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Yesterday offered a moment of relief for some investors amid the Trump euphoria sweeping through the markets. The nomination of Scott Bessent for Treasury Secretary resonated well across investment communities as the man – who runs a macro hedge fund and backs Trump’s tariffs and tax cuts – is seen a ‘measured choice’ for the economy and financial markets, as he would tame spending and adopt a ‘gradual’ approach to imposing tariffs. As a reaction, the US 2-year yield fell to 4.26% and the 10-year yield posted a sharp drop to below the 4.30% for the first time in two weeks. The US dollar softened against major peers and the major US indices posted gains. The S&P500 added 0.30%, Nasdaq 100 0.14% and Dow Jones jumped 1% while Russell 2000 rallied 1.50% to a fresh ATH.

But, wait. Investors didn’t have time to fully enjoy the news as Trump said that the US will impose extra 10% tariffs on Chinese goods and 25% levies on all products from Mexico and Canada. Mood in Asia was less cheery. The Mexican peso took a hit, and the USD/CAD shortly rallied to 1.4180, hit by the falling oil prices as well, and traded at a level last seen in April 2020.

Of course, the new tariff talk didn’t enchant investors in China, but the CSI 300 recovered early losses on optimism that the additional tariffs were only 10% and not 60%, and perhaps on the expectation that the renewed tariff threat would trigger a bigger policy response from the Chinese government.

Coming back to the US, the market reaction to Bessent’s appointment was probably exaggerated. Donald Trump - who has been cleared for a few important criminal charges including obstruction of justice and classified records – is probably free to play his hand as he pleases.

US crude slips below $70pb on easing Mid East tensions

US crude slipped below the $70pb level on rising hope of a cease-fire between Israel and Hezbollah. From a technical standpoint, US crude’s latest geopolitical-led rally remained short the $72.85pb level, the major 38.2% Fibonacci retracement on summer selloff. As such, the medium term outlook remains bearish on weakening global demand and ample global supply outlook. The failure to clear key offers brings the $65/67pb range back to target.

On the nat gas front, the positive pressure due to geopolitical tensions remains intact. Nat gas futures came down from January highs, but the bulls are chasing a solid ground to jump back on the back of a bull. European nat gas futures kicked off the week with a 2.5% rally on the back of renewed tensions between Russia and the West. The geopolitical setup remains supportive of a further rise as we enter cold winter months in the Northern hemisphere.

In the FX

The US Dollar’s weakness on Bessent’s nomination remained short-lived. The EUR/USD – which tested the 1.05 offers to the upside yesterday - is back below this level. On the macro front, yesterday brought more weakness from Germany: Thyssenkrupp’s steel unit announced to cut its labour force by 40% this decade, adding to industrial worries in Germany where investments are in a free fall since the war in Ukraine started and the energy crisis took a toll on country’s industries. Needless to say that yesterday’s Ifo data from Germany didn’t look bright.

Today, the FOMC will release its latest meeting minutes and investors will be looking for signs of Federal Reserve’s (Fed) easing plans. The Fed has lowered interest rates by 50bp in September – a bit too much in my opinion, and another 25bp in the last meeting. But inflation started giving signs of a potential uptick and the inflationary worries got a boost with Trump’s election. Of course, Trump’s nomination is a politically sensitive subject for Powell, therefore the Fed minutes will certainly not mention the political risks directly. But what we could find an increased focus on the resilience of the US economy that could – in return - justify a slower easing path for the Fed in an effort to tame the potential boosting effect of Trump’s tax cuts and tariffs. If that’s the case, if we find a clear hawkish shift in the Fed minutes, the US dollar could get a fresh boost. Activity on Fed funds suggests that the Fed would cut its rates by another 25bp at the December meeting with a little more than 50% probability. From a data perspective, it would make sense for the Fed to sit and wait for the impact of the first cuts on data. But from a political perspective, not cutting the rates could be interpreted as a sign of weakness. And Powell can’t afford that.

