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European majors are experiencing significant selling pressure today, with Euro leading the declines. Euro sharply depreciated as traders increased their bets on an aggressive 50 bps rate cut by ECB in December, following dismal PMI data. Market expectations for such a cut have surged to 50%, a substantial rise from around 15% just a day earlier. The region's services sector has now entered contraction, aligning with the manufacturing sector's prolonged recession. This economic downturn is further exacerbated by escalating geopolitical risks, notably the escalation of the Ukraine war, and the looming threat of tariffs from US President-elect Donald Trump. These factors intensify the urgency for ECB to accelerate its monetary easing towards a neutral rate to support the faltering economy.

Sterling is also under substantial strain, weighed down by a larger-than-expected contraction in UK retail sales and disappointing November PMI readings. S&P Global observed that business sentiment in the UK has been declining since the general elections earlier this year. The Labour government's Autumn Budget failed to boost confidence, with sentiment instead plunging sharply. This suggests that the worst may still be ahead for the UK economy, as consumer spending weakens and businesses express growing concern over economic policies.

Swiss Franc initially spiked higher against Euro and Sterling earlier in the day. However, it reversed those gains after SNB Chairman Martin Schlegel emphasized that negative interest rates remain a possibility. The SNB is currently expected to cut interest rates by 25 basis points in December. Yet, the situation is fluid; a larger cut by ECB could prompt SNB to respond similarly to prevent excessive appreciation of the Franc. The complexity of this monetary chess game is heightened by the fact that both central banks will announce their decisions on the same day, December 12.

As the week nears its conclusion, Euro is the worst performer among major currencies, followed by Sterling and Swiss Franc. However, late-week developments could still alter this ranking. On the other hand, Canadian Dollar is firmly in the lead as the strongest currency, supported additionally by robust retail sales data. Australian Dollar and Japanese Yen follow, while Dollar and New Zealand Dollar occupy middle positions.

Canada retail sales rises 0.4% mom in Sep, 0.7% mom in Oct

Canada's retail sales rose by 0.4% mom in September to CAD 66.9B, slightly above market expectations of a 0.3% mom increase. Gains were observed in six out of nine subsectors, with food and beverage retailers leading the growth.

Core retail sales, which exclude gasoline and motor vehicle-related sectors, surged by a robust 1.4% mom, highlighting strength in consumer discretionary spending.

For Q3, retail sales climbed 0.9%, with a 1.3% increase in volume terms, suggesting solid economic activity during the period.

The advance estimate for October indicates a further 0.7% mom rise, reinforcing signs of resilience in consumer demand.

Eurozone PMI signals stagflation as both manufacturing and services contract

Eurozone economic activity weakened sharply in November, with PMI Manufacturing falling to 45.2 from 46.0 and PMI Services dropping to 49.2 from 51.6, pushing Composite PMI to a 10-month low of 48.1, down from 50.0. For the first time since January, both sectors recorded output declines, reflecting broader economic struggles.

Country-level data painted a bleak picture. France saw its Composite PMI drop to 44.8, with Manufacturing PMI at 43.2 and Services PMI at 45.7—both hitting 10-month lows. Germany's Composite PMI fell to 47.3, a 9-month low, with Services PMI sliding into contraction at 49.4 despite a slight improvement in Manufacturing PMI, which edged up to 43.2.

Cyrus de la Rubia of Hamburg Commercial Bank highlighted "stagflationary" conditions, with falling activity alongside rising input and output prices driven by service sector costs and wage growth. He pointed to political instability in France and Germany and global uncertainties, including potential US tariffs, as key contributors.

UK PMI composite fall to 49.9, slips into contraction as post-budget sentiment worsens

UK economic activity weakened in November, with the Composite PMI falling from 51.8 to 49.9, its first contraction in 13 months. Manufacturing PMI declined to a 9-month low of 48.6, down from 49.9, while Services PMI hit a 13-month low at 50.0, down from 52.0.

Chris Williamson of S&P Global Market Intelligence noted that businesses are reporting falling output and employment cuts for the second consecutive month. Post-budget sentiment has deteriorated sharply, with optimism now at its lowest since late 2022. Companies have expressed significant concern over the announced increase in employers' National Insurance contributions.

