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USD/JPY has broken short-term uptrend channel. Hourly support given at 113.09 (09/10/2017 low) has been broken. Stronger support is located at a distance at 111.12 (20/09/2017 low). Expected to show further decline.

We favor a long-term bearish bias. Support is now given at 99.02 (10/08/2013 low). A gradual rise towards the major resistance at 125.86 (05/06/2015 high) seems unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

GBP/USD is still holding below 1.32. Support is given at 1.3027 (06/10/2017 low). Resistance area is given around 1.3200. The technical structure suggests further sideways price action.

The long-term technical pattern is reversing. The Brexit vote had paved the way for further decline. Long-term support can be found at 1.1841 (07/10/2017 low). Long-term resistance given around 1.35 is at stake and indicates a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

EUR/USD is edging higher at the moment. Hourly resistance located at 1.1690 (03/11/2017 high) has been broken. The pair is heading towards resistance at 1.1878 ( 12/10/2017 high). Hourly support is given at 1.1554 (07/11/2017 low). Expected to show some short-term consolidation.

In the longer term, the momentum is now turning largely positive. We favour a continued bullish bias. Key resistance is holding at 1.2252 (25/12/2014 high) while strong support lies at 1.0341 (03/01/2017 low).

Notes/Observations

UK wage data beats expectations (with higher back-month revisions); question looms if upward momentum is sustainable; Dealers believe that the data suggest BOE might sit tight on interest rates in 2018

UK ILO unemployment matches 42-year low at 4.3%

Overnight

Asia:

(JP) Japan Q3 Preliminary GDP data registered its 7th straight expansion both quarterly and annualized readings (GDP SA Q/Q: 0.4%e v 0.6% prior; Annualized Q/Q: 1.5%e v 2.5% prior; Nominal GDP Q/Q: 0.6%e v 0.7% prior)

Europe:

PM May's govt defeats opposition Brexit bill amendment in its first vote. Amendment to the EU withdrawal bill calling for the devolved administrations to give their consent before Brexit is defeated in 318-52 vote

BOE’s Cunliffe (dissenter): need clear pay growth evidence before raising rates. Wanted firmer evidence wages are rising after serial disappointments

Brexit Min Davis: avoiding financial services fragmentation is important for the EU; city of London is a key asset

European Union reportedly considering scheduling summits in 2018 aiming to achieve a Brexit breakthrough. EU said to be preparing for the upcoming December Leader Summit to end in failure

Americas:

Fed's Bostic (non-voter, dove) reiterated that gradual Fed hikes were appropriate over next couple of years; US was nearing full employment. Watching inflation closely for any signs of pickup

Energy:

Weekly API Oil Inventories: Crude: +6.5M v -1.6M prior

Russia said to be hesitant on length of OPEC output cut extension. Country was not been convinced it’s necessary to reach an agreement this month on oil extension cuts and believed it’s too early to announce decision

Economic Data:

(NO) Norway Oct Trade Balance (NOK): 15.1B v 10.5B prior

(FR) France Oct Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.1% v 1.1%e; CPI Ex-tobacco Index: 101.40 v 101.41e

(FR) France Oct Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e

(NG) Nigeria Oct CPI Y/Y: 15.9% 15.9%e (7th straight month of improvement)

(SE) Sweden Q3 Industry Capacity: 90.9% v 90.7% prior

(IS) Iceland Central Bank (Sedabanki) left the 7-Day Deposit Rate unchanged at 4.25%

(UK) Oct Jobless Claims Change: +1.1K v 2.6K prior; Claimant Count Rate: 2.3% v 2.3% prior

(UK) Sept Average Weekly Earnings 3M/Y/Y: 2.2% v 2.1%e; Weekly Earnings Ex Bonus 3M/Y: 2.2% v 2.2%e

(UK) Sept ILO Unemployment Rate: 4.3% v 4.3%e

(IT) Italy Sept General Government Debt: €2.284T v €2.279T prior

(EU) Euro Zone Sept Trade Balance (Seasonally Adj): €25.0B v €21.0Be; Trade Balance (Unadj): €26.4B v €16.1B prior

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR110B indicated in 3-month, 6-month and 12-month Bills

