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Bulls are consolidating under new recovery high at 113.70 on Friday, as previous day’s rally generated bullish signal on close above pivots at 113.33/35 (30SMA / Fibo 61.8% of 114.03/112.23 bear-leg).

Bulls cracked next barrier at 113.61 (Fibo 76.4%) in extension but failed to close above on Thursday and consolidating around barrier in early Friday’s trading.

Overall near-term structure is bullish and favors further advance, which requires close above 113.61 Fibo barrier to expose targets at 114.03/20 (28 / 12 Nov highs).

Weakening momentum and overbought slow stochastic on daily chart suggest that bulls may take a breather before continuing.

Extended dips are expected to hold above broken 30SMA to keep bullish bias, while break and close below would weaken near-term structure and put bulls on hold.

Res: 113.70, 113.82, 114.03, 114.20
Sup: 113.42, 113.33, 113.20, 113.08

The Euro accelerated lower on weaker than expected PMI data on Friday (German Manufacturing Dec 51.5 vs 51.8 f/c, Services Dec 52.5 vs 53.4 f/c / EU Manufacturing Dec 51.4 vs 51.9 f/c, Services Dec 51.4 vs 53.5 f/c) suggesting weaker growth in Q4.

Weak data added to negative near-term outlook, as long upper shadows on daily candles of this week (including strong upside rejection at daily cloud base / pivotal Fibo barrier at 1.1440 zone) signal that bulls were lacking strength to break higher.

Fresh weakness generated negative signal on break below 1.1314 (Fibo 61.8% of 1.1215/1.1472 upleg) and higher base at 1.1305 and pressure 1.1267 support (28 Nov trough), loss of which would expose key supports at 1.1215 (12/13 Nov double-bottom) and 1.1186 (Fibo 61.8% of larger 1.0340/1.2555 rally).

Stronger bearish acceleration would risk test of 1.1159 (neckline of asymmetric H&S pattern on weekly chart), as completion of pattern would open way for further weakness.

Negative setup of daily indicators maintains bearish pressure, along with falling thick daily cloud (spanned between 1.1431 and 1.1558).

Cluster of converged, south-turning daily MA’s (10,20,30), marks solid barriers at 1.1340/50 zone, which is expected to limit upticks and keep bears in play.

Res: 1.1305, 1.1314, 1.1350, 1.1393
Sup: 1.1327, 1.1300, 1.1267, 1.1215

As was widely expected, ECB remained on hold at 0.0% yesterday and during the announcement of the decision there was little volatility for EUR. The accompanying statement, had few changes with highlights being the halting of the bank’s 2.6 T EUR QE program and mentioning its plans for reinvestment. In the following press conference, ECB president Mario Draghi mentioned that weaker data reflects softer external demand, inflation is expected to continue to converge, underlying strength fuels confidence in inflation and that he sees somewhat slower growth momentum ahead. As a result the common currency weakened, as Mario Draghi’s comments seemed to sound more on the dovish side. It was characteristic that the ECB president answered one question by saying that the ECB has continued confidence but with increasing caution. We see the case for the common currency to be under pressure, however today’s financial releases could provide some support.

EUR/USD dropped yesterday, during Mario Draghi’s press conference, briefly breaking the 1.1345 (S1) support line, however corrected higher later on. We could see the pair retaining a sideways movement, however we expect to be sensitive to the financial releases today as they affect both sides of the pair. Should the bulls take over the pair’s direction we could see it breaking the 1.1385 (R1) resistance line and aim for the 1.1425 (R2) resistance level. Should the bears dictate the pair’s direction we could see it breaking the 1.1345 (S1) support line and aim for the 1.1305 (S2) support barrier.

USD firms ahead of Fed’s meeting

The USD firmed its stance yesterday against a number of its counterparts, however gains seemed capped due to the uncertainty surrounding the future intentions of the Fed. The Fed is widely expected to hike rates in its next meeting on the 19th of December however greater focus could be placed on the policy outlook for 2019. Analysts point out that there is a lot of disagreement in the markets over the Fed’s future rate hike path in 2019 and traders could be expecting anything in the range of 1 to 4 rate hikes. As the Fed’s meeting draws near, we expect the USD to have the upper hand over the JPY and EUR, however today’s financial releases could weaken it.

