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In the latest monthly report, Germany's Bundesbank warned that it may take more time for the auto industry to recovery from its recent "temporary" slump. It noted that "Normalization in the automotive industry may be slower than initially thought," And, "the weak order intake from Germany and the slowdown in registration numbers could be an indication that domestic consumers are currently holding back on purchases".

Nevertheless, export orders remained strong and other segments of the economy performed well. In Q4, Bundesbank still expected "noticeable expansion.

Full report in German.

EUR/USD has gained ground in the Monday session. Currently, the pair is trading at 1.1337, up 0.28% on the day. On the release front, eurozone inflation headed lower in November. The eurozone trade surplus narrowed for a second straight month, falling to EUR 12.5 billion. This was short of the estimate of EUR 14.2 billion. There are no major U.S. releases. The Empire State Manufacturing Index is expected to drop to 20.1 points. On Tuesday, Germany releases Ifo Business Climate and the U.S publishes building permits and housing starts.

In the U.S, weak inflation levels are another sign that the economy is slowing down. CPI dropped to 0.0% in November, down from 0.3% a month earlier. This marked the lowest level since May. Core CPI remained pegged at 0.2 percent. The weak readings can be attributed to falling oil prices, which has led to a sharp decline in gasoline prices. On an annualized basis, inflation gained 2.2 percent in November, down from 2.5 percent in October. With the U.S. economy showing signs of slowing down, and the global trade war taking a bite out of the global economy, inflation could continue to head lower as we head into 2019. This has led to a reassessment at the Federal Reserve of monetary policy. Earlier in the year, the Fed was sending messages that it would raise rates three or four times next year. This has been drastically scaled back, with some analysts predicting only one rate hike in 2019.

There were no surprises from the ECB policy meeting on Thursday. As expected, the ECB formally ended its 2.6 trillion euro bond-purchase scheme. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. At a press conference after the meeting, ECB President Mario Draghi said the stimulus scheme had not only boosted growth in the eurozone, but was “in some cases the only driver of this recovery”. With the bond-purchase program being laid to rest, interest rates will again become the ECB’s primary policy tool. With the eurozone experiencing a slowdown, no raise rate hike is expected until well into 2019.

At the Thursday meeting, the ECB downgraded its growth forecasts for the eurozone – from 2.0% in September to 1.9% in December for 2018, and from 1.8% in September to 1.7% in December in 2019. Mario Draghi added that headline inflation is also expected to drop in the coming months, due to weaker economic conditions.

Notes/Observations

• Focus remains on economic and political issues. Year-end lull yet to materialize with key rate decision in the week (FOMC of 2018 ending on Wednesday; BoJ and BOE on Thursday. Also EU Commission to discuss Italy's budget (Wednesday) and China starting their annual 3day economic policy-setting meeting (also Wednesday) to set out priorities for economic policy for the coming year.
• Euro Zone Final CPI YoY reading revised lower (YoY: 1.9% v 2.0% advamce reading)

Asia:

• China PBoC Open Market Operation (OMO) injected CNY160B in 7-day Reverse repos for its 1st injection after 36 consecutive skips. Helps to calm fears of year end liquidity squeeze
• China PBoC Adviser Sheng Songchen stated that the govt should defend yuan at 7 yuan per dollar level or attempts to stabilize the currency would become more costly on the foreign exchange reserve
• Japan Govt might cut FY2019/20 annual JGB issuance to ¥129.4T compared to ¥134.2T this year (*8Note: would make it's the 6th consecutive year of cuts)
• Australia Mid-year Economic and Fiscal Outlook: Cuts 2018/19 GDP from 3.0% to 2.75%

Europe:

• Italy PM Conte, Dep PM Salvini, Dep PM Di Maio said toi have reach an accord on the 2019 budget. All were in in total agreement on 2019 budget figures that would be proposed to EU
• France National Assembly President Ferrand: 2019 budget deficit is likely to overshoot the EU's limit of 3.0% of GDP next year and reach 3.4% but says the deficit would be a cyclical peak not a structural trajectory
• UK Cabinet ministers said to be urging the PM put Brexit in the hands of the Commons and allow MPs a series of voting options to break the deadlock
• PM May reiterated stance that holding another Brexit referendum would break faith with the British people; would do irreparable damage to integrity of politics and leave us no further forward
• UK Attorney General Cox said to be looking to have PM May removed after Brexit. Told cabinet ministers during a conference call that they should swallow the PM's deal for now

