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General Trend:

• Equities markets follow the overnight New York lead which saw the worst start in December since the Great Depression
• China and Japan reduce holdings of US treasuries in October
• Australia RBA meeting minutes confirm credit and financial conditions have tightened. Notes uncertainty around China.
• NZD/USD gains on Moody’s affirming sovereign rating and stronger business confidence to 0.6829, later in the session extended its gains to 0.6855
• Japan starts to take measures to support economy ahead of next year’s sales tax increase; to lower purchasing tax on cars and extend housing loan tax exemptions
• Japan cuts outlook for GDP and CPI for both current and next year
• China President Xi speaks in Beijing at 40th anniversary of China’s reform failed to excite markets. He affirmed commitment to opening up and controlling risks to the economy.

Headlines/Economic Data

Japan

• Nikkei 225 opened -1.1%
• (JP) Japan Govt cuts outlooks for CPI and GDP: FY18/19 CPI at 1.0% from 1.1% prior, FY19/20 at 1.1% from 1.5% prior; FY18/19 GDP to 0.9% from 1.5% prior; FY19/20 1.3% from 1.5% prior
• 8053.JP Acquires 30% stake in a France offshore wind project - Nikkei
• (JP) IMF Japan mission head: Side effects of BOJ's ultra-easy policy is not large enough to outweigh the benefits
• 4502.JP Moody's downgrades rating to Baa2 from A2, Outlook stable, due to high debt after Shire deal
• (JP) Former BoJ Deputy Gov Nakaso: Increased labor force participation, improvement in labor productivity are key factors to keeping Japan underlying inflation seemingly low
• (JP) Japan Fin Min Aso: To reduce purchasing tax on autos, to extend housing loan tax exemptions
• (JP) Japan Finance Ministry's Asakawa: With Abenomics yen fell against USD; export trade volume still hasn't changed much
• 5019.JP Shareholders of Idemitsu and Showa Shell approve merger
• (JP) Japan MoF sells ¥1.0T v ¥1.0T indicated in 0.70% (prior 0.70%) 20-yr bonds; avg yield 0.5430% v 0.6120% prior; bid to cover 3.44x v 3.91x prior

Korea

• Kospi opened -0.7%
• (KR) International Atomic Energy Agency (IAEA) Chief Amano: Making preparations to dispatch inspectors to North Korea in case it decides to accept them - Yonhap
• 005380.KR Forms JV with Algeria's Global Group to produce commercial vehicles in Algeria; production is scheduled to begin in 2020 – Yonhap
• (KR) South Korea Govt to provide KRW3.5T in financial support for auto suppliers; to expand subsidies for electric and hydrogen cars

China/Hong Kong

• Hang Seng opened -0.7%, Shanghai Composite -0.6%
• (CN) China President Xi: To make reform more systematic; China had avg annual GDP of 9.5% over the last 40-yrs - speaking at 40th anniversary of China's reform and opening up
• HUAWEI.CN Expect to meet 2018 phone shipment targets, guides FY19 to have growth
• (CN) China authorities in Guangdong, China's manufacturing powerhouse, told that all future PMIs will be created by National Bureau Stats, as China takes steps to control all data ahead of what is expected to be a rough 2019 – SCMP
• (CN) China Govt advisers said to have suggested that 2019 GDP target should be lowered to 6.0-6.5% due to increasing headwinds – press
• 83.HK New project offering in Hong Kong is oversubscribed - local press
• (CN) China PBoC Open Market Operation (OMO): Injects CNY180B in 7-day and 14-day Reverse Repos v injects CNY160B in 7-day prior; Net injects CNY180B v CNY160B prior
• (CN) China PBoC sets yuan reference rate: 6.8854 v 6.8908 prior
• (CN) China Research Institute for Fiscal Science under the Ministry of Finance Dir Liu Shangxi: China may announce major tax cuts, including income tax cuts and measures for small business; surpassing this year's total of CNY1.3T - China Daily
• USD/CNY According to analysts Neal Kimberley yuan may not weaken in 2019 despite China's slowing economy and trade war with US – SCMP