USD/JPY rose yesterday above the 113.25 (S1) support line, reflecting the firming of the USD side of the pair, however corrected lower during the Asian session. Technically, we could see an upward trendline starting to form as a number of higher peaks (10th, 12th and 13th of December) and a higher troughs (11th, 12th and 14th of December) could indicate. Should the pair find fresh buying orders along its path we could see it breaking the 113.95 (R1) resistance level and aim for higher grounds. If on the other hand, the pair comes under the selling interest of the market, we could see it breaking the 113.25 (S1) support line and aim for the 112.72 (S2) support barrier.

In today’s other economic highlights:

In today’s European session, we get from the Eurozone, Germany and France the preliminary PMI’s for December. In the American session, we get from the US the retail sales growth rates and industrial output growth rates for November, while later on we get the Baker Hughes oil rig count. Also please be advised that the Euro Summit could provide volatility for EUR pairs as well as the GBP.

USD/JPY H4

Support: 113.25 (S1), 112.72 (S2), 112.15 (S3)

Resistance: 113.95 (R1), 114.50 (R2), 115.70 (R3)

EUR/USD H4

Support: 1.1345 (S1), 1.1305 (S2), 1.1265 (S3)

Resistance: 1.1385 (R1), 1.1425 (R2), 1.1470 (R3)

GBPJPY has declined considerably after touching several times the 143.90 resistance level in the previous daily session. In the short-term the bias seems to be negative, while on the daily chart the pair remains in a sideways channel over the last four months with upper boundary the 149.50 resistance and lower boundary the 141.15 support.

Technically, on the 4-hour chart, the RSI indicator is pointing south near the 50 level, while the MACD oscillator is moving above the trigger line with weak momentum.

Immediate support is coming from the 23.6% Fibonacci retracement level of the downleg from 149.50 to 141.15, near the 40-simple moving average (SMA), at 143.11. Slightly below this barrier, the market could rest on the 142.90 support, taken from the inside swing on December 12. A downside extension could hit the 141.50 barrier, taken from the latest lows.

If there is a successful attempt higher and a jump above 143.90, GBPJPY could hit the 38.2% Fibonacci region of 144.34, before touching the 144.50 resistance. A successful jump above these lines could push the market until the 50.0% Fibonacci of 145.30.

Overall, the neutral picture in the medium term looks set to last for a while longer after prices failed to create a rally to exit from the range. In the short-term, the pair has been trading in a descending movement following the touch of 149.50.

EUR is weakened against the USD after the ECB meeting. Yesterday the Bank of Europe kept the fundamental parameters of the monetary policy without changes, as the investors expected. However, Mario Draghi, the Head of the ECB, stated that they had adjusted their economic growth prospects for the end of 2018 and 2019 to the worse. Now the ECB expects the GDP growth for 2018 to reach only 1.8%, instead of September's 2%. The prospects for 2019 also reach only 1.7% instead of 1.8%. Draghi gives the worse demand for the exported goods as the reasoning for the adjustments. The risks are also increased by the geopolitical factors, the threat of protectionism and the financial market volatility.

USD is strengthened against the other currencies. Yesterday a report was published on the number of initial claims for unemployment benefits. The indicator lowered to 206K while the experts expected 226K. The USD index (#DX) closed in the green (+0.04%). Today we expect important reports from the EU and the US.

Some reports from Japan and China were also published during the Asian trading session today. The Tankan Big Manufacturing Outlook Index (Q4) in Japan grew to 19 instead of 17, while the Tankan Large Non-Manufacturers Index (Q4) rose to 24 instead of 21. The growth of manufacturing volume in China slowed to 5.4% (YtY) which is worse than the expected 5.9%.

