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Daily Pivots: (S1) 0.8311; (P) 0.8326; (R1) 0.8335; More...

Intraday bias in EUR/GBP remains neutral and outlook is unchanged. Further fall is expected with 0.8446 resistance intact. On the downside, below 0.8306 minor support will turn bias back to the downside for 0.8259 first, and then 0.8201 key support. Nevertheless, firm break of 0.8446 will confirm short term bottoming.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. However, outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound. Decisive break of 0.8201 will indicate long term bearish reversal.

Daily Pivots: (S1) 1.6041; (P) 1.6127; (R1) 1.6172; More...

Intraday bias in EUR/AUD stays on the downside, and fall from 1.6598 is in progress for 1.5996/6002 key support zone. Decisive break there will carry larger bearish implications. On the upside, above 1.6161 support turned resistance will turn intraday bias neutral first. But, risk will stay on the downside as long as 1.6359 resistance holds, in case of recovery.

In the bigger picture, as long as 1.5996 support holds, up trend from 1.4281 (2022 low) is still expected to resume through 1.7180 at a later stage. However decisive break of 1.5996 will argue that the medium term trend might have reversed. Deeper fall would be seen to 61.8% retracement of 1.4281 (2022 low) to 1.7180 at 1.5388, even as a correction.

Daily Pivots: (S1) 0.9270; (P) 0.9297; (R1) 0.9314; More....

EUR/CHF's fall resumed through 0.9303 temporary low and intraday bias is back on the downside. Further fall should now be seen to retest 0.9209 low next. On the upside, above 0.9310 minor resistance will turn intraday bias neutral again first.

In the bigger picture, fall from 0.9928 is seen as part of the long term down trend. Repeated rejection by 55 D EMA (now at 0.9395) keeps outlook bearish for breaking through 0.9209 low at a later stage. Nevertheless, sustained trading above 55 D EMA will confirm medium term bottoming at 0.9209 and bring stronger rebound back towards 0.9928 key resistance.

Markets

This week’s consolidation pattern on bond markets simply continued yesterday. Lower weekly jobless claims (213k) and a disappointing November Philly Fed Business outlook balanced each other out data wise. US yields added 3.3 bps (2-yr) to 0.4 bps (30-yr) in another small bear flattening move with money markets reducing the likelihood of a December 25 bps rate cut to 55%. Our base scenario remains that the Fed will go ahead with a rate cut. If data permit, they can skip in January, allowing the FOMC to get a better view on the interplay with a likely stimulating fiscal policy under president-elect Trump by the time of new growth and inflation forecasts in March. German yields dropped by 1.1 bp to 3.6 bps with the belly of the curve outperforming the wings. The (European) proximity to this week’s escalating war between Russia and Ukraine directs some haven flows into Bunds. European stock markets eventually managed to recover from early losses induced by talk that Russia launched a first ever intermediate-range ballistic missile. The euro extends its losses, with EUR/USD giving up 1.05 against an overall strong USD. The pair is on track to test the 2023-2024 sideways range bottom at 1.0448. The trade-weighted dollar is equally inches away from the 2023 high at 107.35. Only the Japanese yen manages to more or less keep pace with the greenback in such conditions, changing hands at USD/JPY 155.

Today’s eco calendar contains November global PMI’s. Rising geopolitical tensions will likely limit any rebound potential for the single currency going into the weekend even in case of firmer European numbers. Consensus expects a stabilization at the 50 breakeven level for the EMU composite gauge. Anything bar a huge negative surprise will also convince final traders out of there 50 bps December rate cut bets by the ECB (15% probability) as all other intermeeting data (Q3 GDP, October CPI & PMI, Q3 wages) all surprised on the upside. In the US, asymmetric risks are on the other side given that we think markets are underestimating the likelihood of a Fed December move.

News & Views

Japanese inflation eased but remained above the Bank of Japan’s 2% target in October. Headline price increases decelerated from 2.5% to 2.3% and the gauge excluding fresh food (the BoJ’s preferred gauge) came in at 2.3% as well. The latter was down from 2.4% but above 2.2% expectations. Core CPI (ex. fresh food and energy) picked up from 2.1% to 2.3%, suggesting energy was a key factor behind the slight slowdown. Utility subsidies indeed shaved off about 0.5 ppts of the overall index. Service prices gained momentum, quickening from 1.3% to 1.5%, adding to evidence that consumer-led inflation is becoming more entrenched in the economy. That should bring comfort to the Bank of Japan, which is looking for signs its (underlying) inflation outlook is materializing, a key condition to further normalize its monetary policy. The next December meeting is a live one with money markets slightly in favour (56%) of a 25 bps rate hike to 0.5%. The Japanese yen fails to profit this morning against an overall stronger USD. USD/JPY hovers just south of 155. This level serves as a short-term equilibrium level since the dollar (and rate) rally stalled and geopolitical risk-off kicked in, supporting JPY.