(DK) Denmark sold total DKK2.73B in 2020 and 2027 Bonds

(SE) Sweden sold SEK2.0B in 0.75% May 2028 bond; Avg Yield: 0.7373% v 0.8420% prior; Bid-to-cover: 2.31x v 2.43x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.8% at 380.8, FTSE -0.5% at 7375, DAX -1.0% at 12898, CAC-40 -0.5% at 5287, IBEX-35 -0.8% at 9911, FTSE MIB -1.0% at 22084, SMI -0.7% at 9065, S&P 500 Futures -0.5%]

Market Focal Points/Key Themes:

European Indices trade lower across the board following on from weakness in Asia with continued drop in commodity prices weighing on miners after weaker Japanese GDP and downbeat Chinese economic data.

In the UK TalkTalk trades sharply lower after guiding to the lower end of guidance, while Home builders Barratt Development and Crest Nicholson trade lower following their trading updates. In Germany K+S trades lower after missing on the top and bottom line, while Hapag Lloyd trades over 7% higher after strong results. In France Airbus outperforms after announcing a record $49.5B deal with Indigo Partners.
Looking ahead notable earners include retailers Target and Sally Beauty Holdings.

Equities

Materials: [K+S [SDF.DE] -3.3% (Earnings), Lanxess [LXS.DE] -3.3% (Earnings)]

Industrials: [Airbus [AIR.UK] +3% (Record order), Fenner [FENR.UK] +7% (Earnings), Hapag LLoyd [HLAG.DE] +7% (Earnings)]

Telecom: [TalkTalk [TALK.UK] -10.3% (Earnings)]

Utilities: [Utilitywise [UTW.UK] -9.8% (Delays FY results)]

Real Estate: [Barratt Dev [BDEV.UK] -1.8% (Trading update), Crest [CRST.UK] -5.7% (Trading update)]

Speakers

ECB’s Hansson (Estonia): Dids not see robust pick-up in inflation; but it was rising due to monetary policy measure. ECB was increasing confident on its inflation target. Latest policy decision made sense as it saw scope for some prudent recalibration of ECB policies due to stronger economy

ECB's Lane (Ireland): Credit cycle remains subdued; new lending is picking up in country

Romania Central Bank gov Isarescu: Country faces imbalances because of too much stimulus

Fed’s Evans (dove, voter) commented from a European conference in London that the US economy was on solid footing heading into 201. Still possible that low inflation was temporary but harder and harder to feel comfortable that drop is transitory. Fed had been acting like 2% price target was the ceiling but should communicate that it could rise to 2.5%

German FDP official Theurer: FDP would not enter into a coalition at any price as parties still disagreed on bans on existing diesels. Confident of reaching an agreement on climate

Poland Dep PM Morawiecki: Pension reform to be completed in 1-2 years

Former PM Berlusconi: Northern League aware that Italy cannot afford to leave the euro currency due to its debt and economic situation

S&P: Italy economic recovery has turned a corner but still faces a long road ahead

South Africa comments on Zimbabwe: Closely monitoring the situation; does not recognize unconstitutional change of govt

Currencies

USD remained on soft footing ever since concerns started to pop up over the US tax reform momentum.

EUR/USD hit a 3-week high above 1.18 35 as the pair was poised for its 6th straight session gain (best winning streak since May 2016). The EUR currency has been recently aided by the better growth data in Europe (particularly Germany).

GBP/USD tested above 1.32 ahead of key wage data. Dealers noted that the true test for the BOE's hawkish assumptions over the coming months would be the labour market data. The wage data did beat expectations (with higher back-month revisions) but the GBP currency firm tone was short-lived as dealers questioned the sustainability of the upward momentum. UK Employment Change registered its first decline since Oct 2016 and biggest decline since Jun 2015. Dealers believed that the data suggest BOE might sit tight on interest rates in 2018

USD/JPY was softer on some safe-haven flows as Far-East equity markets fell again. USD/JPY pair testing below 112.65 in the session.

Fixed Income

Bund futures trade at 162.75 up 32 ticks, continuing its gains from yesterday’s strong German GDP data. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.

Gilt futures trade at 124.93 up 31 ticks following the lead from Treasuries and Bunds as stocks slide. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.24 then 123.74.

