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Economic data on the day saw the UK's average earnings increased by3.3% in the three months ending October. The data beat estimates of a 3.0% increase. Previous data was revised higher to show a 3.1% reading. The UK's unemployment rate was unchanged at 4.1%.

Germany's ZEW economic sentiment was seen at -17.5, which was better than the expected - 25.0 while the Eurozone's ZEW economic sentiment was better at -21.0 compared to forecasts of -23.2.

The U.S. producer price index data was seen rising 0.1% on the month compared to a low estimate. The pace of increase was slower than the 0.6% that was registered the month before. Core PPI was seen rising by 0.3% compared to 0.1% forecast.

Japan's producer prices data which was released earlier in the day showed a 2.3% increase on the year. Economists polled expected a 2.4% increase on the PPI. The European session will see the industrial production numbers coming out. Industrial production is forecast to rise 0.2% on the month. This follows a 0.3% decline previously.

The NY trading session will see the monthly inflation data coming out. Headline CPI is forecast to remain flat for the period after a 0.3% increase previously. The core inflation rate is expected to rise at the same pace as the previous month at 0.2%.

Sterling declined to almost a 20-month low overnight after Theresa May postponed the planned Brexit vote which was supposed to happen today. She did this because her proposal was unlikely to happen. Negotiations to address the key issues – such as the backstop – will now resume with the European Union. In response, Donald Tusk, the European Council President said that the region was ready to work with the UK on having a good deal. However, May will restart the negotiations at a place of weakness after failing to secure the required votes. Today, the Brexit debate will continue even as traders receive the employment numbers.

Japanese stocks declined to a 20-month low after the volatile Wall Street session. Yesterday, US stocks declined sharply before closing in the green. At the same time, the S&P volatility index rose to a multi-month high, a sign that volatility was increasing in the market. The same sell-off happened in Australia, Hong Kong, Shanghai, and Seoul. The economic data to watch from Japan will be the machine tool orders and the assessment of big manufacturers’ performance.

The price of crude oil declined in overnight trading as traders continued worrying that the cuts announced by OPEC will not go far enough to rebalance the market. The implication of this is that producers will continue overproducing and flooding the market with oil. Traders are also starting to worry about the increased production from the United States. Early this year, the country passed Saudi Arabia and Russia to become the biggest oil producer. Last week, data from the EIA showed that the country had become a net oil exporter for the first time in decades.

EUR/USD

The EUR/USD pair declined sharply in overnight trading after Theresa May abandoned the Brexit vote yesterday. The pair dropped to an intraday low of 1.1350. In the Asian session, it recovered a bit to a high of 1.1370. Today, traders will receive the ZEW sentiment data from Germany. The current price is below the 25-day and 50-day EMA while the Average True Range has declined sharply as shown below. The RSI has moved slightly higher to the current 40. In the short term, the price will likely continue moving up before continuing the downward trend.

XTI/USD

After rising sharply yesterday, the price of crude oil declined in overnight trading as traders continued their worry about supply. The XTI/USD pair declined to 50.75. On the four-hour chart, the pair’s price was below the 50-day and 25-day EMA while the RSI has moved to a low of 43. This is lower than the 60 level it was before. The pair’s price will likely continue to wait for inventory data, which will be released later today.

GBP/USD

The GBP/USD pair declined sharply overnight after Theresa May cancelled the planned vote for Brexit. The pair reached an intraday low of 1.2505. The price is below the 25-day and 50-day EMA. The Relative Vigor Index declined sharply while the RSI is trading below the oversold level of 30. The pair’s volatility will likely continue as traders watch the latest developments on Brexit.

• Rates: US Treasuries underperform German Bunds
  German Bunds held remarkably strong yesterday despite positive risk sentiment in Europe. WS ended flat, but US Treasuries continued Monday’s slide. The same story develops overnight with thawing Sino-US trade talks strengthening the risk rebound. German Bunds might outperform further with EMU bonds facing selling pressure and ahead of tomorrow’s ECB.
• Currencies: Dollar drifts higher within established ranges
  The euro took a strong start yesterday, but EUR/USD 1.14 resistance again proved to be a tough hurdle. A higher US PPI and positive talk on the Sino-US trade relations finally turned out USD positive. The US CPI is a wildcard today. For now, the dollar apparently gets the benefit of the doubt going into next week’s Fed meeting.

