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Daily Pivots: (S1) 1.1759; (P) 1.1793 (R1) 1.1855; More....

EUR/USD's rebound continues today and focus is back on 1.1860. Break will confirm resumption of rise from 1.1553. As noted before, corrective fall from 1.2091 has completed at 1.1553 already, ahead of 38.2% retracement of 1.0569 to 1.2091 at 1.1510. Above 1.1860 will extend the rally to retest 1.2091 high. In any case, near term outlook will remain cautiously bullish as long as 1.1677 support holds.

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 cautious on 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 1.1373) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Daily Pivots: (S1) 1.3246; (P) 1.3288; (R1) 1.3363; More....

GBP/USD's rebound from 1.3038 extend highs today with focus back on 1.3337 resistance. Firm break there will argue that whole decline from 1.3651 is completed. And further rise should then be seen to 61.8% retracement of 1.3651 to 1.3026 at 1.3412 first. Sustained break there will target a test on 1.3651. On the downside, though, break of 1.3212 minor support will turn bias back to the downside for retesting 1.3026 instead.

In the bigger picture, as noted before, GBP/USD hit strong resistance from the long term falling trend line. Current development is starting to favor that corrective rebound from 1.1946 low has completed at 1.3651. Decisive break of 1.2773 will confirm this bearish case and target a test on 1.1946 low next, with prospect of resuming the low term down trend. Nonetheless, break of 1.3320 resistance will restore the rise from 1.1946 for 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.

Daily Pivots: (S1) 0.9782; (P) 0.9848; (R1) 0.9884; More....

USD/CHF drops to as low as 0.9803 so far. The break of 0.9835 resistance turned support argues that rise from 0.9420 has completed at 1.0037 already. Intraday bias is back on the downside for 61.8% retracement of 0.9420 to 1.0037 at 0.9565. We'll look for bottoming again below 0.9565. On the upside, break of 0.9946 resistance will indicate that the decline from 1.0037 has completed and bring retest of this resistance.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could be a medium term up move and should target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. In case pull back fro 1.0037 extends, we'd still expect the long term support at 0.9420 to hold.

EURUSD

The EURUSD had a bullish momentum yesterday topped at 1.1826. Price slipped again above the trend line resistance as you can see on my H4 chart below, which reopens the door for further bullish pressure testing 1.1900 key resistance which is a good place to sell with a tight stop loss. The bias is bullish in nearest term. Immediate support is seen around 1.1770. A clear break below that area could lead price to neutral zone in nearest term testing 1.1690 key support which need to be clearly broken to the downside to keep the major bearish scenario alive and kicking retesting 1.1550 or lower. On the upside, a clear break and daily close above 1.1900 would stop the major bearish trend retesting 1.2000 – 1.2090 resistance area.

GBPUSD

The GBPUSD had a bullish momentum yesterday topped at 1.3329. The bias is bullish in nearest term but note that we need a clear break above 1.3330 key resistance to resume the major bullish trend retesting 1.3615 region. Immediate support is seen around 1.3280. A clear break back below that area could lead price to neutral zone in nearest term testing 1.3225/00 region but as long as stay above 1.3000 I remain bullish and any downside pullback should be seen as a good opportunity to buy.

USDJPY

The USDJPY had a bearish momentum yesterday bottomed at 111.14 and hit 111.06 earlier today in Asian session. Price broke below the daily EMA 200 suggests further bearish scenario. The bias remains bearish in nearest term testing 110.65. Immediate resistance is seen around 111.65. A clear break above that area could lead price to neutral zone in nearest term testing 112.00 region. Overall I remain neutral but still prefer a bearish scenario at this phase as a part of the bearish pin bar scenario as you can see on my daily chart below.

USDCHF

The USDCHF had a bearish momentum yesterday bottomed at 0.9812. The bias is bearish in nearest term testing the daily EMA 200 located around 0.9800 area. A clear break below that area would expose 0.9700 and stop the major bullish trend. Immediate resistance is seen around 0.9850. A clear break above that area could lead price to neutral zone in nearest term testing 0.9900 region. The major bullish scenario remains valid but need a clear break at least above 0.9940 to keep the major bullish scenario alive and kicking retesting 1.0037 region.

Daily Pivots: (S1) 110.74; (P) 111.62; (R1) 112.09; More...