Macro

• (IT) Italy: Prime Minister Conte managed to get the government to back his 2.04% 2019 deficit target, which had already been delivered to Brussels last week. Compared to the prior fiscal plan, which was based on a projected deficit to GDP ratio of 2.4%, the new plan incorporates around €3B of additional funds and cut the projected cost of new welfare payments to €7.1B from €9B. Deputy PM Salvini said "we have reached an agreement on everything" and his fellow Deputy Di Maio stressed that there was no change or delay to a citizen's income for the poor, nor to the plans to lower the retirement age. The promised tax cuts are also included according to reports, which questions the solidity of the fiscal plan, which in its original form was based on unrealistic growth projections. These look even more optimistic in light of the marked slowdown in Eurozone growth since the process began.
• (EU) Eurozone: ECB President Draghi stressed over the weekend the project of European political and monetary integration, saying the creation of the monetary union was an "exception" and even "anti-historical" response to a "century that had been dictatorships, war and misery". According to Draghi the euro is a natural consequence of the creation of an integrated continental market, which allows relatively small European countries to remain competitive. Denying that it was not an expression of the globalization process, but rather a reaction to it. In what sounds like a veiled message to Rome, Draghi denied that underperforming countries could improve the situation by leaving the single currency and ignoring EU deficit rules.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.50% at 345.46, FTSE -0.40% at 6,817.83, DAX -0.13% at 10,851.75, CAC-40 -0.57% at 4,825.99, IBEX-35 -0.21% 8,867.85, FTSE MIB -0.28% at 18,857.00, SMI -0.56% at 8,674.90, S&P 500 Futures +0.02%]
• Market Focal Points/Key Themes: European Indices trade mostly lower across the board but off the earlier lows after a mixed session in Asia overnight. Italian and UK political developments continue to be in the headlines. On the corporate front UK Online fashion retailer Asos falls almost 40% after the companies profit warning, noting its crucial November month fell significantly short of expectations. The fall in Asos has also seen other retailers fall sharply with the likes of Boohoo, Next, M&S and Zalando all falling sharply in sympathy, while H&M also falls after prelim Q4 Revenue numbers. Elsewhere Binckbank shares trade sharply higher after its to be acquired by Saxobank; ABB confirmed the divestiture of its Power Grids business to Hitachi. Elsewhere Innogy and SSE trade lower after failing to come to an agreement on combining their retail businesses in Great Britain.

Equities

• Consumer discretionary: Asos [ASC.UK] -42%, Zalando [ZAL.DE] -14%, Next [NXT.UK] -3.5%, Marks & Spencer Group [MKS.UK] -4.5%, Associated British Foods Plc [ASC.UK] -2.5% (Asos trading update; profit warning; CEO comments), Boohoo.com [BOO.UK] -10% (trading update following Asos announcement), Hennes & Mauritz [HMB.SE] -6% (preliminary earnings), Ingenico [ING.FR] -6% (strategic review update)
• Energy: Innogy [IGY.DE] -2.5%, SSE PLC [SSE.UK] -1% (transaction between companies terminated; innogy cuts profit outlook)
• Financials: BinckBank NV [BINCK.NL] +29% (to be acquired by Saxo Bank), Deutsche Bank [DBK.DE] -1.5% (potential investment in bank rumored)
• Healthcare: NicOx [COX.FR] +11% (license agreement), Novo Nordinsk [NOVOB.DK] -1.5%, argenx [ARGX.BE] +3% (collaboration)
• Industrials: ABB Ltd [ABBN.CH] +1% (confirms divestment of unit)

Speakers

• Italy Budget Committee in Senate to discuss the 2019 budget on Tuesday, Dec 18th. Plenary session of upper house could debate budget later in the week (Thursday or Friday)
• EU said to have proposed 6-month extension of Swiss Exchange access
• Finland Finance Ministry updated its economic forecasts which cut 2018 GDP from 3.0% to 2.5%
• IMF Japan mission head: Side effects of BOJ's ultra-easy policy is not large enough to outweigh the benefits
• Russia Dec oil production said to be at 11.42M bpd (record level) vs. 11.37M bpd prior

Currencies/Fixed Income

• USD was fractionally softer in quiet trading on Monday as the greenback took a pause in its recent rally against the major pairs.
• UK PM May to update the British Parliament on Brexit later today. GBP/USD hovering around the 1.26 level in the session. Dealers noted that the GBP currency has lost approx. 4% over the past month and remained vulnerable to Brexit developments.
• EUR/USD higher by 0.3% at 1.1340 area as Italy govt seemed to be united on its 2019 budget stance. Euro Zone Nov Final CPI was revised lower which kept the dovish tilt to the ECB's recent staff projections.

