need to resolve political matters by Tues, Nov 28th; if we don't, we will be into an election

Americas:

(US) According to ShopperTrak, shopper visits to brick-and-mortar retail stores on Thanksgiving Day and Black Friday -1.6% y/y (combined)

(MX) Mexico Fin Min Meade said to step down soon

Economic Data:

(FI) Finland Nov Consumer Confidence: 23.0 v 23.1 prior; Business Confidence: 14 v 12 prior

(HK) Hong Kong Oct Trade Balance (HKD): -44.0B v -41.9Be; Exports Y/Y: 6.7% v 10.1%e; Imports Y/Y: 7.9% v 9.5%e

(SE) Sweden Oct Household Lending Y/Y: 7.1% v 7.0%e

(IT) Italy Nov Consumer Confidence: 114,3 v 116.5e; Manufacturing Confidence: 110.8 v 111.8e, Economic Sentiment: 108.8 v 109.1 prior

Fixed Income Issuance:

(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 6-month Bills; Avg Yield: 0.32% v 0.37% prior; Bid-to-cover: 2.55x v 3.45x prior

(IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Oct 2019 CTZ; Avg Yield: -0.337% v -0.167% prior; Bid-to-cover: 2.19x v 2.02x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.2% at 387.3, FTSE +0.3% at 7428, DAX +0.1% at 13075, CAC-40 +0.2% at 5402, IBEX-35 +0.7% at 10121, FTSE MIB +0.2% at 22464, SMI flat at 9326, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes:

European Indices trade higher across the board reversing early weakness with the Spanish IBEX outperforming as the index leads the gainers on dip buying. Indices traded lower initial following the weaker lead from Asia overnight, with a downgrade of Tech giant Samsung Electronics leading the tech sector lower.

In Europe shares of Infineon and Dialog Semi trade lower in sympathy. Elsewhere Euler Hermes trades sharply higher after a takeover offer from Allianz, while Julius Baer drags on the SMI after the immediate departure of their CEO.

On the Earnings front, Stablius trades lower after prelim FY17 results and 2025 tragets which Arzyta trades over 4% higher after Q1 update.

Equities

Consumer discretionary [Patisserie [CAK.UK] +6.2% (Earnings), Euler Hermes [ELE.FR] +21% (Allianz offer €122/shr), Aryzta[ARYN.CH] +4% (Earnings)]

Industrials: [ Stabilus [STM.DE] -1.8% (prelim earnings)]

Financials: [Icade [ICAD.FR] +2.4% (Capital markets day)]

Technology: [Infineon [IFX.DE] -1.4%, Dialog Semi [DLG.DE] -0.8% (down in sympathy with tech sector sell off in Asia)]

Speakers

ECB said to maintin its NPL proposal despite opposition from Italian officials

Poland Central Bank's Lon: Interest rates might be stable in the long term

Turkey PM Yildirim: 2017 GDP growth seen between 6.0-7.0% area

South Africa Presidency said to be looking at revenue enhancing plans. To find ways to increase revenues by ZAR15B and cut spending by ZAR25B

Russia Energy Mon Novak: Almost all OPEC/Non-OPEC members in favor of extending current round of production cuts

China PBoC renewed a CNY400B currency swaps agreement for another 3 years with Hong Kong Monetary Authority (HKMA)

Currencies

EUR/USD at 2-month highs aided by recent German business confidence and reduced anxiety about political instability in Europe's biggest economy. Political clouds seemed to be dispersing across Europe as optimism was abound as Germany's Social Democrat party agreed to discuss forming a "grand coalition" with Chancellor Merkel and her Christian Democratic party.

USD/JPY was probing the lower end of the 11 handle on some safe-haven flows. Dealers were taking notice of tightening financial conditions in China which weighed upon Far East equity markets as the Shanghai Composite endured its worst 3-day decline since Jun 2016

Fixed Income

Bund futures trade 162.90 up3 ticks, following strong German business confidence and reduced anxiety about political instability in Europe's biggest economy. Continued upside sees 163.40 then 163.63. A reversal targets 162.50 then 162.38.