The November data suggest the economy is contracting modestly, with GDP estimated to decline at a quarterly rate of -0.1%. Williamson warned of the potential for further job losses unless sentiment improves.

On the inflation front, selling price growth slowed to its lowest post-pandemic rate, but elevated wage pressures in services remain a challenge, likely tempering the case for aggressive rate cuts by BoE.

UK retail sales drop sharply by -0.7% mom in Oct, but broader trends show resilience

UK retail sales volumes plunged by -0.7% mom in October, significantly underperforming expectations of a -0.3% mom decline. Also, volumes remained -1.5% below their pre-pandemic level in February 2020.

On a broader basis, retail activity was more encouraging. Sales volumes increased by 0.8% in the three months to October compared to the preceding three months. When measured against the same period last year, sales volumes grew by 2.5%. This represents the strongest annualized growth since March 2022, despite a downward revision of September's annual figure from 2.6% to 2.1%.

Japan's CPI eases to 2.3% in Oct, core-core rises to 2.3%

Japan’s inflation data for October revealed persistent and broadening price pressures. Core CPI (excluding food) eased slightly to 2.3% yoy, down from 2.4% yoy but exceeding expectations of 2.2% yoy. This marked the 31st consecutive month core CPI has stayed at or above BoJ's 2% target.

Core-core CPI (excluding food and energy) rose from 2.1% yoy to 2.3% yoy, underscoring renewed strength in underlying inflation. Headline CPI moderated from 2.5% to 2.3%, partly due to slowing energy price gains, which decelerated sharply to 2.3% yoy from 6.0% yoy in September. However, food prices surged 3.8% yoy, accelerating from 3.1% yoy, while services prices edged up to 1.5% yoy from 1.3% yoy.

The combination of steady inflation momentum, recovering consumer spending, and Ten's renewed weakening bolsters the argument for a BoJ rate hike at its upcoming policy meeting in December.

Japan's PMI manufacturing falls to 49.0, services rises to 50.2

Japan’s PMI Manufacturing index edged down to 49.0 from 49.2 in November, signaling a deepened contraction in the sector. In contrast, PMI Services rose slightly to 50.2 from 49.7, indicating a renewed, albeit modest, expansion. PMI Composite improved marginally but remained below the neutral mark at 49.8, up from 49.6.

Usama Bhatti, Economist at S&P Global Market Intelligence, noted that demand conditions were "stagnant," while employment grew at the fastest rate in four months. Price pressures persisted across sectors, driven by rising raw material costs and Yen’s weakness. Firms responded with sharper increases in prices charged for goods and services, aiming to pass on these higher cost burdens to customers.

Australia's PMI composite falls to 49.4, second contraction in three months

Australia’s PMI Manufacturing improved sharply from 47.3 to 49.3 in November, marking a six-month high but remaining in contraction territory. Conversely, PMI Services index dropped from 51.0 to 49.6, hitting a 10-month low and signaling contraction. PMI Composite fell from 50.2 to 49.4, its lowest level in 10 months, indicating a slight overall contraction in private sector output for the second time in three months.

Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, highlighted the significance of the services sector’s slowdown. “The November S&P Global Flash Australia PMI posted the lowest reading since January, bringing the fourth-quarter average thus far below that of the prior quarter,” Pan said.

The report also noted that easing capacity pressures and subdued activity contributed to slower employment growth, which fell further below the long-term average. In addition, selling price inflation eased as businesses showed caution in raising charges. This combination of softer employment growth and reduced price pressures supports expectations of lower interest rates.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0439; (P) 1.0497; (R1) 1.0532; More...

EUR/USD's decline accelerated to as low as 1.0330 so far and there is no sign of bottoming yet. Sustained trading below 1.0404 key fiboncci level will carry larger bearish implications. Next target will be 161.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0203. Nevertheless, strong rebound from current level, followed by break of 1.0609 resistance, will confirm short term bottoming.

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 and below.

