Sample Category Title

Pivot (invalidation): 2575.00

Our preference Short positions below 2575.00 with targets at 2528.00 & 2502.00 in extension.

Alternative scenario Above 2575.00 look for further upside with 2588.50 & 2608.00 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 10840.00

Our preference Short positions below 10840.00 with targets at 10685.00 & 10620.00 in extension.

Alternative scenario Above 10840.00 look for further upside with 10910.00 & 11000.00 as targets.

Comment The RSI is below its neutrality area at 50%

Pivot (invalidation): 47.60

Our preference Short positions below 47.60 with targets at 44.60 & 43.85 in extension.

Alternative scenario Above 47.60 look for further upside with 48.30 & 49.30 as targets.

Comment The RSI is bearish and calls for further downside.

Pivot (invalidation): 14.5800

Our preference Long positions above 14.5800 with targets at 14.7500 & 14.8000 in extension.

Alternative scenario Below 14.5800 look for further downside with 14.5200 & 14.4700 as targets.

Comment A support base at 14.5800 has formed and has allowed for a temporary stabilisation.

Pivot (invalidation): 1246.00

Our preference Long positions above 1246.00 with targets at 1256.00 & 1258.50 in extension.

Alternative scenario Below 1246.00 look for further downside with 1242.50 & 1240.00 as targets.

Comment The RSI is bullish and calls for further upside.

• Rates: All eyes on the Fed
  US Treasuries heavily outperformed German Bunds yesterday with oil prices losing almost 5%. Today’s Fed meeting is key. Markets expect tonight’s hike to be the final one this cycle. The Fed will offer a contrasting view in its dot plot. Bear flattening of the US yield curve should be the logical market reaction. If not, the Fed has a credibility issue.
• Currencies: Will Fed unlock EUR/USD stalemate?
  The dollar lost slightly further ground as interest rate differentials moved against the US currency going into the Fed policy meeting. The Fed is expected to deliver some kind of dovish rate hike. Will Powell and Co be able to convince markets that (current & projected) rate hikes won’t kill growth, preventing further USD losses?

The Sunrise Headlines

• Wall Street closed flat (S&P 500) to 0.5% higher (Nasdaq). Opening gains (+1%) melted away as another drop in the oil price weighed down the energy sector. Asian bourses are mixed this morning with China and Japan underperforming.
• Oil prices dropped further with Brent crude below $56/barrel (-4.5%). API said that US crude inventories rose last week, putting the effectiveness of production cuts further in doubt with investors worried about global demand as well.
• The National Bank of Hungary kept its policy rate unchanged, but no longer thinks that maintaining loose monetary conditions is necessary with core inflation expected to pick-up. EUR/HUF fell from 323.5 towards 322.
• Italian officials said that Rome has a technical agreement with EU officials on next year’s budget (2.04% of GDP deficit target) which needs to be ratified later today. Italy would avoid sanctions over its spending plans thanks to the deal.
• Senate GOP leaders are preparing a short-term bill to avoid a partial government shutdown as early as this weekend with the White House signalling readiness to drop its demand for $5bn to pay for a border wall.
• US Treasury Secretary Mnuchin said that the US and China are planning face-to-face January meetings to negotiate a trade war truce. Both countries’ vice ministers held discussions by phone this morning.
• Today’s economic calendar contains the final Fed meeting of the year. A 25 bps rate hike is discounted, but how will new forecasts look like? UK CPI, US existing home sales and a speech by ECB Hansson are second tier events.

Currencies: Will Fed unlock EUR/USD stalemate?

Will Fed unlock recent EUR/USD stalemate?

EUR/USD was well bid yesterday morning, but the US dollar regained modest ground later. The German IFO-indicator was slightly weaker than expected, but this was apparently discounted after last week’s poor EMU PMI’s. EUR/USD was also supported by narrowing US/EMU interest rate differentials. US equity volatility eased compared to previous days. The intraday decline in US yields slowed (albeit temporarily), providing some breathing space for the dollar. Still, US yields finished near intraday lows (oil-related?). The dollar lost modest ground in a daily perspective. EUR/USD closed at 1.1361 (from 1.1348). USD/JPY finished at 112.52 (from 112.83). Asian markets are trading mixed, but China and Japan are declining after a better start. Chinese officials and US Treasury secretary Mnuchin indicate that trade talks continue. More meetings are planned for January. This news doesn’t really help to comfort investors for now. The dollar remains slightly in the defensive. EUR/USD is trading in the 1.1385 area. USD/JPY hovers in the 1.12.20/60 area. There are only second tier eco data in the US and Europe today. The EU and Italy are close to a budget agreement. If finalised, it might remove a euro negative factor. However, the Fed policy decision will be the all-decisive factor. The Fed is expected to deliver some kind of ‘dovish’ rate hike. Investors’ focus will be on the Fed dots and chairman Powell’s assessment at the press conference. Of late, the dollar lost substantial interest rate support as markets sharply reduced expectations on 2019 Fed rate hikes. Will Powell be able to convince markets that (recent and projected) Fed rate hikes won’t kill growth? The dollar in general and EUR/USD in particular showed an indecisive trading pattern lately. We are not convinced this will change after today’s Fed decision. A perceived too hawkish Fed will cause more global market volatility and further flatten the US yield curve. However, is such a risk-off context supportive for the euro with EMU growth also slowing? A moderate tone from the Fed might ease growth concerns. In this respect, the scenario of a rate hike, dots signalling 2 instead of 3 2019 rate hikes and less strict Fed forward guidance, shouldn’t be too bad for the dollar.

