Sample Category Title

Pivot (invalidation): 14.7700

Our preference Short positions below 14.7700 with targets at 14.6200 & 14.5600 in extension.

Alternative scenario Above 14.7700 look for further upside with 14.8000 & 14.8500 as targets.

Comment The RSI advocates for further downside.

Pivot (invalidation): 51.75

Our preference Long positions above 51.75 with targets at 52.90 & 53.25 in extension.

Alternative scenario Below 51.75 look for further downside with 51.00 & 50.35 as targets.

Comment The RSI advocates for further advance.

France PMI manufacturing dropped to 49.7 in December, down from 50.8, and missed expectation of 50.7. It's the worst reading in 27 months. France PMI services dropped to 59.6, down from 55.1 and missed expectation of 54.8. It's the lowest level in 34 months. PMI composite dropped to 49.3, down from 54.2. It's a 30-month low and the first contraction reading in 2 1/2 years.

Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

"Having held up reasonably well throughout the initial months of Q4, latest flash data pointed to an outright contraction in France's private sector for the first time in two-and-a-half years, following the protests which have swept through the country in recent weeks. Momentum in the manufacturing sector's downturn gathered pace, while most notably, the service sector's resilience came to a halt, with business activity and demand dropping.

"Prior to the December flash results, survey data suggested that the French economy was set to record a fairly reasonable quarterly expansion in Q4. Having propped private sector growth up in recent months, contraction in the service sector presents significant downside risks to Q4 growth prospects."

Full release here.

Euro ticks down as ECB ends QE, but downgrades balance of risks

Aussie and kiwi fall sharply after key Chinese data disappoint

EU refuses to renegotiate Brexit deal; sterling rallies may remain short-lived

US retail sales data due out today

Euro inches lower despite Draghi trying his best not to seem dovish

The European Central Bank (ECB) officially announced the end of its crisis-era QE program yesterday, as expected. The Bank revised down its growth and inflation forecasts, though that was largely anticipated given the recent streak of soft data and the fall in oil prices. What was surprising, was a slight downgrade in the assessment of risks. President Draghi tried his best to downplay this shift in language, noting that although the risks to growth are still “broadly balanced”, they are “moving to the downside” as a result of geopolitical concerns, trade protectionism, and financial market volatility.

The euro tumbled, albeit only modestly, and managed to recover most of its losses after the meeting concluded. The key message was that the ECB remains on track to normalize, but is becoming increasingly cautious amid external risks and a domestic economy that is returning to “potential” after a period of surprisingly strong growth. Hence, the timing of the next tightening move, namely a rate hike, remains data-dependent. In this respect, attention now turns to the Eurozone’s preliminary PMIs for December – due for release today – to determine whether the economy continues to bleed momentum or is stabilizing; the euro will react accordingly.

Aussie and kiwi tumble after key Chinese data disappoint

Global risk appetite faltered overnight, following the release of a disappointing batch of Chinese economic data for November. Both industrial production and retail sales missed their forecasts by a wide margin, fueling concerns that the world’s second largest economy may slow by more than previously thought, in the midst of massive deleveraging efforts and the US trade dispute. Accordingly, the aussie and the kiwi are the worst performers on Friday, given the close trading ties Australia and New Zealand have with China, while futures tracking Wall Street stock indices are pointing to a lower open today.

EU denies Brexit deal renegotiation; back to square one?

Theresa May’s visit to Brussels yesterday failed to produce any encouraging Brexit headlines. The EU made it abundantly clear that the Brexit withdrawal deal is not open for renegotiation, and that the best it can do is provide “clarifications” on the deal – the implication being that any such clarifications will not be legally binding. Recall however that across the Channel, most MPs that had opposed the deal also stated that any non-legally binding assurances would be very little, and thus wouldn’t be enough for them to change their minds.

Therefore, there’s still no obvious or plausible route for May to win over enough lawmakers to pass her deal through Parliament. The pound was little changed, but considering that political uncertainty is set to stay elevated, any rallies in the currency may remain short-lived.

US retail sales the highlight on today’s calendar

Besides the Eurozone’s preliminary PMIs, the other key release today will be the US retail sales figures for November. This will be the final piece of first-tier data before the Fed’s policy decision next week, hence amplifying its importance for the dollar. As for the Fed, market pricing implies a 75% probability for a quarter-point rate hike next week, and assuming no surprises there, market attention will quickly turn to the rate projections for 2019, to either confirm or deny that a “pause” is on the cards next year.

US industrial production for November and the preliminary Markit PMIs for December, are also due out.

In terms of public appearances, ECB Vice President de Guindos (0815 GMT) and Executive Board member Lautenschlager (0930 GMT) will deliver remarks.

• Rates: Core bonds revive on safe haven flows
  Global core bonds traded mixed yesterday as risk sentiment swung both sides. Disappointing data in China/Japan tilted the risk balance south overnight, supporting core bonds. Retail Sales are expected to remain solid in the US, while Markit PMI's in France, Germany and the EMU will most probably bottom out. The countdown to the Fed starts.
• Currencies: Dollar to maintain benefit of the doubt ahead of Fed meeting
  The ECB policy meeting/press conference provided little new guidance for EUR/USD trading yesterday. Today, the EMU PMI's and US retail sales have market moving potential. Decent US eco data in a risk-off context should be moderately USD supportive going into next week's Fed meeting. The sterling ‘relief really' is already losing momentum