In focus today

Tonight, FOMC will publish minutes from its November meeting. Markets remain divided over whether the Fed will continue cutting rates in December, so any clues about the most likely policy rate path will be followed closely. In the afternoon we receive the conference board consumer confidence.

In Sweden, Riksbank vice governor Anna Seim will discuss the concept of a neutral rate. Erik Thedéen said in his speech at Danske Bank last week that the views put forward by Seim today should be seen as the board's and the Riksbank's common view. The speech will be published on their website at 08:30 CET and will be webcast live. At 08:00 CET Statistics Sweden publishes producer prices for October, which is kind of old news given that the big spike in energy prices occurred in November. That said, the Riksbank has said that it (the spike) will not affect monetary policy as long as there are no second-round effects.

Overnight to Wednesday, the Reserve Bank of New Zealand (RBNZ) will have a monetary policy meeting. We expect a 50bp cut to the Official Cash Rate following a similar move in the previous October meeting. Markets are even speculating with a small probability for a very aggressive 75bp move.

Economic and market news

What happened overnight

In the US, President elect Donald Trump said that he will impose tariffs of 25% on all US imports from Canada and Mexico on his first day in office. Furthermore, he will add 10% extra tariff to the existing tariffs on Chinese goods. Trump said that the tariffs will continue until drugs, in particular fentanyl, and migrants stop crossing the US borders. USD strengthened after the announcement.

In the Middle East, rumours of Israel and Lebanon being close to a ceasefire deal started emerging last week and now it seems an agreement to end the hostilities is very near. President-elect Donald Trump has previously communicated to Israeli Prime Minister Netanyahu that he wants the wars in Lebanon and Gaza to end before he enters office. Hence, Netanyahu's willingness to sign a deal with Hezbollah could be part of his effort to please Trump and ensure he can still have US backing for his residual activities in Gaza, and possibly for targeting Iran. Oil prices fell yesterday in response to the ceasefire news, but we stress that the situation in the region remains explosive, and Trump's re-election adds to unpredictability.

What happened yesterday

In Germany, the Ifo indicator declined slightly more than expected to 85.7 (consensus: 86.0) in November from 86.5 in October. The decline was due to the assessment of the current economic situation that fell to the lowest level since Covid. In contrast, expectations about the future situation increased marginally. With the Ifo indicator declining in line with the PMIs the German economic situation likely turned worse in November. As employment has also started declining, we expect that the economy likely stagnated or contracted slightly in Q4 and we do not expect growth in the first quarter of 2025 neither.

ECB's chief economist Lane said yesterday that monetary policy should not remain restrictive for too long, otherwise inflation risks falling below target. There seems to be increasing concerns in the ECB over monetary policy potentially overshooting the negative effect on inflation, as Villeroy and Nagel said something similar last week. In the markets there is speculation about ECB increasing the speed of monetary easing with the current market pricing slightly below 50% probability for a 50bp rate cut in December.

Equities: Global equities were higher yesterday, with cyclicals outperforming and the VIX ticking lower on a day devoid of significant news. Three key developments stood out: massive small-cap outperformance, tech underperformance, and a significant drop in the long end of the US bond curve. The most intriguing aspect for us is the performance of small-caps. It makes sense to see this style outperform given the solid macro tailwinds, impending deregulation, loosening monetary policy, and the long end of the yield curve not skyrocketing as feared following the US election. Additionally, investors had been underweight in this style heading into the election, and it currently trades at a sizable discount to large caps.

In the US yesterday, the Dow was up 1.0%, the S&P 500 increased by 0.3%, the Nasdaq also rose by 0.3%, and the Russell 2000 surged by 1.5%.

Asian markets are mixed this morning, while European futures are down approximately 1%. This is due to President Trump initiating his trade war rhetorically. Despite his messages on Truth Social suggesting significant tariffs, the resilience of Asian markets this morning is notable. This could be attributed to Trump's focus on the 10% rather than the 60% tariffs. Yesterday, Canada and Mexico were the first targets, with Trump proposing 25% tariffs referencing drugs and immigration issues. It is important to remember that the largest import from Canada to the US is energy, and it is difficult to envision the US imposing a 25% tariff on energy.