Canada's retail sales rose by 0.4% mom in September to CAD 66.9B, slightly above market expectations of a 0.3% mom increase. Gains were observed in six out of nine subsectors, with food and beverage retailers leading the growth.

Core retail sales, which exclude gasoline and motor vehicle-related sectors, surged by a robust 1.4% mom, highlighting strength in consumer discretionary spending.

For Q3, retail sales climbed 0.9%, with a 1.3% increase in volume terms, suggesting solid economic activity during the period.

The advance estimate for October indicates a further 0.7% mom rise, reinforcing signs of resilience in consumer demand.

Full Canada's retail sales release here.

Daily Pivots: (S1) 153.82; (P) 154.64; (R1) 155.36; More...

USD/JPY is still bounded in range trading and intraday bias stays neutral. On the upside, break of 156.74 will resume the whole rally from 139.57 towards 161.94 high. On the downside, though, break of 153.27 will resume the correction towards 38.2% retracement of 139.57 to 156.74 at 150.18.

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) 0.8835; (P) 0.8854; (R1) 0.8886; More…

USD/CHF's rally from 0.8374 resumed by breaking 0.8916 resistance. Intraday bias is back on the upside. Further rise should be seen towards 0.9223 key resistance next. For now, outlook will stay bullish as long as 0.8800 support holds, in case of retreat.

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) 1.2557; (P) 1.2609; (R1) 1.2641; More...

GBP/USD's accelerates lower today and intraday bias stays on the downside for 100% projection of 1.3433 to 1.2842 to 1.3047 at 1.2456. Decisive break there will extend the fall from 1.3433 to 1.2298 cluster support zone. For now, risk will stay on the downside as long as 1.2713 resistance holds, in case of recovery.

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 1.2977) 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) 1.0439; (P) 1.0497; (R1) 1.0532; More...

EUR/USD's decline accelerated to as low as 1.0330 so far and there is no sign of bottoming yet. Sustained trading below 1.0404 key fiboncci level will carry larger bearish implications. Next target will be 161.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0203. Nevertheless, strong rebound from current level, followed by break of 1.0609 resistance, will confirm short term bottoming.

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 and below.

• USDCAD is edging higher today, a tad above 1.3977
• It bounced off the September 25, 2024 trendline
• Momentum indicators are gradually turning bearish

USDCAD is edging higher today, trading a tad above the October 13, 2022 high at 1.3977. CAD bulls’ latest attempt to push USDCAD below the September 25, 2024 ascending trendline failed, with the pair quickly climbing higher. The US dollar also got a boost from Thursday’s stronger US data prints, geopolitics and the hawkish rhetoric from Fed members. For the current bullish trend to remain in place, a new peak, above the four-year high of 1.4104, is probably needed.

Meanwhile, momentum indicators are gradually turning bearish. Specifically, the Average Directional Movement Index (ADX) is edging lower towards its midpoint, and thus pointing to a weaker bullish trend in USDCAD. Additionally, the stochastic oscillator has broken below its oversold territory (OS) and is heading aggressively lower. Should this move continue, it would be seen as a strong bearish signal. Interestingly, the RSI remains above its midpoint, but it shows little appetite for a sizeable move higher.

Should the bears remain confident, they could try to finally push USDCAD below both the October 13, 2022 high at 1.3977 and the September 25, 2024 trendline. They could then test the support set by the November 1, 2024 high at 1.3898. Even lower, the busy 1.3807-1.3854 region could prove tougher to overcome than currently imagined.

On the other hand, the bulls will try to drive USDCAD above the 1.3977 level and then gradually push it higher towards the November 15 high at 1.4104. If successful in breaking above this level, they could have the chance to record a new cycle high.

To sum up, USDCAD bears tried to have staged another selloff, but the US dollar-positive newsflow and a key upward sloping trendline have pushed USDCAD higher.

The Canadian dollar is lower on Friday. In the North American session, USD/CAD is trading at 1.3998 at the time of writing, up 0.16% on the day. On the data calendar, Canada releases retail sales and the US publishes the services and manufacturing PMIs.

