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Euro interest rate expected unchanged

The European Central Bank's monetary policy statement, to be published at 1.45 pm today, is expected not to change rates. It is expected to end Quantitative Easing, bond purchases of EUR 15 billion per month. Further tightening is unlikely, as the Eurozone outlook is distressed. With Brexit uncertainties, the Italian budget battle and an upcoming French budget deficit, the central bank will downplay these risks and maintain forward guidance unchanged. (Italy's PM Giuseppe Conte and European Commission President Jean-Claude Juncker finally came up with a government budget deficit of 2.04% instead of prior 2.40%.) The ECB will have to reduce the monetary tightening sometime, most certainly as of next year. The loss of momentum could force the ECB to postpone its first rate hike to 2020, as the world economic outlook is not in good shape.

We expect a positive view from ECB Chairman Draghi's speech at 2.30 pm. Currently trading at 1.1385, EUR/USD is expected to weaken slightly following Draghi's speech.

No confidence in the pound

Although UK Prime Minister May survived a vote of no confidence yesterday, which boosted the cable 1.58%, the pound is still in negative territory week-to-date (-0.33%). The March 2019 Brexit deadline remains, and the UK parliament is likely to reject the current withdrawal agreement. The only upside for sterling would be announcement of a better deal after May's next meeting in Brussels: this remains highly unlikely.

Yesterday's vote showed the chaos of the Conservative Party. 117 votes against May lost to 200 supporters. May had no break: she headed to Brussels to get a better deal on the Irish backstop, particularly the clause stating that a hard border between Northern Ireland and the UK would be triggered if no deal is agreed between the UK and the EU.

Over the past 48 hours, the Bitcoin price has stabilized at around $3,400 after dropping to a new yearly low at $3,210 on December 7. On a weekly basis, Bitcoin (BTC) is up six percent from $3,210 to $3,400 but the cryptocurrency market has lost $14 billion of its valuation against the U.S. dollar mostly due to the underwhelming performance of major digital assets and the plunge in the value of ERC20 tokens.

The Ethereum price has also recovered slightly by a similar magnitude as Bitcoin, with Ethereum (ETH) recording an eight percent increase from $83 to $90. But, the Bitcoin Cash price remains at its all-time low at $94. According to Su Zhu, the CEO at Three Arrows Capital, buy walls on fiat-to-crypto exchanges like Coinbase and Bitstamp for Bitcoin at $3,300 have risen significantly within the last several weeks.

Rising buy walls on major digital asset trading platforms suggest that a small group of investors is beginning to accumulate Bitcoin while it remains highly volatile in a tight but low price range. If a large unforeseen sell-off is to happen, the daily volume of Bitcoin that hovers at around $4 billion, would have to spike above its monthly high at just over $6.5 billion. Throughout the past seven days, the volume of the dominant cryptocurrency has continued to fall as the price of the asset stabilized in the range of $3,300 to $3,500. The decline in the volume of BTC mainly shows that the sell pressure on the currency has dropped following its drop to a new yearly low. As a cryptocurrency trader and technical analyst with an online alias “Hsaka” said, until BTC breaks out of a major resistance, it is likely to stay in the range between $3,300 to $3,500. Several resistance exist in north of $3,000, at around $3,500 and $3,700.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.13160
Open: 1.13681
% chg. over the last day: +0.50
Day's range: 1.13799 – 1.13850
52 wk range: 1.1214 – 1.2557

EUR/USD is in a bullish mood. Yesterday, the quotes grew by more than 80 pips. The USD is under pressure due to the weak inflation reports. Positions should be opened from the currency support and resistance levels 1.13700 and 1.14000. Investors are waiting for the ECB meeting. You should keep an eye on its results, as well as the comments made by the ECB representatives.

The Economic News Feed for 13.12.2018:

ECB decision on key interest rate (EU) – 14:45 (GMT+2:00);

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

MACD is in the positive zone above the signal line, which gives a strong signal to buy EUR/USD.

The Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which indicates a bullish mood.

Trading recommendations

Support levels: 1.13700, 1.13400, 1.13100
Resistance levels: 1.14000, 1.14300

If the price fixes above the round 1.14000, expect further growth towards 1.14500-1.14750.

Alternatively, the quotes can descend to 1.13500-1.13300.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.24846
Open: 1.26245
% chg. over the last day: +1.11
Day's range: 1.25984 – 1.26445
52 wk range: 1.2480 – 1.4378

GBP/USD is in the middle of an aggressive buyout. During the last two trading days the quotes grew by 170 pips. The Conservative Party of the UK voted on the confidence in the Prime Minister May. She was supported by 200 out of 317 conservatives and passed the votum of no confidence. The local support and resistance levels are 1.26400 and 1.27000. The trading instrument has prospects for growth.