Australia/New Zealand

• ASX 200 opened -0.6%
• (NZ) RBNZ Assistant Gov McDermott to step down in late Feb 2019
• OBJ.AU Executes licensing term sheet with Procter & Gamble for package product, no terms disclosed
• (NZ) Moody's: New Zealand mid-year budget supports AAA sovereign rating, stable outlook
• CTX.AU Guides FY18 RCOP adj Net A$533-553M v A$638M y/y, EBIT A$800-830M v A$959M y/y; HCOP Net A$530-550M v A$619M y/y
• (NZ) New Zealand Dec ANZ Activity Outlook: 13.6 v 7.6 prior; Business Confidence: -24.1 v -37.1 prior
• (AU) RESERVE BANK OF AUSTRALIA (RBA) DEC MEETING MINUTES: REITERATES BOARD AGREED THAT NEXT RATE MOVE LIKELY TO BE INCREASE; NO STRONG CASE FOR NEAR-TERM ADJUSTMENT IN POLICY
• (AU) Australia Nov HIA New Home Sales m/m: +3.6% v -0.8% prior

North America

• (US) President Trump said to be hesitant to sign a 1-2 week stop gap funding bill that would avert a Govt shutdown Friday - US press
• (CA) Bank of Canada (BOC) Gov Poloz: Rates need to be more neutral with economy near capacity; not expecting recession in 2019, economic fundamentals are quite solid
• (MX) Mexico Foreign Min to give details on investment plan with the US Tuesday
• MRIN Entered into a three-year revenue sharing agreement with Google; guides Q4 Net -$2.9M to -$2.4M, Rev $14.6-15.1M v $17.7M y/y (+64% afterhours)
• BA Increases share repurchase authorization to $20B (11% of market cap); Raises Quarterly dividend 20.2% to $2.055 from $1.71 (indicated yield 2.6%)
• ORCL Reports Q2 $0.80 v $0.78e, Rev $9.56B v $9.53Be; Guides Q3 $0.86-0.88 (cc) v $0.85e, Rev (cc) +2-4% v +1%e
• T-Mobile and Sprint Receive Approval from Both the Committee on Foreign Investment in the U.S. and Team Telecom on Merger Transaction

Europe

• (UK) Prime Min office says it won't allow time for a 'no-confidence' vote against the PM – press
• (UK) Opposition Labour Party Corbyn to put forward no-confidence motion against PM May
• (UK) Prime Min May reportedly to present three Brexit countdown choices for her cabinet - UK's Times
• (UK) Cabinet reportedly to order UK's 6M businesses to start immediate preparations for a No Deal Brexit on Tuesday - UK's The Sun
• (UK) According to British Chamber of Commerce (BCC) 2018 GDP may be 1.8% (slowest growth since 2009) and 2019 GDP to be around 1.3% - US financial press

Levels as of 12:50ET

• Hang Seng -1.2%; Shanghai Composite -1.0%; Kospi -0.5%; Nikkei225 -1.7%; ASX 200 -1.2%
• Equity Futures: S&P500 -0.1%; Nasdaq100 +0.1%, Dax -0.2%; FTSE100 +0.0%
• EUR 1.1340-1.1360; JPY 112.47-112.86 ; AUD 0.7169-0.7200;NZD 0.6801-0.6859
• Feb Gold -0.0% at $1,251/oz; Feb Crude Oil -1.5% at $49.47/brl; Mar Copper -0.2% at $2.74/lb

GBPUSD has rebounded somewhat after falling to a 20-month low of 1.2475 on December 12 and momentum indicators are endorsing that the market sentiment might get better and create some gains in the daily timeframe. The RSI indicator is sloping slightly up in the negative territory, while the MACD oscillator is also looking to change direction and is ready to create a bullish crossover with its trigger line in the bearish zone.

Should upside movement dominate in the near term, the market might revisit the 1.2690 resistance level before meeting the 20-day simple moving average (SMA) around 1.2710. Above that, the area around the 40-day SMA near 1.2805 could be the next level for investors to look for. Steeper increases may overcome that point and test the 1.2925 barrier, which is the 23.6% Fibonacci retracement level of the downleg from 1.4375 to 1.2475. Also, the long-term descending trend line could act as strong obstacle for the bulls.

Alternatively, if the price manages to move lower again, support could come from the previous trough at 1.2475. Further down, the price could rest around the 1.2360 hurdle, taken from bottom on April 2. A rally beneath this region would increase chances that the downtrend is in progress and challenge the 1.2100 psychological level.

To sum up, in the long-term view, the downfall from 1.4375 is still active and hence the outlook remains negative.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 127.73; (P) 128.16; (R1) 128.46; More....