UK consumers turned a bit less sour in November. The GfK confidence index edged up from -21 to -18, defying forecasts for a further drop to -22. GfK said that nervousness ahead of the first Labour budget and US elections appear to have passed. The survey was taken between October 30 and November 15. Consumers felt some relieve that Labour’s planned tax increases mostly fell on businesses rather than individuals. All components posted improvements with the biggest taking place in the perceived climate for major purchases (-21 to -16). Consumer’s personal finances as well as the economic situation, both over the past and next 12 months, all gained from the previous month too. GfK does note that consumers still feel acute cost-of-living pressures and urged the government to deliver on their promises to tackle the matter.

Moodiness due to a lack of a strong post-earnings rally from Nvidia remained short-lived. Investors rapidly shrugged off the company’s warning that the profit margin will dip to 73% on manufacturing challenges of the Blackwell chips, and thought they could cope with that small deterioration. The shares fell well short of the 8-10% rally that the market was prepared for, and posted a meagre 0.53% rise post earnings. But nevertheless, the stock hit a fresh ATH even though the move was far less than impressive. Nvidia couldn’t offer the major US indices a fresh record, as Big Tech companies were mostly sold yesterday. Google lost 4.5% on Department of Justice’s demand to sell Chrome. But both the S&P 500 and Nasdaq gained the day after the Nvidia earnings, and consolidate near ATH levels.

The earnings season gently comes to an end with a stronger-than-expected performance for most of the S&P500 stocks. 8 of the 11 sectors in the index posted earnings growth, showcasing broad resilience despite macroeconomic challenges. Energy companies continued to face challenges due to weak oil prices but Big Tech has been a standout and the overall earnings proved better than the market expectations. The numbers didn’t point at any type of economic distress in the US and maintained the soft-landing narrative – also supported by broader macroeconomic data – well alive.

Of course, the strong economic growth is certainly good for business, but strong business is not necessarily good for taming inflation. Add to that Trump’s plans to cut taxes and impose tariffs on China and other partners, the inflation outlook doesn’t look supportive of sustained rate cuts from the Federal Reserve (Fed). As such, the US yields continue to feel the pressure of uncertainty regarding what the Fed should do in its December meeting. The probability of a December cut improved to 60% as the continuing claims in the US rose to a 3-year high, but the decision is more close to call than many think, imo.

In the FX, the US dollar is extending its rally, not necessarily on Fed expectations but on a fair amount of safe haven demand amid the mounting geopolitical tensions in Ukraine. The latest news suggest that Russia launched ‘a new kind of ballistic missile in to Ukraine’ as a response to Ukraine’s use of US missiles on Russia earlier this week. The latest escalation results in fresh sanctions against Gazprombank, which was the last major Russian financial institution that wasn’t concerned by the earlier sanctions as some European nations continued to pay their gas purchases from Russia via Gazprombank. They can’t anymore.

Even though Europe has a reduced exposure to Russia, cutting whatever was left of the Russian gas supplies will reduce the amount of supplies on the continent and threaten to boost gas prices as reserves decline. The European gas futures show an accelerated rally this week, while the US gas futures are exploding on the news. US nat gas broke above the summer peak, and this time, has probably taken out the $3 support sustainably. The upside pressure won’t be comparable to what we saw in the early days of the Ukrainian war, but the tense geopolitical environment has the potential to push prices toward the 3.50-3.60 range -the January peak.

Elsewhere in energy, the mounting geopolitical tensions give a hand to oil bulls. The barrel of US crude has stepped above the $70pb level, but faces a thick layer of offers between the $70 and 73pb range. The combination of weak global demand and ample supply keeps the macro-focused bears in appetite near these levels. But, the environment turns positive for tactical longs and US energy companies that will see the additional opportunity to increase their market share in Europe.

In the FX, the US dollar’s recent rise pushed the EURUSD down the 1.05 cliff yesterday, and Cable extended losses below the 1.26 mark. Investors will watch the flash PMI figures this morning to figure out how to rectify their euro and sterling positions, but the major driver of the market right now will likely remain the haven flows that favour the greenback against major peers. This being said, the solid appreciation of the US dollar, combined to rising energy prices, will likely ring the alarm bell among the European Central Bank (ECB) and the Bank of England (BoE) doves, and get them to tame their dovish expectations. The latter will probably support a recovery in both the euro and sterling once the geopolitical dusts settle.

In focus today

Today, in the euro area we receive November PMIs, an important factor for the ECB decision in December. The growth momentum has recently decreased, particularly driven by a slowdown in Germany. We expect manufacturing sector to remain well in contractionary territory, with the PMI expected to rise marginally to 46.4 in November (prior: 46.0), aligning closely with hard data due to the PMI index's construction. Meanwhile, the service PMI is likely to remain above 50, indicating growth, but we expect a slight decrease to 51.2 (prior: 51.6), influenced by a modest contraction in expansion and seasonal effects.