The News Feed is calm for today.

The price is testing 200 MA which is a strong dynamic resistance.

The MACD histogram is in the positive zone above the signal line, which give a strong signal to buy GBP/USD.

Stochastic Oscillator is near the overbought zone, the %K line is above %D line, which also indicated a bullish mood.

Trading recommendations

Support levels: 1.26400, 1.26000, 1.25600
Resistance levels: 1.27000, 1.27400, 1.27800

If the price fixes above the round 1.27000, the GBP/USD quotes are expected to keep growing towards 1.27400-1.27600.

Alternatively they can descend to 1.26000-1.25800.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.33892
Open: 1.33504
% chg. over the last day: -0.30
Day's range: 1.33436 – 1.33573
52 wk range: 1.2248 – 1.3445

USD/CAD keeps trading in a flat. The technical picture is ambiguous. Positions should be opened from the local support and resistance levels 1.33300 and 1.33700. Keep an eye on the oil quotes dynamic. USD/CAD quotes have potential to descend after a long rally.

The News Feed for Canada is calm.

The indicators do not provide singals: the price is being traded between 50 MA and 200 MA.

The MACD histogram is in the negative zone which indicates a bearish mood.

The Stochastic Oscillator is in the oversold zone, the %K line is below the %D line, which points towards the decline of the USD/CAD quotes.

Trading recommendations

Support levels: 1.33300, 1.33000, 1.32600
Resistance levels: 1.33700, 1.34000, 1.34300

If the price fixes above 1.33700, USD/CAD quotes will grow toward 1.34000-1.34300.

Alternatively, if the price fixes below 1.33300,, we recommend looking for market entry points to open short positions. The movement is tending to 1.33000-1.32600.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 113.364
Open: 113.277
% chg. over the last day: -0.10
Day's range: 113.441 – 113.470
52 wk range: 104.56 – 114.56

USD/JPY has a rather ambiguous dynamic. The financial market participants are waiting for additional drivers. Positions should be opened from the key support and resistance levels 113.300 and 113.550. Keep an eye on the US Treasury bonds yield.

The price has fixed above the 200 MA and 50 MA which points towards a bullish mood.

The MACD histogram is in the positive zone which gives a strong signal to buy USD/JPY.

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: 113.300, 113.000, 112.700
Resistance levels: 113.550, 113.800

If the price fixes above the support level of 113.550,, it is necessary to consider buying USD/JPY. The movement is tending to 113.800-114.000.

An alternative could be the descend of the USD/JPY quotes to 113.000.

Ifo slashed German economy growth forecast in the Winter report released today. 2018 growth forecast is revised down from 1.9% to 1.5%. 2019 growth forecast is revised down from 1.9% to 1.1%. For 2020, growth forecast is revised down from 1.7 to 1.6%. Ifo warned that "the weakness triggered by the automotive industry will continue until 2019. A wide range of uncertainties are also curbing the global economy, and especially Brexit, Italy and US trade policy to name but a few."

In the report, Ifo said downside risks for global economy "grew markedly" compared to autumn. US has imposed customs duties on a "large number of imports", followed by retaliation from China and the EU. And "it is impossible to predict the direction that the trade dispute will take". In case of escalation, Ifo warned "global trade in goods and overall economic production can be expected to suffer a major setback."

Also, trade dispute will lead to faster rise in inflation. And if advanced economies central banks opt for "far more restrictive measures", this may prompt a "return to capital outflows from emerging markets." Hard Brexit "represents another risk for the economy both in Britain and in the euro area." Besides, high risk premium on Italian government bonds also
pose a threat to economic development in the Eurozone.

Full release here.

The Australian dollar maintains bullish near-term bias and extends recovery, holding in green for the fourth straight day. Signals of easing US/China trading tensions keep risk on mode and underpin recovery. Renewed probe above cracked 100SMA (0.7228) expose pivotal barrier at 0.7260 (Fibo 38.2% of 0.7393/0.7177, reinforced by 20SMA), break of which would generate bullish signal for extension of recovery leg from 0.7177 (10 Dec low). Neutral momentum on daily chart warns that bulls may run out of steam, while repeated close below 100SMA would add to negative signals and keep the downside vulnerable.