Gilt futures trade at 125.24 down 10 ticks as markets await Brexit news. Continued upside eyeing 125.675 then 126.47. Downside targets include 124.90 then 124.24.

Monday's liquidity report showed Friday's excess liquidity rose €10B to €1.850T. Use of the marginal lending facility rose to €420M from €343M prior.

Looking Ahead

(CH) Swiss Parliament holds Winter Session in Bern

(DE) German President confirms that will meet with CDU, CSU and SPD representatives ( Chancellor Merkel, CDU's Seehofer and SPD's Schultz)

05:25 (BR) Brazil Central Bank Weekly Economists Survey

06:00 (RO) Romania to sell 2.3% 2020 Bonds

06:00 (IL) Israel to sell 2021, 2022, 2026 and 2027 bonds

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Oct Total Federal Debt (BRL): No est v 3.431T prior

08:05 (UK) Baltic Dry Bulk Index

08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

08:55 (FR) France Debt Agency (AFT) to sell combined €4.8-6.0B in 3-month, 6-month and 12-month BTF Bills

09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

09:00 (MX) Mexico Oct Trade Balance: No est v -$1.9B

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:00 (US) Oct New Home Sales: 624Ke v 667K prior

10:30 (US) Nov Dallas Fed Manufacturing Activity: 24.0e v 27.6 prior

13:00 (US) Treasuries to sell 2-year and 5-year notes

13:30 (UK) BOE’s Ramsden in London

16:00 (US) Weekly Crop Progress Report

The euro has started the week with little movement. Currently, EUR/USD is trading at 1.1934, up 0.01% on the day. On the release front, there are no eurozone events. In the US, the sole indicator is New Home Sales, which is expected to slow to 627 thousand. On Tuesday, the US releases CB Consumer Confidence, with an estimate of 123.9 points. We’ll also hear from Fed Chair Designate Jerome Powell and Treasury Secretary Steven Mnuchin.

German indicators continue to point upwards, and the week ended on a positive note, as German Ifo Business Climate in November set another record high. The indicator climbed to 117.5, above the estimate of 116.6 points. On Thursday, Final GDP in the third quarter accelerated to 0.8%, its strongest quarter since 2014. Manufacturing PMI surged to 62.5, pointing to strong expansion in the manufacturing sector. On the political front, there are renewed hopes that another election can be avoided, as the SPD (socialist democrats) have reluctantly agreed to hold coalition talks with Merkel’s conservative bloc. The SPD was the junior partner in the previous government, and is expected to come with a shopping list if it agrees to a “grand” coalition. This could mean more government spending and no cap on asylum seekers. The euro has not lost a stride since the political crisis, and on Friday, the currency pushed above 1.19 for the first time since late September.

Federal Reserve policymakers remain upbeat about the U.S economy, according to the minutes of the most recent policy meeting. The minutes indicated that policymakers expected the U.S economy to continue showing strong growth, and predicted that interest rates will be raised in the “near term”. The members discussed the vexing question of why inflation has been persistently low (no quick-fix solution was provided), with most agreeing that a tight labor market should lead to higher inflation levels. Although policymakers did not provide further hints about the timetable of a rate hike, the markets remain convinced that additional rates are imminent. The odds of a rate hike in December are 93%, and the odds of a January raise are at 91%.

EUR/USD

Current level - 1.1931

The uptrend is still intact, currently testing 1.1940 resistance area. Next resistance lies at 1.2000 and initial support is projected at 1.1870.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.1940	1.1940	1.1870	1.1690
1.2000	1.2090	1.1835	1.1550

USD/JPY

Current level - 111.34

The rebound above 111.00 was capped at 111.70 and the intraday bias is bearish, for another test of the mentioned support. An eventual break will expose 109.50 area.

Resistance		Support
intraday	intraweek	intraday	intraweek
111.90	112.70	111.00	109.50
112.70	114.70	109.50	107.30

GBP/USD

Current level - 1.3321

The uptrend is still underway and a clear break through 1.3340 area will challenge 1.3460 zone. Crucial on the downside is 1.3280 low.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.3340	1.3340	1.3280	1.3220
1.3460	1.3460	1.3220	1.3020