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The Canadian dollar struggles over plunging oil prices amid demand concerns. On the daily chart, the outlook remains positive and crossing moving averages may suggest a potential acceleration to the upside. The pair hit resistance at the former support at 1.3700 and led some intraday traders to take profit. A bullish breakout would extend gains to November’s high of 1.3800, which could foreshadow a recovery to the previous peak of 1.3970. 1.3560 is the first support in case of prolonged hesitation.

Stock markets are tentatively higher in Asia while Europe and the US are poised for a similarly modest start to trade in what is the start of a hectic 72 hours in the markets.

For so many weeks now, the December Fed decision has dominated the minds of traders, while sentiment in the markets has been dictated by how small changes in various data points influence the outcome of the meeting.

When a meeting or event generates this much hype, it can often disappoint and be something of an anticlimax but I'm not sure that will be the case this time. It's not so much the decision itself but what accompanies it that will set the stage for next year.

For so long the question has been will the Fed hike into a recession. In that time it's remained convinced that a soft landing can be achieved and the resilience of the economic data has supported that but unfortunately, the same resilience has also supported the case for more hikes and a higher terminal rate.

Last month's CPI release gave investors real hope that in much the same way that inflation's acceleration higher this year blew expectations out of the water, the path lower may also not be as gradual as feared. Unfortunately, some of the data since then hasn't been so favourable - most notably the wages component of the jobs report - so a lot is now hanging on today's release. Another number below forecasts of around 7.3%, year on year, could get the excitement flowing once more.

Jobs data keeps pressure on BoE

The pound is relatively steady after the release of the UK jobs data that was in line with market expectations. Unemployment rose marginally to 3.7% while wages rose by 6.1%. While the data does indicate some additional slack in the labour market, the wages number - despite falling well short of inflation - will be of concern to the BoE and ensure its foot remains firmly on the brake in the short term.

Bouncing back

Oil prices are advancing again on Tuesday, with Brent approaching $80 a barrel and WTI nearing $75. This comes amid further relaxations of Covid curbs in China, the threat of lower Russian output in response to the G7 price cap, an outage on the keystone pipeline in the US, and the promise of US purchases around $70.

That's a lot of supportive factors for the price even in what appears to be an environment tilted towards oversupply. Suddenly there appears more upside risk than downside which could keep prices slipping below $70 for the foreseeable future.

Awaiting CPI data

Gold remains in consolidation ahead of the CPI data. Last month's release helped drive gold prices higher on the back of a promising Fed statement and jobs report. Of course, recent data hasn't been quite so bullish for the yellow metal but a weaker inflation reading today could get it back on track ahead of tomorrow's Fed decision. The key level to the upside remains $1,810, with gold seeing some support around $1,780.

Steady despite FTX developments and Binance concerns

Bitcoin continues to trade around $17,000, undeterred by reports of Sam Bankman-Fried's arrest and possible charges for money laundering against Binance. Withdrawals on the platform highlight the uncertainty and shattered confidence in the space, a desperation not to be caught up in another FTX event. Even when the situation looks very different. But that's what fear does, especially in a situation where confidence has been so severely damaged, as it has in recent weeks.

Daily Pivots: (S1) 1.3608; (P) 1.3645; (R1) 1.3672; More....

Intraday bias in USD/CAD stays neutral and consolidation from 1.3699 could extend further. The favored case is still that correction from 1.3976 has completed at 1.3224. Above 1.3699 will resume the rebound from there to 1.3807 resistance, and then retesting 1.3976 high. However, break of 1.3383 support will dampen this case and bring retest of 1.3224 low instead.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

Daily Pivots: (S1) 0.6718; (P) 0.6758; (R1) 0.6788; More...

Range trading continues in AUD/USD and intraday bias stays neutral first. On the downside, break of 0.6641 should confirm rejection by 0.6871 resistance. Intraday bias will be back on the downside for 0.6521 resistance turned support. However, sustained break of 0.6871 will extend the rise from 0.6169 to 55 week EMA at 0.6912.

In the bigger picture, it's still unsure if price actions from 0.6169 medium term bottom are developing into a corrective pattern or trend rejection. Rejection by 38.2% retracement of 0.8006 to 0.6169 at 0.6871 will maintain medium term bearishness for another fall through 0.6169 at a later stage. However, firm break of 0.6871, and sustained trading above 55 week EMA (now at 0.6912) will raise the chance of the start of a bullish up trend.

Daily Pivots: (S1) 1.0503; (P) 1.0542; (R1) 1.0577; More...

Range trading continues in EUR/USD and intraday bias remains neutral. On the downside, break of 1.0442 support will indicate rejection by 1.0609 fibonacci level. Bias will be back on the downside for 1.0222 support and below. However, firm break of 1.0594/0609 resistance zone will carry larger bullish implication. Next near term target is 61.8% projection of 0.9729 to 1.0481 from 1.0222 at 1.0687, and then 100% projection at 1.0974.

In the bigger picture, focus is now on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

Daily Pivots: (S1) 1.2216; (P) 1.2257; (R1) 1.2307; More...

No change in GBP/USD's outlook as range trading continues. Intraday bias stays neutral for the moment. Further rally is expected as long as 1.1898 support holds. Break of 1.2343 will resume larger rally from 1.0351 and target 1.2759 medium term fibonacci level next. However, firm break of 1.1898 support will confirm short term topping and turn bias back to the downside.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Daily Pivots: (S1) 0.9323; (P) 0.9352; (R1) 0.9389; More...