The Sunrise Headlines

• US equities ended mixed after a lacklustre session. Nasdaq (-0.39%) underperformed. Asian markets are trading in negative territory with Japan (- 1.8%) and Korea (-2.2%) underperforming.
• According to the Bank of Japan's 4Q Tankan index companies (both small and large, manufacturing and non-manufacturing) are more optimistic about the current business environment but show far less confidence in the 3m outlook.
• Chinese November retail sales (8.1% YoY) were below expectations (8.8%), as were industrial production data (5.4% YoY vs 5.9% expected). Property investment stabilised at 9.7% YoY while the jobless rate declined to 4.8%.
• The Reserve Bank of New Zealand is pondering a near doubling of the amount of “high quality capital” banks have to hold. Increasing the shareholders stake in banks would incentivise management scrutiny and strengthen the banking system.
• EU leaders rebuffed May's request for any legal guarantees about the Irish backstop, only saying they hope it won't have to be triggered, but that the legal brexit agreement cannot be renegotiated.
• The French parliament rejected a motion of no confidence in President Macron's government. The vote came after weeks of demonstrations by the Yellow Vests, initiated by the government's tax plans.
• Today's economic calendar provides markets with US November retail sales and EMU PMI's for December. ECB's Vice-President Guindos is scheduled to speak. The European Council holds its second day meeting

Currencies: Dollar To Maintain Benefit Of The Doubt Ahead Of Fed Meeting

USD holding tight range, counting down to the Fed

The ECB policy decision and press conference were not able to force the EUR/USD cross rate out of the established consolidation pattern, yesterday.The ECB slightly revised down 2018 and 2019 growth. Draghi summarized the ECB attitude as ‘continuing confidence with increasing caution'. This assessment was hardly a surprise for markets. The euro traded with a slightly negative bias during the press conference, but reversed most of this decline later. EUR/UISD closed the session at 1.1361 (from 1.1369). USD/JPY held a cautious upward bias, even as sentiment on risk turned less positive later in the session. The pair closed at 113.63. Overnight, the economic news flow didn't comfort global investors. China November retail sales and production were substantially weaker than expected. The BoJ Tankan outlook painted a mixed picture. Sub-indices on the current assessment held up well, but Japanese firms grow ever more concerned on the outlook. Regional equities are ceding ground with Japanese and Chinese indices losing 1-2%. Negative regional sentiment is weighing heavily on the Aussie (AUD/USD 0.7190) and the Kiwi dollar (0.68 area). The RBNZ considering higher capital requirements for banks is an additional negative for the kiwi dollar. Yen gains are again modest given the risk-off sentiment (USD/JPY mid 113 area). EUR/USD is trading little changed in the mid 1.13 area. Later today, the eco calendar is well filled with the EMU PMI's, US retail sales and production data. Will EMU PMI's bottom after the decline over the previous months? US core retail sales are expected solid (0.4% control group). We expect a decent report. A combination of a risk-off context and decent US eco data might tilt the intraday balance on the FX markets in favour of the dollar going into next week's Fed meeting. Of late, the EUR/USD 1.1450/1.15 area proved to be a though resistance. We don't see a trigger for a break ST.

Sterling regained some further ground yesterday after PM May survived a confidence vote, avoiding an immediate period of outright political chaos. EUR/GBP drifted a bit further below the 0.90 handle. UK PM May yesterday joined the EU summit in Brussels. For now, It looks the EU is only prepared to give clarifications rather than concessions on current Brexit deal. This opens few perspectives on an approval of the Brexit deal in the UK parliament. Overnight, sterling already reversed part of the recent ‘relief' rally. We still avoid sterling long exposure.

EUR/USD: ECB fails to unlock EUR/USD stalemate. Countdown to next week’s Fed meeting continues

The GBP/USD is at a key decision zone for a bullish break or bearish bounce. Price is either building an expanded WXY (purple) correction or a full downtrend. The key level is the 138.2% Fibonaccilevel. A bearish break indicates a downtrend whereas a bullish break above the resistance trend lines indicates a larger correction.

The GBP/USD could have completed a bullish ABC (orange) within wave 4 (green) but the price action is volatile due the Brexit news. The GBP/USD needs to break the neck line (blue) before a bearish breakout is possible.

Daily Pivots: (S1) 143.15; (P) 143.54; (R1) 144.22; More...

Intraday bias in GBP/JPY remains neutral first. As long as 144.02 support turned resistance holds, another decline remains mildly in favor. Below 141.17 will target 139.29/47 key support zone. However, considering bullish convergence condition in 4 hour MACD, decisive break of 144.02 will suggest near term reversal. Stronger rally should then be seen to 55 day EMA (now at 145.18) and above.

In the bigger picture, as long as 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) holds, up trend from 122.36 (2016 low) could still extend beyond 156.69 high. However, decisive break of 139.29/47 will suggest that such up trend is completed and turn outlook bearish. In that case, next target is 61.8% retracement at 135.43.

XAUUSD (1242.08): Gold prices have stayed flat near the 1242.25 level of support. This comes as the consolidation near the top has also formed a bullish flag pattern. A successful breakout to the upside could potentially trigger further strong gains. However, watch for price action near the 1242.25 level. A break down below this level could trigger declines in gold pushing price action to test the lower support at 1228.85 - 1228.00 level where support is most likely to be retested once again.

Daily Pivots: (S1) 128.74; (P) 129.00; (R1) 129.30; More....

Intraday bias in EUR/JPY remains neutral as it's bounded in range of 127.49/129.29. On the downside, break of 127.49 will target 126.63 support first. Break there will then resume the whole decline from 133.12 to 124.08/89 support zone. And, even in case of stronger 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.

GBPUSD (1.2631): The GBPUSD currency pair attempted to retest the breached support area of 1.2683 briefly before turning flat. We expect the cable to retest this level more firmly. Failure to break out above 1.2683 could potentially keep price action subdued. However, we expect the declines to be limited for the moment as the bias to the upside builds up. To the downside, GBPUSD will need to break past the previously established lows near 1.2470 to post further declines.