Canada’s retail sales expected to fall

Canada’s retail sales for September are expected to ease to 0.9% y/y, down from 1.4% in August. Monthly, retail sales are projected to remain unchanged at 0.4%. Consumer spending is expected to improve in the third quarter, in part due to the Bank of Canada’s three quarter-point cuts between June and September.

Despite the BoC’s easing cycle, consumers have remained cautious in the uncertain economic climate and the central bank will have continue to aggressively cut rates in order to boost consumer spending, a critical engine of growth. The BoC chopped rates by a half-point in October and there are calls for another half-point cut at the Dec. 11 meeting.

Still, the most likely scenario is a modest quarter-point cut, as this week’s inflation report showed that October inflation unexpectedly rose to 2%. If the November employment report is weaker than expected, pressure will rise on the Bank of Canada to deliver a half-point cut at the December meeting.

In the US, the manufacturing sector has been struggling and has contracted for four consecutive months. The Manufacturing PMI is expected to improve to 48.8 from 48.4, but a reading below 50 indicates contraction. The services sector is in much better shape and has expanded continuously since January 2023. Business activity has been the linchpin of the US economy, which has cooled down but remains in decent shape.

USD/CAD Technical

• USD/CAD is testing resistance at 1.3994. Above, there is resistance at 1.4013
• There is support at 1.3963 and 1.3944

GBPUSD dipped below 1.2500 handle and hit new lowest in 6 ½ months on Friday, after disappointing UK October retail sales and November PMI numbers further weakened sterling, adding to worsened geopolitical picture on threats of stronger escalation of war in Ukraine.

Strengthening dollar on euphoria of Trump trades, as well as increased safe-haven demand on deteriorating geopolitics contributes to negative near-term outlook to the British currency.

Cable is on track for the eighth consecutive weekly loss and also to end the second straight month in red, adding to developing reversal signals on larger timeframes (week / month).

Technical picture remains firmly bearish on daily chart, with strengthening negative momentum (14-d momentum continues to head south, deeply in negative territory) and MA’s in full bearish configuration (formation of 5/200; 10/200 and 20/200DMA’s death crosses).

However, RSI entered oversold territory and may contribute to week-end profit-taking that would provide stronger headwinds to bears and push the price higher.
Initial resistances lay at 1.2600 zone (today’s high / former lows of short consolidation / 100WMA), with upticks to be ideally capped under 1.2700 barrier (falling 10DMA / psychological) and guard upper breakpoint at 1.2818 (200DMA).

Res: 1.2600; 1.2624; 1.2680; 1.2700.
Sup: 1.2487; 1.2445; 1.2400; 1.2299.

Gold returned to growth after nearly three weeks of decline, reversing last week’s drop. The desire for a safe haven for global capital is so strong that it far outweighs the effect of a stronger dollar. The growing tension around the Russia-Ukraine conflict has brought gold back into the focus of investors due to pressure in equity markets.

Since the beginning of the week, the price has gained 5.3%, returning above $2,700. Technically, the price found buyers again shortly after falling below the 50-day moving average, which acts as a significant indicator of the medium-term trend. The ability to rise further would be an important price signal.

A quick reversal from down to up makes the scenario workable. The decline in early November is a technical correction from October 2023’s rally, which ended with a decline to 76.4% of the total gain. Such shallow corrections are characteristic of strong markets. If gold manages to rewrite the highs soon, the long-term target will be the $3,400 per troy ounce area.

The weakness of the single currency, caused both by geopolitics and the sharp cooling of the economy and political crisis in Germany, is also a serious reason to move into gold.

The chart of the gold price in euro paints an even more technically beautiful picture. On Friday, gold surpassed the €2,600 per ounce mark, hitting an all-time high, adding every day this week. The turning point that attracted buyers was the touching of the 50-day moving average towards the end of last week. For more than a year, this curve has provided tactical support: localised selloffs stop there.

The drawdown at the beginning of the month also fits into a classic Fibonacci retracement, with a pullback to 61.8% of the rise from the August lows to the late October highs. Movement within this pattern suggests the next shakeout near €2,840, which could well be a bullish target. At the current exchange rate, this roughly puts the price at $3,000. Given the decline of the single currency, these could be lower levels as well.