FI: Global bond yields continue to decline on the back of the appointment of Scott Bessent as the new US Treasury Secretary. The rally was driven from the long end of the curve as 10Y US Treasury yield declined some 13bp, while the 2Y US Treasury yield declined 10bp.

FX: While yesterday's session was relatively quiet in FX markets this morning is characterised by renewed Trump tariff fears with CAD, MXN and CNY coming under pressure amid threats of an extra 10% tariff on Chinese imports and 25% tariffs on all imports from US neighbouring countries. Unsurprisingly, the USD is among the few winners this morning and we will closely monitor how the Scandies open in the coming hours.

Daily Pivots: (S1) 1.0453; (P) 1.0492; (R1) 1.0534; More...

Range trading continues in EUR/USD and intraday bias remains neutral. More consolidations could be seen above 1.0330 temporary low but further decline is expected as long as 1.0609 resistance holds. On the downside, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication and target next level at 161.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0203. However, firm break of 1.0609 will confirm short term bottoming, and turn bias back to the upside for 1.0760 support turned resistance first.

In the bigger picture, immediate focus is now 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) 1.2536; (P) 1.2575; (R1) 1.2608; More...

GBP/USD is staying in range above 1.2486 temporary low and intraday bias stays neutral. More consolidations could be seen and further decline is expected as long as 1.2713 resistance holds. On the downside, break of 12487 will resume the fall from 1.3433 to 1.2298 cluster support zone.

In the bigger picture, a medium term top should be in place at 1.3433, and price actions from there are correcting whole up trend from 1.0351 (2022 low). Deeper decline is now expected as long as 55 D EMA (now at 1.2918) holds, to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8835; (P) 0.8877; (R1) 0.8905; More…

Range trading continues in USD/CHF below 0.8956 and intraday bias remains neutral. More consolidations could be seen and outlook will stay bullish as long as 0.8800 support holds, in case of retreat. Break of 0.8956 will resume the rally from 0.8374, and target 0.9223 key resistance next.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen 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) 153.58; (P) 154.15; (R1) 154.75; More...

Intraday bias in USD/JPY remains neutral as consolidation from 156.74 is still extending. On the downside, break of 153.27 will bring deeper correction to 38.2% retracement of 139.57 to 156.74 at 150.18. Meanwhile, on the upside, firm break of 156.74 will resume the rally from 139.57 towards 161.95 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.

Dollar strengthened broadly in Asian session, especially against commodity currencies, following a bold announcement from President-elect Donald Trump. Trump pledged to impose steep tariffs on Canada, Mexico, and China to pressure them into halting fentanyl trafficking to the US.

The announcement came as markets were digesting the positive sentiment surrounding Trump’s Treasury Secretary pick, hedge fund magnate Scott Bessent, whose appointment had propelled DOW to record highs overnight. Analysts viewed Bessent as a stabilizing presence, with some seeing him as someone who could keep Trump “on a tight leash.” However, Trump’s remarks reinforced his intent to lead decisively on trade policies.

In the currency markets, Japanese Yen emerged is currently the strongest performer for the day so far, bolstered by the sharp decline in US Treasury yields. Additionally, October’s corporate services inflation in Japan rose to 2.9%, which keeps a December BoJ rate hike alive. Dollar followed as the second strongest currency, with New Zealand Dollar ranking third.

Conversely, Canadian Dollar plummeted on Trump’s tariff threats, making it the session’s weakest currency, followed by Australian Dollar and Euro. British Pound and Swiss Franc held steady in middle positions.

Technically, US 10-year yield is now pressing 4.264 support after yesterday's gap down and extended decline. Firm break there will confirm short term topping at 4.505, after rejection by both medium term falling trend line and 61.8% retracement of 4.997 to 3.603 at 4.464. Deeper fall should then be seen through 55 D EMA (now at 4.185) and drag USD/JPY back towards 150 mark.