Wednesday’s liquidity report showed Tuesday’s excess liquidity rose from €1.869T to €1.8595T and use of the marginal lending facility climbed to €194M from €96M

Corporate issuance saw a six issuers raise $7.9B in the primary market

Looking Ahead

(RU) Russia Energy Min meets with oil companies on OPEC production cuts

(TR) Turkey Oct Central Gov't Budget Balance (TRY): No est v -6.4B prior

05:30 (DE) Germany to sell €3.0B in 0.50%b Aug 2027 Bunds

06:00 (IE) Ireland Sept Trade Balance: No est v €3.6B prior

06:00 (ZA) South Africa Sept Retail Sales M/M: -0.7%e v +2.4% prior; Y/Y: 4.5%e v 5.5% prior

07:00 (US) MBA Mortgage Applications w/e Nov 10th: No est v 0.0% prior

07:00 (UK) Weekly PM May question time in House of Commons

07:00 (RU) Russia to sell combined RUB20B in 2021 and 2022 OFZ bonds

08:00 (UK) BOE’s Broadbent at LSE

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Oct CPI M/M: 0.1%e v 0.5% prior; Y/Y: 2.0%e v 2.2% prior

08:30 (US) Oct CPI Ex Food and Energy M/M: 0.2%e v 0.1% prior; Y/Y: 1.7%e v 1.7% prior

08:30 (US) Oct CPI Index NSA: 246.612e v 246.819 prior; CPI Core Index SA: 253.252e v 252.860 prior

08:30 (US) Nov Empire Manufacturing: 25.5e v 30.2 prior

08:30 (US) Oct Advance Retail Sales M/M: 0.0%e v 1.6% prior; Retail Sales Ex Auto M/M: 0.2%e v 1.0% prior, Retail Sales Ex Auto and Gas: 0.3%e v 0.5% prior, Retail Sales Control Group: 0.3%e v 0.4% prior

08:30 (US) Oct Real Avg Weekly Earnings Y/Y: No est v 0.6% prior, Real Avg Hourly Earning Y/Y: No est v 0.7% prior

08:30 (CA) Canada Oct Teranet/National Bank HPI M/M: No est v -0.8% prior; Y/Y: No est v 11.4% prior, House Price Index: No est v 220.33 prior

09:00 (BE) Belgium Sept Trade Balance: No est v -€2.3B prior

09:00 (CA) Canada Oct Existing Home Sales M/M: No est v 1.3% prior

09:00 (UK) BOE’s Broadbent

10:00 (US) Sept Business Inventories: 0.0%e v 0.7% prior

10:30 (US) Weekly DOE Crude Oil Inventories

11:00 (CO) Colombia Q3 GDP Q/Q: 0.8%e v 0.7% prior; Y/Y: 2.1%e v 1.3% prior

11:30 (IL) Israel Oct CPI M/M: 0.1%e v 0.1% prior; Y/Y: 0.1%e v 0.1% prior

12:00 (CA) Canada to Sell 3-Year Bonds

14:00 (CO) Colombia Sept Economic Activity Index (monthly GDP) Y/Y: 2.3%e v 1.5% prior

16:00 (US) Sept Total Net Tic Flows: No est v $125.0B prior; Net Long-Term Tic Flows: No est v $67.2B prior

18:45 (CA) Bank of Canada (BOC) Wilkins in NY

WTI Oil is consolidating ion Wednesday after sharp over 3% fall the previous day. Oil price was under pressure on Tuesday on strong reversal signals and accelerated strongly lower after release of API weekly oil data showed unexpected and strong rise in oil inventories (6.5 million barrels vs forecasted draw of 2.2 million barrels).

Oil remains vulnerable for further fall as technical indicators show more room at the downside and speculation that EIA weekly supply data could surprise in showing large increase in US crude stocks (2.2 million barrels draw is forecasted for today) and positive figure would put oil prices under fresh pressure.

The price is for now holding above key support at $54.53 (Fibo 38.2% of $49.09/$57.90, reinforced by rising 20SMA) and firm break here would spark fresh extension lower for test of $54.02 (rising Kijun-sen) and 53.50 (50% retracement of $49.09/$57.90).