EUR/JPY's recovery attempt was rejected by 4 hour 55 EMA and focus is back on 127.61 support. Break there will resume the fall from 130.14 and target 126.63 support first. Break there will then resume the whole decline from 133.12 to 124.08/89 support zone. Overall, consolidation from 126.63 could still extend. But even in case of another strong recovery, outlook will stay bearish as long as 130.14 resistance holds.

In the bigger picture, as long as 124.08 key resistance turn supported holds, larger up trend from 109.03 (2016 low) could still resume. Firm break of 137.49 structural resistance will target 141.04/149.76 resistance zone next. However, decisive break of 124.08 will argue that such rise from 109.03 has completed and turn outlook bearish. In that case, deeper fall would be seen to 61.8% retracement of 109.03 to 137.49 at 119.90.

Yen is trading as the second strongest one for today, next to New Zealand Dollar, as risk aversions spread from the US to Asia. There were continuous rhetorics from Trump's administration against Fed's rate hikes. But the fact that Dollar and yields are weak argues that the free fall in stocks is due to some more fundamental challenges of the economy. And there has been clear flow from stocks to bonds in the US, Germany and Japan. Investors are clearly worried about a global slowdown. For today, Euro is the weakest one, followed by Dollar and Swiss Franc.

Technically, EUR/JPY is now pressing 127.61 support and break there will at least bring a retest on 126.63 support, with prospect of resuming recent decline from 133.12 to 124.89 support next. USD/CHF is also eyeing 0.9911 minor support and break will likely resume choppy correction from 1.0128 for 0.9862 low again. AUD/USD might now consolidate above 0.7153 temporary low but outlook will stay bearish as long as 0.7246 minor resistance holds. EUR/USD, GBP/USD and USD/CAD are staying in consolidation in familiar range.

In other markets, DOW dropped -507 pts or -2.11% to 23592.98. S&P 500 declined -54.01 pts or -2.08% to 2545.94. NASDAQ lost -156.93 pts or -2.27% to 6753.73. Nikkei closed down -1.64% at 21115.45. At the time of writing, Singapore Strait Times is down -2.05%, Hong Kong HSI is down -1.03% and China Shanghai SSE is down -0.82%. In bond markets, US 10 year yield dropped -0.034 to 2.857. Yield curve is inverted between 2-year (2.696) and 3-year (2.683). 5-year yield is not far away at 2.692. Japan 10 year JGB yield is down -0.0126 at 0.024.

White House Navarro: Fed shouldn't even hike this week

White House trade advisor Peter Navarro said Fed shouldn't raise interest rate, even this week. He said it's "not because the economy's slowing down, but because the economy's growing without inflation". Trump also blast Fed for "even considering yet another interest rate hike". Whether Fed should or shouldn't continue with rate hike is one question, they've got enough seasoned economists there to make their own judgement. But noting that Dollar and yield declined, there is apparently no linkage between Fed's hike to the stock market crash.

RBA minutes hint on prospect of dovish shift

Minutes of the December 4 RBA meeting maintained the same tone that "the next move in the cash rate was more likely to be an increase than a decrease". But at the same time "there was no strong case for a near-term adjustment in monetary policy".

For RBA, the "central scenario remained for steady growth in consumption, supported by continued strength in labour market conditions and a gradual pick-up in wages growth". Also, "further falls in the unemployment rate were likely". But it should be emphasized that was based on "expectation that the economy would continue to grow above trend".

Also, the meeting took place before release of Q3 GDP, which showed merely 2.8%. That's clearly lower than RBA's own projection of 2.0%. And 2.8% could merely be described as being around trend, not above trend. Thus there is prospect of a dovish shift in RBA's upcoming forecast in February Monetary Policy Statement.

Japan cabinet office lowered growth and inflation forecast, but consumption offers a bright spot

Japan Cabinet Office lowered fiscal 2018 and 2019 growth forecast notably in the new economic projections. The move was due to impact from natural disaster as well as increasing downside risks from US-China trade war. Inflation forecasts was also revised lower. Though, private consumption is expected to pick up down the road, providing a bright spot.

For fiscal 2018, which ends in March, growth is now expected to grow 0.9%, sharply lower from prior projection of 1.5%. For fiscal 2019, growth is projected to be at 1.3%, also down from prior projection of 1.5%.