We also receive country-specific November PMIs for France, Germany, the US, and the UK.

We have plenty of ECB speeches today including Lagarde and Schnabel.

Economic and market news

What happened overnight

In Japan, October core CPI was reported at 2.3% (cons: 2.2%, prior: 2.4%), holding above the BOJ's 2% target. Additionally, Japanese manufacturing PMI decreased to 49.0 in November (prior: 49.2), indicating a contraction for the fifth month in a row. The figures will be among factors the BOJ will discuss at its next policy meeting in December

What happened yesterday

In the euro area, consumer confidence declined to -13.7 in November (cons: -12.4, prior: -12.5). The decline comes after a long upward trend during the past two years. Taken at face value the decline increases downside risks to the growth outlook. However, the series does fluctuate a bit from month to month and we have seen similar declines in single months in past two years that are then reverted in the following month. As private consumption is expected to be the main growth driver in the coming year it is important to follow consumer confidence going forward to see whether this month's decline was just one blip or a more serious change to the previous upward trend.

In the US, jobless claims reached a six-month low at 213k (cons: 220k), indicating a relatively resilient labour market. However, we got a slightly weaker Philly Fed index registering at -5.5 for November (cons: 8.0, prior: 10.3). This figure remains within typical range observed over the past few years, albeit somewhat below average pre-covid levels. Neither of these data releases is expected to have a significant impact on the markets.

Yesterday, one of the Federal Reserve officials Golsbee said that he could see policy rates moving "a fair bit lower", but that the Federal Reserve would still need to determine the level for the neutral rate, but it was a "long way from where we are right now". This morning, we have seen US Treasury yields decline modestly in Asian trading.

In Norway, mainland GDP grew by 0.5% q/q (cons: 0.3%, prior: 0.1%). This robust growth in Q3 was largely driven by the petroleum related-, chemical- and pharmaceutical industries, which performed much better than anticipated. From the expenditure perspective, it is evident that oil investments and public sector spending were the primary catalysts for growth, with public investments and consumption alone contributing a full percentage point to Q3 growth.

Equities: Global equities were higher yesterday, with Europe registering a slight outperformance in a global context after a roller-coaster day. The situation in Europe is particularly intriguing at present. While most investors would agree that European equities are considerably cheaper compared to those in the US, just as many would probably concur that the European outlook is much cloudier, with uncertainty leading to a pattern of one step forward and two steps back. A potential game changer for Europe, both in relative and absolute terms, could be a pickup in manufacturing activity. Therefore, today's flash PMI figures are, in our opinion, the most important data point of the month for Europe.

It is worth noting that yesterday saw relatively broad-based gains, with the utilities sector outperforming along with small caps on the style side. Consequently, we are increasingly observing markets returning to being macro-driven, with the influence of Trump's trade policies gradually diminishing.

In the US yesterday, the Dow closed up by 1.1%, the S&P 500 by 0.7%, Nasdaq by 0.1%, and Russell 2000 by 1.9%.

This morning, we have Asia excluding China trading higher, with European futures also on the rise, while US futures were slightly lower.

FI: There was a modest decline in European government bond yields yesterday, while US Treasury yields rose modestly. This morning, we have seen a modest decline in US Treasury interest rates in Asian trading. One of the Fed members Golsbee stated that he could see rates "a fair bit lower" over the next year and that the neutral rate was a lower than the current level.

FX: The JPY and the USD gained yesterday and in particular vis-à-vis the EUR and the GBP. Notable mentions from yesterday, was the drop in EUR/USD below 1.05 and the rally in NOK/SEK back to parity.

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%.

Full UK retail sales release here.

Daily Pivots: (S1) 1.3944; (P) 1.3963; (R1) 1.3994; More...

USD/CAD recovered after brief dip to 1.3930 and intraday bias stays neutral first. On the downside, break of 1.3930 will extend the corrective fall from 1.4104 to 1.3841 cluster support (38.2% retracement of 1.3418 to 1.4104 at 1.3842). Nevertheless, above 1.4035 minor resistance will bring retest of 1.4104 high.

In the bigger picture, up trend from 1.2005 (2021) is resuming with break of 1.3976 key resistance (2022 high). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391. Now, medium term outlook will remain bullish as long as 1.3418 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.6494; (P) 0.6514; (R1) 0.6530; More...

AUD/USD is staying in consolidation from 0.6440 and intraday bias remains neutral. Outlook will stay bearish as long as 0.6687 resistance holds. On the downside, 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.

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.

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

Range trading continues in USD/JPY 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.