Economic Data

• (DK) Denmark Nov PPI M/M: -0.1% v +0.8% prior; Y/Y: 5.1% v 6.1% prior
• (NO) Norway Nov Trade Balance (NOK): 26.2B v 34.2B prior
• (TR) Turkey Oct Industrial Production M/M: -1.9% v 0.0%e; Y/Y: -5.7% v -4.3%e
• (TR) Turkey Sept Unemployment Rate: 11.4% v 11.6%e
• (CZ) Czech Nov PPI Industrial M/M: -0.1% v -0.3%e; Y/Y: 3.9% v 3.7%e
• (CZ) Czech Oct Export Price Index Y/Y: 3.1% v 1.4% prior; Import Price Index Y/Y: 3.8% v 2.4% prior
• (TR) Turkey Nov Central Gov't Budget Balance (TRY): +7.6B v -5.4B prior
• (AT) Austria Nov CPI M/M: 0.2% v 0.3% prior; Y/Y: 2.2% v 2.2% prior
• (CH) Swiss Weekly Total Sight Deposits (CHF): 576.3B v 576.4B prior; Domestic Sight Deposits: 471.6B v 472.5B prior
• (IT) Italy Oct Total Trade Balance: €3.8B v €1.3B prior; Trade Balance EU: €0.7B v €1.2B prior
• (EU) Euro Zone Oct Trade Balance (seasonally Adj): €12.5B v €14.0Be; Trade Balance NSA (unadj): €14.0B v €13.1B prior
• (EU) Euro Zone Nov Final CPI Y/Y: 1.9% v 2.0%e; CPI Core Y/Y: 1.0% v 1.0%e; CPI M/M: -0.2% v -0.2%e

Fixed Income Issuance

• None seen

Looking Ahead

• (UK) PM May to update the British Parliament on Brexit
• 05:25 (BR) Brazil Central Bank Weekly Economists Survey
• 05:30 (BR) Brazil Oct Economic Activity Index (Monthly GDP) M/M-0.1%e v -0.1% prior; Y/Y: 2.1%e v 0.7% prior
• 06:00 (IL) Israel to sell Bonds
• 06:00 (RO) Romania to sell RON600M in 4% 2021 Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:00 (PL) Poland Nov CPI Core M/M: -0.1%e v +0.3% prior; Y/Y: 0.7%e v 0.9% prior
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Dec Empire Manufacturing: 20.0e v 23.3 prior
• 08:30 (CA) Canada Oct Int'l Securities Transactions (CAD): No est v 7.7B prior
• 09:00 (BE) Belgium Dec Consumer Confidence Index: No est v -1 prior
• 09:00 (CA) Canada Nov Existing Home Sales M/M: No est v -1.6% prior
• 09:30 (EU) ECB announces Covered-Bond Purchases
• 10:00 (US) Dec NAHB Housing Market Index: 61e v 60 prior
• 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
• 16:00 (US) Oct Total Net TIC Flows: No est v -$29.1B prior; Net Long-term TIC Flows: No est v $30.8B prior

The common European currency depreciated about 113 base points against the Japanese Yen on Friday. The currency pair breached both the 50-, 100-, and 200-hour SMAs during the previous session.

Today's session began with a bullish momentum, and by the middle of the day, the exchange rate has dashed through the 23.60% Fibonacci retracement level at 128.29.

As for the near future, it is likely that the currency exchange rate aim at a resistance cluster formed by the combination of the 50– and 100-hour SMAs and the 50% fibo level at 128.62.

The Australian Dollar depreciated about 76 base points against the US Dollar on Friday. The decline was stopped by the lower boundary of an ascending channel pattern at 0.7160.

Everything being equal, it is likely that the currency exchange rate regains some of its lost points within this session. The potential upside target will be near the monthly resistance level at 0.7244.