USD/JPY's fall from 114.73 extends to as low as 111.06 so far today. The strong break of 111.64 support should confirm that whole rebound from 107.32 has completed at 114.73. Intraday bias remains on the downside for 61.8% retracement of 107.31 to 114.73 at 101.14. For the moment, we're still favoring the case medium term corrective pattern from 118.65 has completed at 107.31 already. Hence, we'll looking for bottoming below 101.14 to bring another rise. On the upside, break of 112.71 resistance will indicate that the fall from 114.73 is completed and turn bias back to the upside.

In the bigger picture, medium term rise from 98.97 (2016 low) is not completed yet. It should resume after corrective fall from 118.65 completes. Break of 114.49 resistance will likely resume the rise to 61.8% projection of 98.97 to 118.65 from 107.31 at 119.47 first. Firm break there will pave the way to 100% projection at 126.99. This will be the key level to decide whether long term up trend is resuming. However, firm break of 111.64 support will dampen this view and turn focus back to 107.31 instead.

Dollar tumbles overnight as November FOMC minutes should some members are concerned with weaker inflation. December hike is still the base case but there might be growing doubts on whether there will be three more hikes next year. Euro closely follow Dollar as the second weakest on political uncertainties in Germany. Meanwhile, commodity currencies are supported by this week's rebound in commodity prices. ECB monetary policy accounts, Eurozone PMIs are the main focus in European session today. Canada will release retail sales while US will be on holiday.

FOMC Minutes Revealed Bigger Concerns Over Soft Inflation

The greenback slumped as the FOMC minutes for the November meeting revealed that 'several' members were concerned that weak inflation would be persistent, rather than temporary. They highlighted the worries about a 'a diminished responsiveness of inflation to resource utilization'. Another important message suggested in the minutes is that a December rate hike is almost a done deal with 'many' members judging that it is 'warranted in the near term' if the macroeconomic data remain steady. Such opinion has outweighed the thought of 'a few 'members' that a rate hike should be delayed.

We view the USD selloff might have been over-reacted. Note that the (core) PCE, the Fed's preferred inflation barometer, has improved, while the October CPI, released after the November meeting, also picked up. We believe the majority of the FOMC still retain the view that weak inflation is transitory. More in FOMC Minutes Revealed Bigger Concerns Over Soft Inflation, Affirmed December Rate Hike.

Dollar index heading back to 91

Dollar index's break of 93.47 support now argues that rebound from 91.01 has completed at 95.15 already. And, deeper fall is in favor in near term back to retest this low. Nonetheless, we maintain that 91.91/3 represents a key long term support zone. That is 2016 low at 91.91 and 38.2% retracement of 72.69 to 103.82 at 91.93. Hence, we'd look for bottoming signal again as the index approaches 91.01.

ECB said to review asset purchase program

Meeting accounts of ECB November meeting will be a key focus of the day. It's reported that ECB would start reviewing the asset purchase plan once it moves to the next stage. That is, ECB is going to half the monthly size to EUR 30b, running from January to September. The central bank would evaluate the effectiveness of the EUR 126b spent and the impact of credit supply to the region. Also, assessment would done of whether the program benefits larger corporations more. But overall, ECB said before in its monthly bulletin that "favorable bond-market conditions have resulted in positive spillover effects which have supported bank lending." And, "when large corporations increasingly finance themselves through bond issuances, rather than bank loans, this releases capacity in the balance sheets of banks for potential lending to SMEs."

On the data front

New Zealand retail sales rose 0.2% qoq in Q3, core retail sales rose 0.5% qoq, both below expectation. Eurozone PMI will be a main feature in European session. Germany will also release Q3 GDP final. UK will release Q3 GDP revision. Later in the day, Canada will release retail sales.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.74; (P) 111.62; (R1) 112.09; More...

USD/JPY's fall from 114.73 extends to as low as 111.06 so far today. The strong break of 111.64 support should confirm that whole rebound from 107.32 has completed at 114.73. Intraday bias remains on the downside for 61.8% retracement of 107.31 to 114.73 at 101.14. For the moment, we're still favoring the case medium term corrective pattern from 118.65 has completed at 107.31 already. Hence, we'll looking for bottoming below 101.14 to bring another rise. On the upside, break of 112.71 resistance will indicate that the fall from 114.73 is completed and turn bias back to the upside.

In the bigger picture, medium term rise from 98.97 (2016 low) is not completed yet. It should resume after corrective fall from 118.65 completes. Break of 114.49 resistance will likely resume the rise to 61.8% projection of 98.97 to 118.65 from 107.31 at 119.47 first. Firm break there will pave the way to 100% projection at 126.99. This will be the key level to decide whether long term up trend is resuming. However, firm break of 111.64 support will dampen this view and turn focus back to 107.31 instead.