The prices on oil are lowering after the previous growth. The WTI futures are testing the 52.25 USD/barrel mark. At 20:00 (GMT +2:00) Baker Hughes will publish a report on the Total Oil Rig Count in the US.

Market indicators

• Yesterday the US stock market had a variety of trends: #SPY (-0,03%), #DIA (+0,16%), #QQQ (+0,03%).
• The 10-year US Treasury bonds yield is at 2.88-2.89%.

The News Feed for 14.12.2018:

• Manufacturing PMI (GER) – 10:30 (GMT+2:00);
• Several Business Activity Reports (EU) – 11:00 (GMT+2:00);
• Retail Sales Report (US) – 15:30 (GMT+2:00).

Caution is written across the European markets and US futures today, traders are also tracking losses from Asia and the Chinese economic data has not helped the situation. The Chinese industrial number made it clear that the Chinese economy is facing a sluggish growth. The Industrial production data has been hit hard and it has slowed to 5.4%, missing all estimates. However, the US and European markets are on track to record the weekly gains. Thanks to the Japanese manufacturing number which confirmed that things are not all negative. The Tankan manufacturing index came ahead of the forecast and printed the number of 19, while the forecast was for 18.

As for the ECB, the president of the ECB decided that it’s about time to call a day in relation to the easing monetary policy and the bank will formally end the QE program at the end of this month. However, the bank confirmed that it is keeping a close eye on the economic pulse of the eurozone and it is aware of the faintness in the economic numbers. To balance the earlier hawkish message; Draghi sent a dovish signal by saying that the bank is not ready to go in the snooze mode fully, the intentions of reinvesting the cash from maturing bonds would continue until the market doesn’t need this medicine.

The euro lost it’s bullish mojo as the upcoming period of the interest rate hike which is no longer the most bullish scenario for the currency traders, as this period would see the reinvestment of cash from the maturing bond. Given that the price has failed to break above the 1.14 against the dollar, this sends a bearish signal. This month is supposed to be "the bull month" because the QE program ends at the end of this month but for now, the hopes for any major upside for the euro-dollar pair are limited.

Back in the UK, the EU has decided to play a hardball with May. The UK's prime minister; Theresa May's plea was thrashed by the EU. The EU isn't ready to renegotiate the deal, she doesn’t have anything to sell back to the Parliament for the time being. We are sleepwalking towards a chaotic no-deal divorce. It appears both sides are willing to accept the worst outcome rather than have any happy ending. Well, divorcees never have a happy ending and this particular one is the ugliest of all. Having said this, under these scenarios, it is about managing expectations and Theresa May did this before she left for her trip to Brussels. It was clear for traders that her efforts may not bring any fruit straight away but she is determined to do whatever it takes to deliver a hard Brexit.

The sterling-dollar pair is flirting with the support level of 1.26 and it is likely that it will break this area unless Theresa May secures a variant of the current deal which is backed by the Parliament. It doesn’t appear to me that anything meaningful is going to happen this year so perhaps the best we could see for sterling is to consolidate around the current price level. Any resilience to bad news would support the fact that the odds are stacked in favour of higher move if May can secure a deal before the deadline.

Cable holds in red in early European trading on Friday and eases below 1.26 handle, after recovery rally from 1.2476 (12 Dec low) was repeatedly capped by falling 10SMA (Thursday / today).

Long upper shadows on candles of last three days suggest that recovery is lacking strength for further extension higher, wit reversal pattern forming on daily chart, following Thursday’s Doji candle with long upper shadow and fresh easing today.

Bearish momentum is strengthening on daily chart and MA’s head south in full bearish setup, maintaining pressure.

Fresh weakness pressures hourly cloud base (1.2573), break of which would generate further bearish signal, as there are no obstacles on the way towards key near-term support at 1.2476 (new 20-month low).

Fears of no-deal Brexit maintain bearish sentiment and add to negative outlook.

Violation of 1.2476 support would open way for extension towards 1.2365 (07 Apr 2017 low), while lift and close above falling 10SMA (1.2658) would ease immediate downside risk.