The Sunrise Headlines

• US stock markets closed mixed yesterday after a volatile trading session. Nasdaq (+0.16%) outperforms. Asian bourses open well in green as US/China trade tensions might ease. Japanese indices outperform.
• Canada released the Huawei CFO on bail, raising hopes of easing trade tensions between the US and China. US President Trump already signalled he thinks this is a good thing “for what will be the largest trade deal ever made”.
• In a disagreement over a year-end spending bill, US President Trump told Democratic leaders he would be proud to shut down the US government later this month if he doesn’t get funding for a wall on the Mexican border.
• UK PM May is back in MP’s crosshairs after she delayed the Brexit vote and hinted a new vote will not take place before January ’19. Rumours now say Tory rebels had secured the 48 votes needed to trigger a confidence vote.
• Japanese PPI’s decreased in October to 2.3% (YoY) from 3.0% in October. The month-on-month figure printed -0.3%, down from 0.4% a month before and below expectations of -0.1% and the biggest drop since August 2016.
• Italian Deputy PM and leader of the League Party, Matteo Salvini, is said to be seeking new elections in March 2019, according to local Italian media. Meanwhile, PM Conte said to seek a 2019 budget deficit of 2.05%-2.08%
• Today’s economic calendar is rather thin with the November CPI’s in the US and the Industrial Production result for the EMU in October. ECB’s Hakkarainen is speaking in Frankfurt. The US Treasury holds a $24bn 10-yr Note auction

Currencies: Dollar Drifts Higher Within Established Ranges

Dollar drifting higher within established ranges

EUR/USD initially rebounded yesterday, supported by an improved risk climate and a better than expected German ZEW, but the gain could not be sustained. The 1.14 big figure was a tough resistance. Later, the USD received support from stronger than expected US PPI data and positive comments from US president Trump on the US China trade talks. French and Italian spending plans were potentially euro negative. EUR/USD finished the day at 1.1317 (from 1.1356). The gain in USD/JPY was more modest (close at 113.38).

Asian investors also considered the positive comments from US president Trump on the trade talks enough a reason to turn more positive on risk overnight. Positivism on trade currently outweighs the Brexit chaos and the risk of a US government shutdown as a driver for global markets. In an interview, US president Trump called the Fed not to raise interest rates next week. For now, his call has little impact on US yields or on the dollar. The dollar remains well supported despite the overall risk-on context (DXY 97.40 area; EUR/USD 1.1325 Regarding the data, US CPI inflation takes centre stage today. Core inflation is expected to rise a ‘trend-like’ 0.2% M/M and 2.2% Y/Y. Headline CPI is seen easing from 2.5% Y/Y to 2.2%. We have no strong arguments to deviate from the consensus. A negative surprise from headline (oil) might hamper a rise in US yields and in the dollar. Global sentiment and technical factors will also again play an important role. Brexit remains in the headlines and is a tentative euro negative (against the dollar). We consider an easing of the China/US trade tensions as neutral for EUR/USD. The topside in EUR/USD showed tough resistance in the 1.14+ area of late. Given the recent sharp decline in US yields, the market maybe has still some ‘less dovish’ repositioning to do in the run-up to the Fed meeting. This might keep the dollar well supported with the established ranges. (EUR/USD 1.12/1.15)

Sterling remained in the defensive yesterday as Monday’s decision to delay the Brexit vote reduced the visibility of the Brexit process even further. Sterling held near a 3-month low against the euro and tested the 1.25 barrier against the dollar. Currently, the debate whether or not there will be a confidence vote on PM May’s position only adds to uncertainty. We still so no reason to row against the current negative sterling tide.