Res: 0.7250, 0.7260, 0.7285, 0.7311
Sup: 0.7228, 0.7208, 0.7195, 0.7186

SNB Chairman Thomas Jordan warned in the post meeting press conference that "surveys indicate that trade tensions have prompted companies to reassess their investment plans and value chains." Also, Brexit "uncertainty remains high following the postponement of the vote in the UK parliament." He also pointed to the "tension surrounding Italy's fiscal policy also persists".

Jordan said "all these risks could lead to turbulence in the financial markets, jeopardize global economic growth, and also influence monetary policy." He added that Swiss Franc remains highly valued. At the same time, FX situation is still fragile.

A renewed sense of positivity is sweeping across financial markets this morning amid signs of easing trade tensions between the United States and China.

Encouraging reports of China placing it first major order of U.S. soybeans in more than six months is a symbolic move seen elevating global sentiment and boosting appetite for riskier assets. The trade optimism was clearly reflected in Asia this morning with stocks closing broadly higher, following the positive lead from Wall Street overnight. European markets are seen benefiting from the risk-on vibe, with the bullish momentum trickling down into Wall Street later this afternoon.

Although easing trade tensions are positive for stock markets, the upside is poised to face obstacles down the road. Global equity bulls remain threatened by concerns over plateauing global economic growth, Brexit turmoil and political risk in France among many other geopolitical risk factors.

Pound steadies after May survives confidence vote

The battered Pound breathed a sigh of relief after Theresa May survived a vote of no-confidence in her leadership. While this development removes an element of uncertainty amid the Brexit turmoil, it certainly is a major blow to her authority and power.

With May heading off to Brussels for the second time this week, investors will be closely watching to see if she is able to gain concessions from the EU on the Brexit deal. If May returns back to the United Kingdom empty-handed, a second referendum to stay in the European Union could be an option on the table. In regards to the technical picture, the GBPUSD is staging an impressive rebound with prices trading back towards 1.2700 as of writing. A solid breakout above this level will open a path towards 1.2760 in the near term.

Euro higher ahead of ECB meeting

All eyes will be on the European Central Bank meeting this afternoon where the bank is set to officially end its Quantitative Easing (QE) program.

With QE officially ending and no rate moves expected, investors should not be quick to label this meeting as a potential non-event. Given the disappointing economic figures from Europe lately, heightened political risk in France and Italy’s budget dramas, it will be interesting to hear European Central Bank President Mario Draghi’s thoughts. Much attention will also be directed towards the latest economic forecasts to see if the European Central Bank is concerned over the developments in Europe. The Euro is likely to depreciate if Draghi strikes a dovish tone and expresses concerns over the health of the Eurozone.

Currency spotlight – Dollar

Widening interest rate differential between the Federal Reserve and other major banks across the world empowered Dollar bulls for the most part of 2018. Investor optimism over the health of the U.S. economy boostedappetite for the Dollar in times of uncertainty. With expectations over higher U.S. rates and safe-haven demand supporting the Dollar, the currency was king of the hill in the FX arena.

However, there has been a change of attitudein recent weeks with dovish comments from Fed officials and disappointing economic data clouding the Dollar’s outlook for 2019. With expectations mounting over the Fed taking a pause on raising interest rates next year, the sentiment pendulum is seen swinging to the favour of the bears. Focusing on the technical picture, the Dollar Index has the potential to slip towards 96.60 if 97.00 acts as a firm resistance.

The pair maintains positive tone and pushes again above pivotal Fibo barrier at 113.35 (61.8% of 114.03/112.23) after repeated failure to eventually close above it and signal continuation of recovery from 112.23 double-bottom.

The action in past two days formed double Doji candle, signaling that bulls took a breather, but remaining on track for further advance.

Strong momentum on daily chart, MA’s in bullish setup and rising daily cloud continue to underpin.

Bulls eye target at 113.61 (Fibo 76.4% of 114.03/112.23), break of which would open way for 114+ gains.

Conversely, bearish signal could be expected on break and close below 113 handle.

Res: 113.61, 113.82, 114.03, 114.20
Sup: 113.20, 113.08, 112.92, 112.55

The demand for risky assets is gradually recovering, supported by the US-China’s “trade truce” which is not in hurry to ends. Futures on S&P500 rose by 0.4% this morning, after growth by 0.8% the day earlier. The Shanghai A50 is growing by more than 2% in hope of Chinese government stimulus.

Positive dynamics of stock markets caused the US Dollar to be rolled back from monthly highs on DXY. EURUSD has received the local support near 1.1300 levels yesterday.