EUR/GBP hovered sideways close to, mostly slightly below the 0.90 mark as there was little ‘new’ news on Brexit yesterday. UK price data (CPI) and CBI order data will be published today. Data had little impact on sterling trading of late. Still, soft inflation data might be a slightly sterling negative going into tomorrow’s BoE meeting

EUR/USD: Will a ‘dovish’ Fed rate hike prevent further USD losses?

The price of crude oil remained at 15-year lows after data from the American Petroleum Institute (API) showed increased inventories. The stocks rose by 3.45 million barrels after having a drawdown of more than 10 million barrels a week ago. Investors are currently concerned that the supply cuts announced by OPEC+ did not go far enough and that American production is continuing. Later today, the Energy Information Administration (EIA) will release its inventory numbers for the week. Investors expect a drawdown of 2.45 million barrels.

The Japanese yen strengthened slightly against the USD in overnight trading. This happened even after data from Japan showed a softening export market. In November, exports rose by 0.1%, which was lower than the estimated 1.8% growth. At the same time, imports increased by 12.5%, which was higher than the estimated 11.5%. Because of this, the country’s trade deficit increased to ¥737 billion, which was higher than the ¥600 billion traders were expecting. Traders will continue to focus on the Bank of Japan, which is expected to make its interest rates decision tomorrow.

Sterling rose slightly today ahead of important inflation numbers. Investors expect the headline CPI to increase by 2.3%, which will be lower than the previous month’s CPI of 2.4%. On a MoM basis, the CPI is expected to rise by 0.2%. The core CPI, which excludes volatile products like food and energy, is expected to rise by an annualized rate of 1.8%. This will be lower than the previous month’s 1.7%. Inflation in the UK has eased a bit this year after reaching a high of 3.1% in December last year.

EUR/USD

The EUR/USD pair rose to a high of 1.1390 in the Asian session. This was higher than the 25-day and 50-day EMA. The RSI and the Relative Vigor Index have all moved up during the pair’s upward trend. Today, the pair will likely move higher as hopes of a rate hike reduce. To calm the markets, the Fed will likely issue a dovish statement, which will likely take the pair higher.

USD/JPY

The USD/JPY pair continued the downward trend in overnight trading, reaching a low of 112.18. This was the lowest level the pair has reached since October this year. The current price is below the 25-day and 50-day EMA. The price is also along the Bollinger Bands. The MACD remains at the negative territory while the RSI has fallen to 36. The pair will likely remain volatile today ahead of the Fed and BOJ monetary policy decisions.

XTI/USD

The price of West Texas Intermediate (WTI) crude rose slightly in the Asian session. Still, the pair remained closer to the 15-month lows. The current price of 46.74 is slightly above the 28-day double EMA but lower than the 50-day double EMA. The momentum indicator remains lower than 100 while the Average Directional Index (ADX) has fallen to 27. Today, the movements will likely be influenced by the EIA inventory data.

Italian 10 year yield drops notably at open today on news that the coalition government had finally got agreement from European Commission on its 2019 budget plan, thus avoiding disciplinary actions.

It's now trading down -0.163 at 2.784 and is set to challenge September's low. German 10 year yield is now up 0.0053 at 0.252. Spread is back at 253.

EUR/CHF benefits from the development and is extending recent rebound from 1.1224.

The financial crisis of 2008/9 was blamed on a number of things. Among them was the concept of credit default swaps (CDS), financial derivatives that allow investors to transfer their credit risk to another investor. A good example is when a bank believes that a certain client will default on their obligations. To prevent the risk, the bank can sell the loan to another company. This clever hedging strategy was developed by Blythe Masters, who was a high-flying female executive at JP Morgan.

In 2014, Blythe made headlines when she resigned from her position at the bank to explore the cryptocurrency industry. She became the Chief Executive of Digital Asset, a blockchain company that caters to institutional investors and startups by facilitating confidential trades.. At its prime, Digital Asset was one of the highest-flying blockchain startups.

Yesterday, the company announced that Blythe was leaving the firm for private reasons. This was a huge blow to the industry because it lost one of its highest-profile believers. Even with the news, the price of BTC moved higher, gaining from $3100 to the current $3730. Other cryptocurrencies like ETH and XRP are also trading higher. The BTC/USD price is slightly above the 25-day and 50-day EMA while the RSI has moved above the overbought level of 70. With crypto sentiment very low, the price will likely reverse.

AUDUSD has been lacking direction over the past few days, resting between the 50% and the 61.8% Fibonacci of the upleg from 0.7020 to 0.7392. The technical indicators, though, support prospects for an extension of the recent bearish move, with the red Tenkan-sen line pointing strongly to the downside and below the blue Kijun-sen line. The MACD is also supportive of this view, increasing negative momentum below zero its red signal line.

On the downside, the market may try to break the 61.8% Fibonacci of 0.7160, while slightly lower the previous low of 0.7150 should be In focus as well, as this is located below the Ichimoku cloud and hence any decisive close below that point could confirm that the sell-off is not over yet. Should the latter fail to hold, support could run towards the 0.7084 barrier, identified by the September 11 trough.

Alternatively, a push beyond the 50% Fibonacci of 0.7200 may find immediate resistance around the 38.2% fibo of 0.7250, while a stronger obstacle could appear near 0.7300 (23.6% Fibonacci), where the market paused several times in the past. Higher than that, traders would be eagerly looking for a close above the 0.7392 top and hence above the 200-day simple moving average to take more positioning.

In the medium-term picture, the market continues to trade neutral between 0.7392 and 0.7020 over the past three months. A significant break of the 0.7020 bottom would resume the long-term downtrend and therefore shift the outlook back to bearish, while a step above the 0.7392 top could be a sign that the recent fall was temporary, and an uptrend is in progress.

Summarizing, AUDUSD holds neutral both in the short and medium-term picture.