On inflation, core CPI is projected to rise 1.0% in fiscal 2018, revised down from prior forecast of 1.1%. For fiscal 2019, core CPI is expected to climb slightly to 1.1%, also revised down from prior estimate of 1.5%.

In other projections, capital expenditure is forecast to rise 3.6% in fiscal 2018, then slow to 2.7% in fiscal 2019. Private consumption is expected to rise 0.7% in fiscal 2018 and accelerate to 1.2% in fiscal 2019.

China Xi pledged reform and open up markets, with no specifics

At the 40th anniversary of market liberalization, Chinese President Xi Jinping used one and a half hour to delivered some high level promises but failed to deliver any specifics. He said "we must, unswervingly, reinforce the development of the state economy while, unswervingly, encouraging, supporting and guiding the development of the non-state economy".

He added that "Every step of reform and opening up is not easy. In the future, we will be inevitably faced with all sorts of risks and challenges, and even unimaginable tempestuous storms." But he also emphasized that "opening brings progress while closure leads to backwardness."

Brexit deal vote again in week of Jan 14

UK Prime Minister Theresa May told the parliament yesterday that her Brexit agreement is "not everyone's perfect deal" but a "compromise". But she warned that "if we let the perfect be the enemy of the good then we risk leaving the EU with no deal". And she emphasized that "avoiding no deal is only possible if we can reach an agreement or if we abandon Brexit entirely." She al repeated that EU had offered "further clarifications" on the Irish backstop and she's seeking "further political and legal assurances". On the timing of the vote, May said debate on the Brexit deal with resume in the week beginning Monday January 7. Vote will be held in the following week, that is, the week beginning January 14.

Opposition Labor leader Jeremy Corbyn lodged a motion of no-confidence in May for delaying the Brexit deal vote as "this is unacceptable in any way whatsoever". Corbyn also criticized May as the architect of a constitutional crisis, "leading the most shambolic and chaotic government in modern British history". But the results of such vote would be non-binding, even if it takes place.

On the data front

New Zealand ANZ Business Confidence rose to -24.1 in December, up from -37.1. Looking ahead, Germany Ifo business climate is the main focus in European session. Later in the day, Canada will release manufacturing sales. US will release housing starts and building permits.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 127.73; (P) 128.16; (R1) 128.46; More....

EUR/JPY's recovery attempt was rejected by 4 hour 55 EMA and focus is back on 127.61 support. Break there will resume the fall from 130.14 and target 126.63 support first. Break there will then resume the whole decline from 133.12 to 124.08/89 support zone. Overall, consolidation from 126.63 could still extend. But even in case of another strong recovery, outlook will stay bearish as long as 130.14 resistance holds.

In the bigger picture, as long as 124.08 key resistance turn supported holds, larger up trend from 109.03 (2016 low) could still resume. Firm break of 137.49 structural resistance will target 141.04/149.76 resistance zone next. However, decisive break of 124.08 will argue that such rise from 109.03 has completed and turn outlook bearish. In that case, deeper fall would be seen to 61.8% retracement of 109.03 to 137.49 at 119.90.

Economic Indicators Update

The euro has continued to press higher against the US dollar, with the recent rally so far finding interim technical resistance from the 1.1360 level. If buyers can edge price above the 1.1360 level, further bullish advancement towards the 1.1400 level appears likely. Only a move below the 1.1330 support level can change the current bullish sentiment surrounding the EURUSD pair.

The EURUSD pair is strongly bullish while trading above the 1.1360 level, key technical resistance is found at the 1.1400 and 1.1470 levels.

If the EURUSD pair trades below the 1.1330 level, sellers are likely to test towards the 1.1300 and 1.1268 support levels.

Bitcoin has moved sharply higher alongside the broader cryptocurrency market, with the BTCUSD briefly trading above the important $3,500 level. After finding a price floor just above the $3,100 level, the BTCUSD pair may be in the process of forming a bullish inverted head and shoulders pattern. Despite the recent rally, a minor technical correction lower towards the $3,300 level cannot be ruled out.

The BTCUSD pair is short-term bullish while trading above the $3,600 level, key resistance is now located at the $3,800 and $4,000 levels.

If the BTCUSD pair fails at current levels, sellers may test towards the $3,300 and $3,250 support levels.