EUR/USD: Dollar drifting higher going into the Fed policy decision

It's confirmed. Graham Brady, chair of the 1922 Committee, has received at least 48 letters from Conservative PMs for a confidence vote on Prime Minister Theresa May. The's over 15% threshold for triggering the request. A ballot will now be held today between 1800 to 2000 GMT today.

Brady said in a press release that "the threshold of 15% of the parliamentary party seeking a vote of confidence in the leader of the Conservative party has been exceeded." And, with votes counted "immediately afterwards and an announcement will be made as soon as possible".

Sterling is actually rather calm on the news.

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The euro is trading lower against the US dollar in early Wednesday trade, with price testing key trendline support around the 1.1310 level. If sellers break under the triangle pattern, a decline towards the former important swing low, at 1.1267, seems likely. The MACD indicator on the four-hour time frame is also signalling further intraday losses for the EURUSD pair.

The EURUSD pair is strongly bearish while trading below the 1.1310 level, key technical support is found at the 1.1267 and 1.1216 levels.

If the EURUSD pair moves above the 1.1377 level, buyers may test the 1.1390 and 1.1430 resistance levels.

The British pound is back under pressure against the US dollar, after reports surfaced that British Prime Minister Theresa May could face a leadership challenge. The GBPUSD pair is now testing the psychological 1.2500 level, after being sold heavily following a brief technical correction above the 1.2600 level. The bearish head and shoulders pattern continues to unfold, with the downside projection extending towards the 1.2200 level.

The GBPUSD pair is strongly bearish while trading below the 1.2550 level, key technical support is found at the 1.2480 and 1.2380 levels.

If the GBPUSD pair trades above the 1.2550 level, key resistance is found at the 1.2600 and 1.2637 levels.

The downward crypto trend continued over the past peek with the market cap dropping to $108 billion. This is in stark contrast to earlier this year when the value of cryptocurrencies reached more than $850 billion. Bitcoin is now valued at over $58 billion. At its peak, it was worth over $300 billion. Ethereum is valued at just $9 billion.

The crypto crash has led to layoffs in companies that specialized in cryptocurrencies. A report by the Wall Street Journal said that many large crypto shops like ConsenSys, Steemit, and Bitmain are in the process of laying-off tens of employees. This is because the sell-off of crypto has led to loss of confidence in the industry and reduced earnings. According to Ernst & Young, 86% of all ICOs are trading below their list price while 30% of them have lost their value. In addition, jobs related to blockchain have fallen by more than 3% according to Indeed.

Ethereum has been hurt by all this and ETH is currently trading at $85. This is the lowest level since last year when the price was on an upward trajectory. On the four-hour chart, the price is below all the major moving averages while the RSI is slightly above the important 30 level. Unless there is major news to support the currencies, the price will likely continue to deteriorate.

AUDUSD is paring some of the previous week’s losses, surpassing the 40-day simple moving average (SMA). However, the price returned back below the 23.6% Fibonacci retracement level of the downleg from 0.8135 to 0.7020, near 0.7285 after it created a new peak at 0.7390, a four-month high.

While the technical indicators continue to pick up speed, mirroring the market’s bullish behavior over the past two days, the RSI is still moving in the negative zone, but is pointing up, flagging that a recovery could reemerge in the short-term. The %K line of the stochastic oscillator created a bullish crossover with the %D line, supporting the marginal upside retracement.

In case the pair changes its direction to the upside again, the bulls will probably challenge the 20-day SMA of 0.7260 and then the 23.6% Fibonacci of 0.7285. A break higher, could last until 0.7340, before heading towards the 0.7390 resistance barrier. Further up, the area around the 38.2% Fibonacci could be another potential obstacle for upward movements.

On the flipside, additional declines may send prices until the immediate support area of 0.7160 before the 0.7000 – 0.7040 region comes into view, which includes the 33-month low of 0.7020, reached on October 26.

Summarizing, AUDUSD maintains a bullish bias in the short-term picture, whereas in the medium-term it turned neutral after the pullback on the 0.7390 hurdle.