However, the 50-and 100-hour simple moving averages at 0.7205 could prevent the AUD/USD currency pair from reaching the given target today.

The US Dollar is trading in a triangle-like formation pattern against the Canadian Dollar. The currency pair tested the lower boundary of the triangle pattern at 1.3340 during Friday's trading session.

Currently, the exchange rate is trading near the bottom border of the pattern and could be set for a breakout.

If this breakout occurs, the currency exchange rate will likely target a swing low of 1.3320 within this trading session.

On the other hand, if the support level formed by the 100-hour SMA and the weekly PP at 1.3374 holds, the rate will move north towards the 1.3419 mark.

The New Zealand Dollar depreciated about 84 base points against the US Dollar on Friday. The currency pair was pressured south by the 50-hour simple moving average.

However, the exchange rate bounced off from the lower boundary of an ascending channel pattern at 0.6789 during the morning hours of Monday's trading session and currently testing a resistance level formed by the 50-hour SMA at 0.6818.

If the currency exchange rate passes the 50-hour SMA, the next target will be near the upper boundary of a descending channel at 0.6864.

Although, if the resistance level holds, a potential breakout could be expected within this session.

Odds stacked against May as second referendum gathers support

It's been a mixed start to trading on Monday, with Europe sitting in the red and the US looking flat ahead of the week open on Wall Street.

Heading into the festive period, trading volumes are expected to be significantly lower which could make things a lot more interesting as it's unlikely to be the uneventful end to the year that we often see. Brexit will continue to be a source of potentially extreme volatility for the pound over the next couple of weeks as Theresa May scrambles around trying to save what's left of her deal while everyone around her schemes to kill it and remove her and/or the government.

The odds are stacked against her at this point and her "friends" in Europe are in no rush to offer a lifeline. With support for a second referendum gathering momentum over the weekend, there is no incentive for them to back down on the issue of the backstop. It seems there is a number of steps that come before parliament accepts a no deal, which may force the EU into concessions, at least one of which could realistically see the UK remain in the block after all.

Fed to set expectations for 2019

The Fed decision on Wednesday is another event that could shake things up in the markets. The central bank has been a key source of volatility in the markets since the beginning of October when Powell's comments triggered a minor panic and correction in stocks. Since then there's been plenty of speculation about whether the Fed will pare back its expectations for next year, or even hike this week which was almost entirely priced in, so Wednesday will certainly be interesting.

The most recent comments from Powell, combined with expectations of a slowdown next year and financial market instability look the perfect recipe for a downgrade to expectations, so naturally there'll be huge scrutiny on the dotplot. With markets pricing in almost a 50 50 chance of one rate hike by December, the market has fallen well behind what the Fed has previously alluded to, leaving a huge kill it and remove her and/or the government divide that needs bridging.

Dollar support could weigh on Gold near-term

Despite the change in expectations, the dollar continues to trade close to its highs as developments elsewhere weigh on domestic currencies and lifting the greenback by default. It is trading a little lower today but in the near-term, I think it could remain well supported. This has taken some of the shine off gold which benefits most when the dollar is out of favour.

It's for this reason that I think, barring a messy no deal Brexit, gold could enjoy a decent 2019. Many people appear to be betting against the dollar next year – in part on expectations of progress in trade talks with China - and gold has been edging higher on the back of this. It's dipped back below $1,240 over the last couple of sessions which may bring $1,220 back into focus but longer term I think it could be well supported.

At the WTO Trade Policy Review of the US, the country's ambassador Dennis Shea complained that China's " state-led, mercantilist approach to the economy and trade" and actions are "incompatible with the open, market-based approach" of the WTO and its members. At the same time, "he further criticized that "the WTO is not well equipped to handle the fundamental challenge posed by China".

He elaborated and said "China pursues an array of non-market industrial policies and other unfair competitive practices aimed at promoting and supporting its domestic industries while simultaneously restricting, taking advantage of, discriminating against, or otherwise creating disadvantages for foreign companies and their goods and services."

And, "from forced technology transfer to the creation and maintenance of severe excess industrial capacity to a heavily skewed playing field in China, the results of China's approach are causing serious harm to the United States and many other WTO Members and their companies and workers."