Meanwhile, limited upside is expected during current consolidation phase while broken 10SMA ($56.20) is expected to cap extended upticks.

Res: 55.25, 55.82, 56.20, 56.75
Sup: 54.80, 54.53, 54.02, 53.50

Is the party over?

Today's publication of the US Consumer Price Index might have a profound effect. It will force investors to choose whether a drop in asset prices is a buying opportunity or a sell signal.

Stocks continued to retreat. Chinese economic data surprised to the downside, which sparked commodity traders to cut long metal and oil futures. News that the Zimbabwe military had staged a coup did not help confidence. Commodity-linked stocks are sagging, as investors rotate into defensive names. Petroleum tumbled, after the IEA said that crude prices and milder weather would weigh on demand.

In Japan, GDP growth in Q3 reached 1.4% (down from 2.6% in Q2), the seventh straight quarters of expansion. The yen strengthened, putting pressure on the Nikkei for the fourth day. USD is broadly weaker against the EUR. A strong German GDP has reinforced Europe's positive economic outlook, fuelling speculation that the European Central Bank might ease up on quantitative easing. UK wage data, to be released today, could likely accelerate sterling's recent weakness against the Euro.

Inflation will burst the bond bubble

Inflation is back, especially in the US, where the US Price Producer Index has broken its downtrend of nearly a decade. In the next few months, this will explode volatility and the bond-market bubble, when investors start unwinding their bonds – along with the US Federal Reserve doing the same. Stocks and bonds are now positively correlated, whereas normally they are inversely correlated. The VIX volatility index has significantly jumped recently, climbing from 9 to a one-month high of almost 11.

Today the US Consumer Price Index will be released and should come in around 2%. Ironically, the better (higher) the rate, the more pressure will be on the markets that are on steroids from the Fed with its era of free money. It is definitely time to get cautious.

In first of yesterday's trading session the exchange rate made left the junior ascending triangle pattern in southern direction amid strong pressure from the 55- and 200-hour SMAs. However, after making a rebound from the bottom boundary of a large ascending channel it resumed the surge and by the end of the day returned to the pre-fall 1,283.00 level. Generally, appreciation of the gold is expected to continue not only because of the abovementioned rebound but also because of additional support provided by multiple MAs as well as the monthly PP. From fundamental side, an increasing political uncertainty in the UK is likely to support demand for safe haven assets as well. However, this assumption might be easily altered if the released American data will beat experts' expectations.

As it was expected, the currency exchange rate failed to climb above combined resistance formed by the 200-hour SMA and the weekly PP at 113.80. This rebound as well as release of positive Japan’s quarterly GDP data led to a breakout from recently formed ascending channel. As the currency rate crossed not only the 55- and 100-hour SMAs but also the monthly PP at 113.25, the pair is expected to continue heading to the bottom towards an alleged support zone near the 112.98 mark. The fact that the rate is also fluctuating in a general downtrend suggests that it should succeed to sneak below the 113.00 level. However, whether this assumption materializes will heavily depend on release of the American retail sales and inflation data

A release of latest update on the British inflation sent the cable to test support zone near the weekly S1 at 1.3090. However, by the end of the day the Pound managed to recover and returned back to the 50% Fibonacci retracement level at 1.3180.

Due to support formed by a combination of the 55-, 100- and 200-hour SMAs the pair is expected to spend first half of this trading session between the 1.3180 and 1.3125 marks. These barriers have a good chance to withhold the rate even during release of the UK earnings data.

However, the further movement of the cable is difficult to project, as it will heavily depend on release of the US inflation and retail sales data.

Due to release of much better than expected German GDP data the currency exchange rate not only left the junior rising wedge formation but also managed to break through the upper resistance line of a three-month long dominant descending channel. Generally, the pair is expected to spend some time moving horizontally and then make a turnaround, as the further path to the north is obstructed by combined resistance formed by the 50% Fibonacci retracement level, the monthly R1 and the weekly R3. This assumption is also supported on daily timeframe, as an area near the 1.1796 mark contains the 50-day SMA. However, the surge might continue if release of the American inflation and retail sales data will not justify expectations.