General Trend

• Hang Seng supported by gains in the property, tech and telecom sectors
• Automakers outside of China trade broadly higher amid renewed speculation that China could lower US auto tariffs
• Japanese Marine/Transportation, Iron/Steel and Securities companies rise
• Aussie tracks gains in the equity futures
• After 2 full days of hearings, Huawei CFO Meng granted bail for C$10M with some conditions, next hearing set for Feb 6th, 2019
• China detained a former Canadian diplomat Kovrig in Beijing in apparent, though unconfirmed, retaliation for the arrest of Huawei CFO Meng Wanzhou
• SEMI: Expects 2019 global sales of new semiconductor manufacturing equipment to decline
• China Commerce Ministry expected to hold weekly press conference on Thursday
• President Trump: Release of Huawei CFO could be part of broader trade deal with China, could intervene in the Huawei case if it aids China trade deal; Think China is looking to cut tariffs on US cars to 15% immediately, very quickly, Will not raise tariffs on China until we see if they make a deal

Headlines/Economic Data

Japan

• Nikkei 225 opened +1.0%
• (JP) Japan will not ask junior companies to beat additional shinkansen cost - Japan press
• (JP) Bank of Japan (BOJ) has met its FY ETF purchase target of ¥6.0T - Nikkei
• (JP) JAPAN OCT CORE MACHINE ORDERS M/M: 7.6% V 9.7%E; Y/Y: 4.5% V 5.0%E
• (JP) JAPAN NOV PPI (CGPI) M/M: -0.3% V -0.1%E; Y/Y: 2.3% V 2.4%E
• (JP) Japan to spend ¥3.0T in second extra budget - press
• (JP) Bank of Japan (BOJ) has met its FY ETF purchase target of ¥6.0T - financial press
• (JP) Japan Trade Min Motegi: Japan will find common ground with US in trade talks; Japan will take more action for sales tax than before

Korea

• Kospi opened +0.5%
• (KR) South Korea Nov Unemployment Rate: 3.8% v 3.9%e
• (KR) South Korea Financial Supervisory Service (FSS): To provide more information to help local financial firms make inroads into overseas markets – Yonhap
• 005380.KR Hyundai Motor Group Reveals 'FCEV Vision 2030': To increase fuel cell system production capacity 13x to 40K units/yr by 2022 and 700K by 2030; Names Albert Biermann as the new R&D chief; Vice Chairman Kim Yong-Hwan named as Vice Chairman of Hyundai Steel
• (KR) South Korea Oct Money Supply L m/m: 0.7% v 0.1% prior; M2 m/m: 0.9% v -0.1% prior

China/Hong Kong

• Hang Seng opened +1.1%, Shanghai Composite +0.5%
• (CN) Central Economic Work Conference (starting Dec 14th) expected to focus on policies that will boost domestic economy in order to avoid hard landing and support employment in the face of trade uncertainties and slowdown - SCMP
• (CN) ~30 institutions could be on China's first D-SIFI list, including banks, insurance and securities companies - China press
• HUAWEI.CN (CN) Canada judge rules CFO Wanzhou Meng granted bail for C$10M (C$7M to comes in cash) with 5 sureties
• HUAWEI.CN Issues statement on bail hearing of CFO: "We have every confidence that the Canadian and US legal systems will reach a just conclusion ... Huawei complies with all applicable laws and regulations in the countries and regions where we operate"
• 521.HK Said to have sold properties in Hong Kong at a HK$70M loss - Local Press
• 600500.CN (CN) China said to be near merger agreement between Chemchina and Sinochem as prepertory work and deal issues largely settled - press
• (CN) China PBoC Open Market Operation (OMO): Skips operation for the 34th straight session
• (CN) China PBoC sets yuan reference rate: 6.9064 v 6.8996 prior
• (CN) CHINA NOV NEW YUAN LOANS (CNY): 1.250T V 1.150TE
• (CN) CHINA NOV M2 MONEY SUPPLY: 8.0% V 8.0%E (matches record low)
• 1044.HK Short-selller Bonitas has questioned the company's financial statements dating back to 2005