In Asia, at the time of writing, Nikkei is down -1.42%. Hong Kong HSI is up 0.19%. China Shanghai SSE is up 0.07%. Singapore Strait Times is down -0.17%. Japan 10-year JGB yield is down -0.0096 at 1.065. Overnight, DOW rose 0.99%. S&P 500 rose 0.30%. NASDAQ rose 0.27%. 10-year yield fell -0.145 to 4.265.

CAD falls sharply as Trump pledges 25% tariffs to combat fentanyl trafficking

Canadian Dollar and Mexican Peso faced sharp declines after US President-elect Donald Trump announced plans for aggressive trade measures targeting Canada, Mexico, and China.

Trump stated that on January 20, as one of his first Executive Orders, he will authorize a 25% tariff on “all products” imported from Canada and Mexico. The tariffs will remain in place “until such time as drugs, in particular Fentanyl, and all illegal aliens stop this invasion of our country” through what he termed “ridiculous open borders.”

China is also in Trump’s crosshairs, with plans for an additional 10% tariff on top of existing levies, aimed at combating the “massive amounts of drugs” flowing into the US from the region.

Technically, USD/CAD's up trend resumed by breaking through 1.4104 resistance. Further rise is now expected as long as 1.3930 support holds even in case of retreat. Next target is 61.8% projection of 1.3418 to 1.4104 from 1.3930 at 1.4354.

AUD/USD also dipped notably but stays above 0.6440 support so far. Further decline is expected as long as 0.6549 resistance holds. Decisive break of 61.8% projection of 0.6941 to 0.6511 from 0.6687 at 0.6421 will resume the fall from 0.6941 to 100% projection at 0.6257 next.

Fed’s Goolsbee sees clear path towards neutral rates

Chicago Fed President Austan Goolsbee has reiterated his support for gradual reduction in the fed funds rate, provided there is no “convincing evidence of overheating” in the economy. He noted that the pace of rate adjustments would depend on evolving economic conditions and the broader outlook.

“The through line to me is pretty clear that we’re on a path, and that path is going to lead to lower rates, closer to what you might call neutral,” Goolsbee emphasized overnight.

Policymakers will assess several key data points ahead of the December meeting. Goolsbee cautioned against drawing firm conclusions from one month’s data. He remarked that inflation is now “not that far above the 2% target”.

Fed’s Kashkari: December rate cut still a reasonable debate

Minneapolis Fed President Neel Kashkari signaled that a rate cut at the December meeting remains a "reasonable consideration," reflecting ongoing debates within the central bank. Speaking to Bloomberg TV, Kashkari stated, "Right now, knowing what I know today, still considering a 25-basis-point cut in December—it's a reasonable debate for us to have."

Kashkari highlighted that the economy's resilience in the face of higher interest rates suggests the neutral rate may be higher than previously estimated. This observation raises questions about the effectiveness of current monetary policy in cooling economic demand. He noted that if this resilience persists, it might indicate a structural shift rather than a temporary one.

"This is what I'm trying to understand right now," Kashkari said, emphasizing the need to assess "how much downward pressure we are putting on the economy, and what is the path for inflation."

Looking ahead

US house price index, new home sales, and consumer confidence will be released today. But more focus will be on FOMC minutes, which is released a day earlier than usual due to thanksgiving shortened week in the US.

USD/JPY Daily Outlook

Daily Pivots: (S1) 153.58; (P) 154.15; (R1) 154.75; More...

Intraday bias in USD/JPY remains neutral as consolidation from 156.74 is still extending. On the downside, break of 153.27 will bring deeper correction to 38.2% retracement of 139.57 to 156.74 at 150.18. Meanwhile, on the upside, firm break of 156.74 will resume the rally from 139.57 towards 161.95 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.