Res: 1.2658, 1.2686, 1.2731, 1.2811
Sup: 1.2573, 1.2556, 1.2476, 1.2395

A wave of risk aversion swept across Asian markets this morning as renewed jitters over the progress of trade talks and disappointing economic data from China knocked investor confidence.

Stocks in Asia closed broadly lower amid the risk-off vibe with the negative mood infecting European markets as of writing. The sharp change of attitude towards global equities clearly highlights how global trade developments are heavily influencing market sentiment and risk appetite. With investors seen maintaining a cautious stance for the rest of the trading day, Wall Street may end up opening in the red this afternoon.

Weak China data sends shivers across markets

China was back in the spotlight this morning for all the wrong reasons after disappointing data from two key sectors fueled fears of a deepening economic slowdown.

The world’s second largest economy reported that industrial production in November grew 5.4% YoY compared to the 5.9% projection while retail sales rose 8.1% last month - its weakest pace since 2003. Appetite for the Chinese Yuan is likely to fade as markets attribute today’s weaker than expected economic figures to ongoing trade tensions. The Chinese Yuan is seen depreciating further if risk aversion punishes emerging market currencies and empowers the safe-haven Dollar.

Euro falls as ECB ends Quantitative Easing

The Euro was more concerned with the European Central Bank (ECB) trimming its growth forecasts rather than the fact that quantitative easing (QE) was coming to an official end this month.

As widely expected, the ECB left interest rates unchanged in December but the announcement of the official end of QE coupled with trimmed growth forecasts added a special twist. With Draghi stating that the balance of risk to the euro area economy was moving to the downside, markets interpreted the meeting as dovish.

Domestic risk in the form of Italy’s budget feud, political risk in France and signs of slowing growth in Germany have left the ECB extremely cautious. Concerns revolving around slowing global growth, trade tensions and Brexit uncertainty are external risks that may create headaches for ECB policymakers. With the European Central Bank clearly in norush to remove the zero-interest rate policy (ZIRP), interest rate differentials will certainly not be in favour of the Euro anytime soon.

In regards to the technical picture, the EURUSD remains in a very wide range on the daily charts with resistance around 1.1450 and support found at 1.1290. An intraday breakdown below 1.1330 may inspire a decline towards 1.1290.

Dollar buoyed by risk-off mood

Renewed jitters over the direction of trade talks have sent investors marching towards the Dollar today.

Although the Dollar remains king in times of uncertainty, the question remains for how long? With soft economic data from the United States and dovish comments from Fed officials forcing investors to re-evaluate the Fed’s hiking path next year, Dollar bulls may be living on borrowed time. Investors will direct their attention towards the pending US retail sales figures this afternoon which should provide fresh insight into the health of the largest economy in the world. A disappointing report is seen fueling market speculation over the Fed taking a pause on rate hikes next year, an outcome that will be Dollar negative.

Commodity spotlight – Gold

Gold’s depreciation on Friday continues to highlight how the yellow metal’s near-term outlook remains heavily influenced by the Dollar’s performance.

With appetite for the Dollar receiving a solid boost today on trade jitters and soft China economic data, this will certainly punish Gold. Although the risk-off mood may attract some investors towards the precious metal, an appreciating Dollar is likely to sabotage any attempt for a rebound. Focusing on the technical picture, bulls lost control on the daily charts after prices broke below the $1,240 support level. Sustained weakness under this level could inspire bears to target $1,234.

Pivot (invalidation): 113.40

Our preference Long positions above 113.40 with targets at 113.70 & 113.85 in extension.

Alternative scenario Below 113.40 look for further downside with 113.25 & 113.10 as targets.

Comment A support base at 113.40 has formed and has allowed for a temporary stabilisation.

Pivot (invalidation): 1.2610

Our preference Long positions above 1.2610 with targets at 1.2685 & 1.2720 in extension.

Alternative scenario Below 1.2610 look for further downside with 1.2565 & 1.2520 as targets.

Comment A support base at 1.2610 has formed and has allowed for a temporary stabilisation.