Economic Indicators Update

STOCKS

Dow (23526.18, -0.27%) came off respecting out earlier mentioned levels near 23600. But overall still has some chances of testing 23750-23800 in the near term. Trade within 23400-23800 looks likely for the coming sessions.

Dax (13015.04, -1.16%) is likely to move up in the coming sessions targeting 13400 and higher with some interim dips. Currently near 13000, the index looks bullish while above 12900.

Nikkei (22590.27, +0.78%) is stuck within the 22750-22000 region unable to decide further direction just now. A fall towards 22250 looks probable in the coming sessions.

Shanghai (3423.63, -0.20%) has also seen a dip in trade similar to Dax. But overall the trend remains up with medium term target of 3440-3460 levels.

Nifty (10342.30, +0.15%) could possibly see a dip today to 10130 before again moving up in the near term. Levels near 10400-10500 is likely to hold for the medium term pushing the index back towards 10100 and lower. But a test of 10500 before that is likely.

COMMODITIES

Gold (1290) moved up yesterday but could again come off to 1280. As mentioned earlier, trade within 1280-1300 is possible in the near term with gradual upmove in the next couple of weeks.

Silver (17.09) is trading in the 17.30-16.90 region. The movement is expected to narrow down in the next few sessions before breaking on either side.

Brent (63.19) could see some interim dip to 62.20 before again moving up towards 64.00-64.60 again. Overall view is bullish with possible corrective dips. WTI (57.88) could also see a pause today before again moving towards important resistance of 59.

Copper (3.1385) is likely to test 3.15-3.20 in the coming sessions with possible dip to 3.10-3.05 again.

FOREX

The Dollar took a beating yesterday after the FOMC Minutes revealed that members are still not convinced about Inflation rising fast or enough. Contrary to expectation, this has led to a dip in US yields (see Interest Rates below) and sent the Dollar Index (93.25) lower, breaking the uptrend since 91.00 (Sep '17).

The Euro (1.1820) has moved up in line with our expectation of a bounce to 1.1800-50, but the cited support at 112 on Dollar-Yen has broken, pushing it down towards the alternative target of 111. The Euro can see further strength towards 1.19 while the Yen could gain further towards 110.

Our expectation of continued range-trade in the Pound (1.3323) seems to have been wrong with the Pound now trading above the range-resistance at 1.33.. Maybe we have to examine chances of further rise towards 1.35 now?

Also, the Chinese Yuan (6.5911) has surprised us by its large gains while we were looking for weakness towards 6.65.

Dollar weakness could reflect in Dollar-Rupee which closed near 64.91/92 yesterday. It trades near 64.83 on the NDF market today.

Note, Japan and US markets being closed today, trading could be a little quiet.

INTEREST RATES

Although the FOMC Minutes sent US yields lower, the market's expectations of a December rate hike remained the same.

Even though the September and October CPI (2.23% and 2.05% y/y) have come in above 2.0%, perhaps the FOMC is looking at the Core CPI which remains well below 1.8%. We continue to look for Brent (63.16) to move up towards 65+ over the coming months, although a rise past 70 could take time.

To the extent a sharp rise in Brent above 70 is delayed, the US 10Yr (2.32%) might range sideways between 2.25-2.50% over the next few weeks. In the near term, yesterday's dip below 2.35% brings up chances of a test of 2.25% on the downside.

In India, there is a Bloomberg report that the Treasury Head as SBI is taking a contrarion call, looking for 10Yr GOI (6.9585%) to move down towarsd 6.75% and 6.50% in the medium and long-term. On our side, we see Support at 6.80%. So, it will be interesting to see where the market actually goes.

The greenback slumped as the FOMC minutes for the November meeting revealed that 'several' members were concerned that weak inflation would be persistent, rather than temporary. They highlighted the worries about a 'a diminished responsiveness of inflation to resource utilization'. Another important message suggested in the minutes is that a December rate hike is almost a done deal with 'many' members judging that it is 'warranted in the near term' if the macroeconomic data remain steady. Such opinion has outweighed the thought of 'a few 'members' that a rate hike should be delayed. We view the USD selloff might have been over-reacted. Note that the (core) PCE, the Fed’s preferred inflation barometer, has improved, while the October CPI, released after the November meeting, also picked up. We believe the majority of the FOMC still retain the view that weak inflation is transitory.