On the other hand, he hailed that the US "maintains one of the world's most open trade regimes that is firmly based in the rule of law and that is a powerful engine for global growth". The US continues to "seek trade liberalization and will deepen our relationships with countries who share our commitment to fair market competition and reciprocity."

Shea's full statement here.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.13595
Open: 1.13004
% chg. over the last day: -0.48
Day's range: 1.12965 – 1.13183
52 wk range: 1.1214 – 1.2557

Last week USD once again strengthened against the major currencies. The USD index (#DX) updated the annual maximums. On Friday, December 14, EUR/USD saw an aggressive sell-off. The quotes fell by more than 80 points. The USD was supported by the positive retail sales report in the US. The key event this week will be the Federal Reserve meeting. The financial market participants expect the regulator to increase the key interest range by 25 basis points to 2.25%-2.50%. You should open positions from the key levels.

At 12:00 (GMT+2:00) the EU will publish the Customer Price Index.

The price fixed below 50 MA and 200 MA which shows the power of the sellers.

MACD histogram is in the negative zone but above the signal line, which gives a weak signal to sell EUR/USD.

The Stochastic Oscillator is in the neutral zone, the %K line crosses the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.13000, 1.12700
Resistance levels: 1.13200, 1.13450, 1.13650

If the price fixes below 1.13000, the quotes are expected to fall further. The movement will tend toward 1.12700-1.12500.

Alternatively, the currency pair can recover toward 1.13450-1.13600.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.26325
Open: 1.25996
% chg. over the last day: -0.58
Day's range: 1.25166 – 1.25996
52 wk range: 1.2477 – 1.4378

GBP/USD is showing a variety of trends. The technical picture is ambiguous. The GBP/USD quotes are consolidating. The key support and resistance levels are 1.25700 and 1.26150. Investors wait for the relevant data regarding the Brexit process. Last week Theresa May failed to negotiate better conditions regarding the UK leaving the EU. You should look for market entry points at the key levels.

The Economic News Feed for 17.12.2018 is calm.

The price fixed below 50 MA and 200 MA which indicates the power of the buyers.

MACD histogram is in the negative zone but above the signal line which provides a weak signal towards selling the GBP/USD.

The Stochastic Oscillator is in the neutral zone, the %K line crosses the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.25700, 1.25300, 1.24850
Resistance levels: 1.26150, 1.26800

If the price fixes below the local support 1.25700, expect further fall of the GBP/USD quotes. The movement will tend toward 1.25300-1.25000.

Alternatively the quotes can grow toward 1.26500.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.33452
Open: 1.33811
% chg. over the last day: +0.24
Day's range: 1.33733 – 1.33882
52 wk range: 1.2248 – 1.3445

USD/CAD keeps being traded in a long flat. There is no singular trend. The key support and resistance levels are 1.33600 and 1.34000. Investors are waiting for additional drivers. Keep an eye on the oil quotes dynamics. Positions should be opened from the key levels.

The Economic News Feed for 17.12.2018 is calm.

There are no precise signals: 50 MA has crossed 200 MA.

MACD histogram is close to 0.

The Stochastic Oscillator is in the neutral zone, the %K line crosses the %D line. There are no precise signals.

Trading recommendations

Support levels: 1.33600, 1.33250, 1.32900
Resistance levels: 1.34000, 1.34450

If the price closes above 1.34000, expect the USD/CAD quotes to grow toward 1.34300-1.34500.

Alternatively, the price fixed below 1.33600 and you should look for the market entry points to open short positions. The movement will tend toward 1.33250-1.33000.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 113.535
Open: 113.336
% chg. over the last day: -0.22
Day's range: 113.301 – 113.520
52 wk range: 104.56 – 114.56

The safe haven currency stabilized. The USD/JPY quotes are consolidating. The local support and resistance levels are 113.350 and 113.500. A technical correction is highly probable soon. The financial market participants are waiting for the Bank of Japan meeting on December, 20. You should open positions from the key levels.

The Economic News Feed for 17.12.2018 is calm.

Indicators do not provide precise signals, the price fixed between 50 MA and 200 MA.

The MACD histogram is around 0.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which points towards a bearish mood.

Trading recommendations

Support levels: 113.350, 113.150, 112.900
Resistance levels: 113.500, 113.700

If the price fixes below the local support 113.500, expect further growth towards 113.700-114.000.

Alternatively the quotes can correcttoward 113.000-112.800.