Short Term Elliott Wave View in Oil (CL) suggests that cycle from 10.8.2024 high is in progress as a 5 waves impulse. Down from 10.8.2024 high, wave 1 ended at 66.72. Wave 2 rally ended at 72.89 as the 1 hour chart below shows. It has then turned lower again in wave 3. Down from wave 2, wave (i) ended at 70.94 and wave (ii) bounce ended at 71.64. Wave (iii) lower ended at 66.94 and wave (iv) rally ended at 69.39. Final wave (v) lower ended at 66.61 which completed wave ((i)). Oil then rallied in wave ((ii)) with internal subdivision of a zigzag.

Up from wave ((i)), wave (a) ended at 70.15 and wave (b) ended at 68.75. Wave (c) higher ended at 71.51 which completed wave ((ii)). Oil has turned lower and structure of the decline looks impulsive. Down from wave ((ii)), wave i ended at 70.4 and wave ii ended at 71.24. Wave iii lower ended at 68.57. Expect wave iv to end soon and then it should turn lower in wave v to complete wave (i). Afterwards, expect oil to rally in wave (ii) in 3, 7, or 11 swing before the decline resumes. Near term, as far as pivot at 72.89 high stays intact, expect rally to fail in 3, 7, 11 swing for more downside.

Oil (CL) 60 Minutes Elliott Wave Chart

CL Elliott Wave Video

https://www.youtube.com/watch?v=tn3jUEPt-XQ

Key Highlights

• Gold started a fresh increase from the $2,535 support.
• It broke a major bearish trend line with resistance at $2,630 on the 4-hour chart.
• Oil prices are recovering and might rise toward the $72.50 resistance.
• EUR/USD is consolidating losses near the 1.0520 level.

Gold Price Technical Analysis

Gold prices remained well-bid near the $2,535 zone against the US Dollar. The price formed a base and started a fresh increase above $2,600 and $2,620.

The 4-hour chart of XAU/USD indicates that the price surpassed the 50% Fib retracement level of the downward move from the $2,790 swing high to the $2,536 low. It broke a major bearish trend line with resistance at $2,630.

The price climbed above the 100 Simple Moving Average (red, 4 hours) and the 200 Simple Moving Average (green, 4 hours). However, the bears are active near the $2,715 level.

The first major resistance sits near the $2,730 level. It is near the 76.4% Fib retracement level of the downward move from the $2,790 swing high to the $2,536 low. A clear move above the $2,730 resistance could open the doors for more upsides.

The next major resistance could be $2,750, above which the price could rally toward the $2,780 level. On the downside, initial support is near the $2,660. The first major support is near the $2,620 level.

The main support is now $2,600. A downside break below the $2,600 support might call for more downsides. The next major support is near the $2,535 level.

Looking at EUR/USD, the pair started a short-term recovery wave above the 1.0450 level but upsides might be limited above 1.0550.

Economic Releases to Watch Today

• US New Home Sales for Oct 2024 (MoM) – Forecast -1.1% versus +4.1% previous.

Canadian Dollar and Mexican Peso faced sharp declines after US President-elect Donald Trump announced plans for aggressive trade measures targeting Canada, Mexico, and China.

Trump stated that on January 20, as one of his first Executive Orders, he will authorize a 25% tariff on “all products” imported from Canada and Mexico. The tariffs will remain in place “until such time as drugs, in particular Fentanyl, and all illegal aliens stop this invasion of our country” through what he termed “ridiculous open borders.”

China is also in Trump’s crosshairs, with plans for an additional 10% tariff on top of existing levies, aimed at combating the “massive amounts of drugs” flowing into the US from the region.

Technically, USD/CAD's up trend resumed by breaking through 1.4104 resistance. Further rise is now expected as long as 1.3930 support holds even in case of retreat. Next target is 61.8% projection of 1.3418 to 1.4104 from 1.3930 at 1.4354.

AUD/USD also dipped notably but stays above 0.6440 support so far. Further decline is expected as long as 0.6549 resistance holds. Decisive break of 61.8% projection of 0.6941 to 0.6511 from 0.6687 at 0.6421 will resume the fall from 0.6941 to 100% projection at 0.6257 next.