Australia/New Zealand

• ASX 200 opened +0.4%
• (NZ) RBNC Orr: RBNZ is under resourced for regulatory role; NZD exchange rate is remarkably well behaved - speaking to parliament
• SHL.AU To acquire Aurora Diagnostics for US$540M; Planning A$600M placement at A$19.50/shr; Affirms FY19 (ex-impact of acquiring Aurora) EBITDA +3-5% y/y; earnings weighted to H2
• (AU) Australia Dec Westpac Consumer Confidence: 104.4 v 104.3 prior; m/m: 0.1% v 2.8% prior
• (AU) Australia sells A$1.0B v A$1.0B indicated in 2.50% May 2030 bonds, avg yield 2.4958% v 2.7486% prior, bid to cover: 2.83x v 3.31x prior \

Other Asia

• (TW) Nikkei notes that 7 of the 9 Taiwan Apple suppliers reported m/m Rev declines in Nov, suggesting iPhone sales may have peaked in Oct v Dec in 2017
• (SG) Monetary Authority of Singapore (MAS) releases Dec professional forecasters survey: 2018 GDP growth is forecast at 3.3% v 3.2% in Sept; 2019 GDP growth forecast at 2.6% v 2.7% prior
• (SG) Singapore Oct Retail Sales M/M: -0.4% v -0.4% prior; Y/Y: 0.1% v 1.5%e; Retail Sales (Ex Auto) Y/Y: 0.5% v 1.8% prior

North America

• (US) Pres Trump: Will shut down govt if we don't have border security; would be proud to shut down govt if there's no border wall funding
• (US) Weekly API Oil Inventories: Crude: -10.2M v +5.4M prior; Gasoline: -2.5M v +3.6M prior
• (CA) Canada Foreign Min Freeland: confirms Canadian detained in China; says there is no political inference with respect to Huawei CFO Meng case; Won't comment whether Meng and Kovrig cases are related - comments in Toronto
• SEMI: Sees 2018 global sales of new semiconductor manufacturing equipment at $62.1B, +9.7% y/y (record high) (AU) Australia Dec Westpac Consumer Confidence: 104.4 v 104.3 prior; m/m: 0.1% v 2.8% prior (AU) Australia Dec Westpac Consumer Confidence: 104.4 v 104.3 prior; m/m: 0.1% v 2.8% prior
• TME Prices 82M ADS IPO at $13/ADS, the low end of the $13-15 initial range
• (US) President Trump: Fed would be foolish to raise rates; still fighting some trade battles and needs accommodation

Europe

• (UK) Senior govt source: expect confidence vote on PM May imminently; threshold of 48 letters has been reached to trigger a vote – Buzzfeed
• (UK) UK 1922 Committee Chairman Brady is not planning to see PM May after PMQs on Wed
• (DE) China President Xi and German President Steinmeier agreed on further cooperation between China and Germany to generate outcomes that could benefit peoples from both countries and the rest of the world - Chinese press

Levels as of 12:50ET

• Hang Seng +1.6%; Shanghai Composite +0.2%; Kospi +1.4%; Nikkei225 +2.2%; ASX 200 +1.1%
• Equity Futures: S&P500 +0.9%; Nasdaq100 +1.3%, Dax +1.0%; FTSE100 +0.7%
• EUR 1.1307-1.1400; JPY 113.33-113.52 ; AUD 0.7196-0.7230; NZD 0.6872-0.6901
• Feb Gold +0.1% at $1,249/oz; Jan Crude Oil +0.6% at $52.27/brl; Feb Copper +0.2% at $2.77/lb

XAU/USD needs to break below the support trend line (blue) if it wants to confirm the current wave pattern (wave 4 (blue)). A bullish break makes this wave outlook unlikely and it could indicate a potential bullish move.

XAU/USD could have completed a wave 4 (blue) correction but a bullish breakout changes that perspective. A bearish break below the support line (blue) and the bottom of the uptrend channel (blue) could indicate the start of 5 (blue) and aim for the Fibonaccilevel. A bullish break could aim for the resistance line (red).