The minutes indicated more concerns over low inflation. Many members attributed the downside surprise of core inflation to 'temporary or idiosyncratic factors'. They believed inflation would begin to rise as these factors diminish. 'Most participants' retained the view that 'the cyclical pressures associated with a tightening labor market were likely to show through to higher inflation over the medium term'. However, the minutes revealed a detailed discussion over the possibility of persistent weakness on inflation. As noted, 'several' members expressed concerns that 'persistently weak inflation data could lead to a decline in longer-term inflation expectations or may have done so already'. They noted the 'diminished responsiveness of inflation to resource utilization, to the possibility that the degree of labor market tightness was less than currently estimated, or to lags in the response of inflation to greater resource utilization as plausible explanations for the continued soft readings on inflation'. The staff 'slightly' lowered its core PCE forecasts for this year and the next. Yet, the forecast that inflation would reach 2% in 2019 remains intact.

Despite the abovementioned concerns, 'many' members still believed that a rate hike would be 'warranted in the near term if incoming information left the medium-term outlook broadly unchanged'. Meanwhile, 'several' members raised the issue of 'a potential buildup of financial imbalances' which could be exacerbated by a prolonged period of low interest rates. Yet, there were still 'a few' members who preferred to delay rate increases until there is confirmation that the 2% inflation target would be reached. They warned that further rate hike might risk keeping inflation 'persistently below +2%'. All in all, the recent solid economic data signal a rate hike in the coming month is a done deal.

The German economy is presently booming, but political uncertainty is introducing new risks to this trajectory. Following the German general election on September 24, Chancellor Merkel and her Christian Democratic Union (CDU) entered into negotiations with the Free Democrats (FDP) and the Green Party on forming the next government. The collapse of the coalition negotiations on November 19 is not a huge surprise given the ideological differences among the center-right CDU, the economically liberal FDP and the environmentally-conscious Greens. Not only could political uncertainty have a knock on-effect on the German economy, but it also makes it harder to pursue further integration in Europe.

So what happens now? There appears to be three options. First, the CDU has been governing Germany in coalition with the center-left Social Democrats (SPD) since the last general election in 2013. In theory, the CDU could form a new "grand coalition" with the SPD, but the latter has ruled out that option. Second, the CDU could govern as a minority government. Because the CDU does not have a majority of seats in the Bundestag, the lower house of the German parliament, it would need to pass legislation with other parties on an ad hoc basis. However, minority governments tend to be unstable because they can easily be brought down by no confidence motions. Third, the federal president could call for a new election. However, President Steinmeier seems reluctant to call new elections, at least at this point, because of the risk that fringe parties could garner even more votes than they did in September. In short, Germany seems set for a period of political uncertainty.

If voters cared only about pocketbook issues the CDU would have been returned overwhelmingly to power in the September elections, because the German economy is booming at present. Real GDP was up 2.8 percent in Q3-2017, the strongest year-over-year rate of growth in six years (Figure 1). Moreover, growth is broad-based at present with consumer spending, investment spending and exports all contributing positively to the overall rate of real GDP growth. Growth in real retail sales has strengthened markedly this year (Figure 2), and unemployment has declined to the lowest rate in the post-reunification era (Figure 3). The Ifo index of German business sentiment stood at an all-time high in October (Figure 4), suggesting that growth has remained buoyant thus far in the fourth quarter.

But pocketbook issues are not the only considerations that motivate citizens to vote for individual candidates or political parties, and Germany has not been immune to the populist/nativist voices that have affected elections in other western countries in recent years. Political uncertainty could have a marginal negative effect on the German economy in the near term, although it is not likely to derail the expansion that is underway in Germany. However, Chancellor Merkel was weakened by the election results, and she will be weakened further if she needs to govern via a minority government. There could also be implications for Europe from the inability to form a coalition. A weakened Merkel will find it harder to persuade other German politicians to agree to the deeper European integration proposals that French President Macron has proposed.

While the GBP/USD horizontal range is clear, the fact that price is following a bullish trend channel higher within it, is hugely significant. Take a look at the daily chart below:

GBP/USD Daily:

The bullish price action in the pair looks to have some momentum behind it and I'm interested to see how price reacts to the horizontal range top resistance.

As you can see on the chart above, price is hitting some short term resistance at the moment, but if that manages to go, momentum could very well see an instant rip up to the 1.34 solid level.

The bullish perspective is the trend channel and bullish momentum, while for the bears, they're watching the fact that price is fast approaching major horizontal resistance.