USD/CHF is losing downside momentum but there is no sign of rebound yet. Focus stays on 0.9287 fibonacci level. Decisive break there will target 0.9149 structural support next. On the upside, though, break of 0.9454 resistance will now indicate short term bottoming. Intraday bias will be turned back to the upside for 0.9545 resistance and above.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Sustained break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 55 day EMA (now at 0.9621) holds.

Daily Pivots: (S1) 136.84; (P) 137.34; (R1) 138.16; More...

Break of 137.84 suggests that USD/JPY is resuming the rebound from 133.61. The development also affirms that case of short term bottoming at 133.61. Intraday bias is back on the upside for 38.2% retracement of 151.93 to 133.61 at 140.60, which is close to 55 day EMA (now at 140.80). On the downside, however, break of 135.59 minor support will bring retest of 133.61 low instead.

In the bigger picture, price actions from 151.93 medium term could be just a corrective pattern to up trend from 102.58 (2021 low). Strong support from 38.2% retracement of 102.58 to 151.93 at 133.07 and 55 week EMA (now at 131.71) will set the range for such corrective pattern. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.

Markets

European and American stocks parted ways yesterday. The former closed half a percent lower in choppy trading (EuroStoxx50) as investors eye the impact on power markets from this winter’s first real cold snap. Wall Street finished up to 1.58% higher (DJI) with some pointing to the NY Fed inflation survey (see below) serving as a catalyst. But this doesn’t dovetail with the uptick in yields occurring around the same time. The US auctioned $40bn 3-y and $32bn 10-y auction notes. The former went well but the latter tailed by almost 4 bps. It reinforced the ongoing advance in US yields with net changes ranging between 2 and 3.5 bps in the 2y/10y bucket. Germany’s yield curve inversion deepened, seeing +3.7 bps at the front and -2.9 bps at the longest tenor. The dollar was slightly stronger in general but so was the euro. EUR/USD as a result closed unchanged around 1.053. Japan’s yen underperformed. USD/JPY rose from 136.36 to 137.67. EUR/JPY topped 145, coming from 143.79. Sterling had another decent run. EUR/GBP continues to hover near key support at 0.856/7. Economic data contained an industrial update (IP, manufacturing production, construction) which overall topped estimates.

Hong Kong relaxed some more Covid restrictions, amongst others scrapping a ban on international arrivals going to bars or eating at restaurants. It’s part of China’s rapid shift away from its economically damaging zero-Covid strategy. HK bourses are among the better performers during Asian trading hours this morning, although gains of about 1.3% were halved in the meantime. Core bonds eke out a slight gain, resulting in a 1 bp decline in UST cash markets currently. The dollar loses a few ticks in generally subdued trading.

Tight trading ranges suggest markets adopted a holding pattern as they await the outcome of today’s US CPI (November). It is the final critical data the Fed gets as it kicks of its two-day meeting later today. Consensus expects headline inflation to come in at 0.3% m/m and settle at 7.3% y/y, down from 7.7% the month before. Core inflation should ease from 6.3% to 6.1% y/y (0.3% m/m). We hold a neutral view on the actual outcome but expect an asymmetrical market reaction where a downside surprise is likely to cement rate cut bets and trigger an equity and core bond/US Treasury surge. Resistance in EUR/USD at 1.0611 (38.2% recovery of the 2021-2022 decline) would surely be tested. This would raise the stakes going in to the Fed decision as we expect chair Powell to push back against such market pricing. The British economic update continues with the October labour market report surpassing expectations on all accounts. Sterling in a first reaction ekes out a small gain.

News Headlines

The EU and Hungary reached a way out of their stalemate ahead of the EU Summit at the end of the week. Hungary yesterday dropped its veto against the implementation of an EU-wide minimum effective corporate tax rate (15%) and against an €18bn funding package for Ukraine. As a quid pro quo, the EU will conditionally approve the country’s €5.8bn Covid recovery plan. Member states also agreed to freeze €6.3bn of cohesion funding (instead of €7.5bn earlier proposed). Rule of law reform requirements will be integrated in Hungary’s recovery plan so that the country only really gets access to the money once all conditions are met. The forint gained some ground yesterday in the run-up to the decisions, with EUR/HUF down to 415 from 420. It’s too early for a big forint relief rally as long as the country doesn’t get the necessary funding.

The NY Fed household survey yesterday showed that inflation expectations decreased in November at both the 1y (from 5.9% to 5.2%), 3y (from 3.1% to 3%) and 5y (from 2.4% to 2.3%) horizons. Home price growth expectations continued to decline. Labor market expectations strengthened, while household income growth expectations increased to a new series high. Mean unemployment expectations—or the mean probability that the US unemployment rate will be higher one year from now—decreased by 0.7 percentage points to 42.2%.

In November, UK payrolled employees rose 107k or 0.4% mom to 29.9m. That also means a rise of 777k or 2.7% yoy over the 12-month period. Early estimates indicate that median monthly pay rose 8.0% yoy. Claimant count rose 30.5k comparing to expectation of 3.5k.

In the three months to October, unemployment rate rose 0.1% to 3.7%, matched expectations. Employment rate rose 0.2% to 75.6%. Economic inactivity rate dropped -0.2% to 21.5%. Average earnings excluding bonus rose 6.1% 3moy, versus expectation of 5.9%. Average earnings including bonus rose 6.1% 3moy, below expectation of 6.2%.

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