Over the past month, the pair fluctuations’ amplitude has decreased noticeably, but it looks more likely to squeezed spring, rather than calm.

Today, in the EU markets’ focus is the ECB meeting, which often causes strong volatility. Mario Draghi is expected to confirm that the Central Bank will finally stop buying assets by the end of this year. For EUR, definitely, the vital impact will be from any comments on the monetary policy prospects.

Earlier, the ECB was about to start raising rates next autumn at least, but now these dates are in risk to move after the Fed’s rhetoric softening and general slowdown of the world economy. In this case, the euro can be hit, so that the technical factors will come into play.

Falling below 1.13 mark, which was an important support previously, can launch a new wave of decline. Two previous stages of the retreat were turned into the 7%- and 5%- fall of the single currency.

Commensurate with the previous two, the new downward spiral may send EURUSD below 1.08. More distant bearish targets and news key support are possible as well: as low as to 1.05 on the chart.

Note that the ECB tone mitigation seems the most likely to take place.

Also, we can not exclude completely that Draghi will prefer to take a wait and observe how the things unfold: confidence in the EU economy growth and the inflationary pressure build-up will significantly reduce the difference between the ECB and the Fed policies. Under these conditions, EURUSD will be able to rebound to the upper boundary of the November’s trading range near 1.15. Growth above this mark will display clearly a significant outlook revision and, perhaps, become a pivot point of the recent trend.

Cable rallied yesterday as the Tory party held a confidence vote for Theresa May’s leadership, yet she survived. The confidence vote was held in a secret ballot and Theresa May won the support of 200 of the 317 votes. The result stabilises Theresa May as the head of the Tory party for 12 months, however underscores the difficulty of passing her Brexit deal through the UK parliament, as a third of the Tory MPs could be voting against it. Analysts point out, that the result is not bad news as such, however does not fix Brexit and in that sense uncertainty continues. We could see the pound continuing to have some choppy trading as further Brexit headlines are expected.

Cable rose on the news breaking the 1.2555 (S1) resistance line (now turned to support) and the 1.2630 (R1) resistance level, however corrected below the latter, later on. As the pair broke the downward trendline incepted since Monday, we lift our bearish bias in favour of a sideways movement, however the pair could prove sensitive to Brexit fundamentals, which could in turn provide for some choppy trading. Should the pair find fresh buying orders along its path, we could see it breaking the 1.2630 (R1) once again and aim for the 1.2700 (R2) resistance level. On the other hand should the pair come under the selling interest of the market, we could see it breaking the 1.2555 (S1) and aim for lower grounds.

ECB Interest Rate Decision

ECB is to announce its interest rate decision at 12:45 (GMT) today and is widely expected to remain on hold at 0.0%. Currently EUR OIS imply a probability for the bank to remain on hold of 96.19% and the bank’s past rhetoric supports such a notion. Should the bank remain on hold as expected we could see the market’s attention turning to the accompanying statement and Mario Draghi’s following press conference. The ECB is expected to announce the end of its massive QE program formally, however doubts remain as to whether such a scenario will materialize. The bank could be taking a rather dim view on the prospects of growth for the area and such an outlook could be raising the chances of its next step in curtailing stimulus being delayed. Please be advised that volatility for EUR pairs could continue throughout the following press conference of ECB’s president Mario Draghi (13:30, GMT).

EUR/USD rose yesterday, breaking the 1.1345 (S1) resistance line (now turned to support) and tested the 1.1385(R1) resistance level before correcting lower. Technically it should be noted that the pair broke its downward trend line incepted since the 10th of December. Adding to that we could see the pair being sensitive to ECB’s interest rate decision and we see risks tilted to the bearish side for the pair. Should the bears reign over the pair’s direction we could see it breaking the 1.1345 (S1) support line and aim for the 1.1305 (S2) support barrier. Should on the other hand, the bulls be in charge again, we could see the pair breaking the 1.1385 (R1) resistance line and aim for the 1.1425 (R2) resistance hurdle.

In today’s other economic highlights:

In today’s European session, we get from Switzerland, SNB’s interest rate decision, from Norway, Norgesbank’s interest rate decision and from Turkey CBRT’s interest rate decision. All banks are expected to remain on hold, however a more dovish tone in the accompanying statement could be adopted by the SNB, while in contrast Norgesbank could prefer a more hawkish tone.

GBP/USD H4

Support: 1.2555 (S1), 1.2485 (S2), 1.2415 (S3)

Resistance: 1.2630 (R1), 1.2700 (R2), 1.2795 (R3)

EUR/USD H4

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

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