The US dollar is coming under increasing selling pressure against the Japanese yen on Tuesday, as global equity markets tumble into the red. The USDJPY pair is also under pressure technically, as the recent decline has created a bearish fourth lower price high. The 112.20 support level is the key downside area to watch, a break below the 112.20 level exposes further downside towards the 111.30 level.

The USDJPY pair is intraday bearish while trading below the 112.90 level, key support is found at the 112.20 and 111.30 levels.

If the USDJPY pair trades above the 112.90 level, key resistance is found at the 113.20 and 113.50 levels.

Wall Street ended the day yesterday sharply lower as investors worried about a number of things such as global growth, Fed interest rates, and corporate profits. This decline drove Wall Street deeper into the correction territory started on Friday. In response to the slide, Asian stocks dropped today with the Nikkei, Shanghai, and Hang Seng dropping by 360, 30, and 250 points respectively. This volatility is likely to continue as the Fed starts its meeting. In recent days, a number of high-profile individuals like Donald Trump, Jeffrey Gundlach, and Stanley Druckenmiller have cautioned the Fed against further rate hikes.

The price of crude oil declined sharply in overnight amid worries over demand and oversupply. This came after some moderate gains yesterday as investors started to cheer the falling rigs in the US. The price of Brent reached a low of $58 while WTI reached a low of $49.30. Traders will now focus on inventory data set to be released tomorrow by API and EIA.

Sterling moved slightly higher in overnight trading despite increasing Brexit fears. Research by the British Chamber of Commerce showed that the country will have the weakest growth since the last recession. This year, the chamber estimated that the economy will grow by 1.2% before moving up to 1.3% in 2019. This will be the weakest growth since the country emerged from the global financial crisis. The reason for the soft growth is that businesses have frozen investments ahead of the Brexit vote. This came as Jeremy Corbyn tabled a motion of no-confidence in Theresa May yesterday.

EUR/USD

The EUR/USD paused its upward trend in the Asian session. This comes after the sharp increase that started on Friday when the pair reached a low of 1.1270. Today, the pair is trading at 1.1350, which is slightly lower than yesterday’s high of 1.1360. The current price is above the 25-day and 50-day EMA on the hourly chart. The pair’s RSI has remained between the 50 and 60 level for the past trading days. Still, this upward trend might not last as traders wait for the Fed decision tomorrow.

XTI/USD

The price of WTI crude oil declined sharply to a low of $49.30. This was the lowest level in a few weeks and is close to the lowest level this year. On the hourly chart, the price is below the 25-day and 50-day EMA. The RSI has moved to the extreme oversold territory of 23 while the momentum indicator has fallen to the lowest level since December 6. The pair will likely remain at these levels as traders wait for inventory data tomorrow.

GBP/USD

The GBP/USD pair moved to a high of 1.2648 as it tried to reach the important resistance level of 1.2670. The current price is slightly below the 25-day EMA. With the trend being driven by low volumes, there is a likelihood that it will not last. Therefore, the price could continue declining as traders continue to worry about the weak growth.

EUR/USD

Current level - 1.1349

Yesterday the pair went up to the 1.1350 zone. The expectations are for a failed test at that level and renewal of the downside move towards 1.1268.

USD/JPY

Current level - 112.55

The trend remains negative after the bounce from 113.70. The expectations are for a decline towards 112.22 and a slight retracement afterwards. If the break of 112.22 is successful the new target would be around 111.75.

GBP/USD

Current level - 1.2623

We are seeing a slight optimism in the British pound. I expect an advance towards the resistance zone at 1.2690. For the bulls to take over they'll need a successful break of that level. On the contrary this could bring back the pair to the levels around 1.2550 - 1.2500.

Minutes of the December 4 RBA meeting maintained the same tone that "the next move in the cash rate was more likely to be an increase than a decrease". But at the same time "there was no strong case for a near-term adjustment in monetary policy".

For RBA, the "central scenario remained for steady growth in consumption, supported by continued strength in labour market conditions and a gradual pick-up in wages growth". Also, "further falls in the unemployment rate were likely". But it should be emphasized that was based on "expectation that the economy would continue to grow above trend".

Also, the meeting took place before release of Q3 GDP, which showed merely 2.8%. That's clearly lower than RBA's own projection of 2.0%. And 2.8% could merely be described as being around trend, not above trend. Thus there is prospect of a dovish shift in RBA's upcoming forecast in February Monetary Policy Statement.

Full RBA minutes here.