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USDCAD broader bias remains higher on further bullishness. Support comes in at the 1.3350 level where a break will aim at the 1.3300 level. Further down, support comes in at the 1.3250 level where a turn lower may occur. But if further weakness is triggered support comes in at the 1.3200 level. Conversely, resistance lies at the 1.3450 level where a violation will target the 1.3500 level. Further up, resistance resides at the 1.3550 level and then the 1.3600 level. Its daily RSI is bullish and pointing higher suggesting more strength. All in all, USDCAD looks to strengthen further in the days ahead.

Daily Pivots: (S1) 112.58; (P) 112.98; (R1) 113.71; More..

Intraday bias in USD/JPY is mildly on the upside for 114.03 resistance. Break there should resume the rebound from 111.37 and target 114.54 key resistance next. On the downside, break of 112.23 will extend the consolidation from 114.54 with deeper fall. But after all, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. Larger rise from 104.62 is expected to resume later.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Risk appetite has a strong come back today on progress in US-China trade negotiations. It's reported that China is considering to response to Trump's request and cut auto tariffs down from 40% to 15%. Trump also tweeted that there were productive conversations with China and urged people to watch for important announcements. At the same time, the arrest of Huawei's executive faded into background as both sides delinked it to trade negotiations.

For now, Australian Dollar is the strongest one for today, followed by New Zealand Dollar. Sterling is trying to pare back some losses but it's still feeling heavy. The pound's fate will depends on the result of UK Prime Minister Theresa May's quick EU tour, in particular the meeting with European Council President Donal Tusk at 1600 GMT. Dollar is trading as the weakest one, followed by Canadian and Yen.

Technically, there is no new developments in the markets, while the pound recovers, it's near term bearish for further decline after brief consolidations. Australian Dollar may finally make up its mind for a rebound and seems to have defended 0.7199 against Dollar. Euro is a tricky one for now as EUR/USD and EUR/JPY are staying in near term range. We'll see if the pull back in EUR/GBP and EUR/AUD would spill over to other pairs.

In other markets, at the time of writing, FTSE is up 1.88%, CAC is up 2.12%, CAC is up 2.15%. German 10 year yield is up 0.0033 at 0.25. Italian 10 year yield is up 0.0042 at 3.101. German-Italian spread remains below 300. Earlier in Asia, Nikkei dropped -0.34%, Hong Kong HSI rose 0.07%, China Shanghai SSE rose 0.37%, Singapore Strait Times dropped -0.43%. Also, Japan 10 year JGB yield rose 0.0057 to 0.047.

Released from US, headline PPI slowed more than expected to 2.5% yoy in November. But core PPI surprised on the upside and accelerated to 2.7% yoy.

China mulls auto tariff cut from 50% to 15%

In latest news of US-China trade talk, Bloomberg reports that China is considering to bring down auto tariffs from the current 40% to 15%. And a proposal has been submitted for review by the cabinet in the coming days. Additionally, Trump also tweeted "Very productive conversations going on with China! Watch for some important announcements!"

Earlier today, the Chinese Ministry of Commerce said in a very brief statement about the phone call between Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin earlier today. It noted that "both sides exchanged views on putting into effect the consensus reached by the two countries' leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work."

EU Juncker: No Brexit renegotiation, only determination to avoid the backstop

European Commission President Jean-Claude Juncker will meet UK Prime Minister Theresa May later today, with the latter seeking for changes in the Brexit agreement so as to pass UK parliament. Juncker said ahead of the meeting that, "The deal we achieved is the best possible. It's the only deal possible. There is no room whatsoever for renegotiation." Nevertheless, he added "there is room enough to give further clarifications and further interpretations without opening the withdrawal agreement". But he reiterated that "the withdrawal agreement will not be reopened."

Regarding the backstop, Juncker somewhat echoed what May has said before. That is, "We have a common determination to do everything to be not in a situation one day to use that backstop but we have to prepare. It's necessary for the entire coherence of what we have agreed. It's necessary for Britain and it's necessary for Ireland. Ireland will never be left alone."

UK wage growth accelerated to fastest since 2008

UK unemployment rate was unchanged at 4.1% in the three months to October, matched expectation. However, wage growth was rather impressive. Average weekly earnings including bonus rose 3.3% 3moy, above expectation of 3.0% 3moy. Average weekly earnings excluding bonus also rose 3.3% 3moy, above expectation of 3.2% 3moy. Wage growth was indeed fastest since 2008. Also claimant count rose 21.9k in November, above expectation of 13.2k.

German ZEW: Dramatic deterioration in current situation, indicative of weak Q4

German ZEW economic sentiment improved to -17.5 in December, up from -24.1, better than expectation of 025.0. However, current situation index dropped to 45.3, down from 58.2, missed expectation of 55.6. Eurozone ZEW economic sentiment improved slightly to -21.0, up from -22.0, and beat expectation of -23.2. Eurozone current situation dropped -6.1 to 12.1.

ZEW President Achim Wambach noted in the release that the rise in expectation "should not be over-interpreted". He added that "the assessment of the economic situation has worsened dramatically for both Germany and the Eurozone" And, this is "indicative of relatively weak economic growth in the fourth quarter". Also, uncertainties remain in terms of the "looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany's exports".

Australia NAB business confidence dropped to 3, house prices dropped -1.5% qoq

Australia NAB business confidence dropped to 3 in November, down from 5. Business conditions dropped to 11, down from 13. Alan Oster, NAB Group Chief Economist noted that "the downtrend in conditions has continued in November" and, "this trend suggests that the business sector has lost some momentum since late 2017 and early 2018." He added "confidence is now below average, suggesting that businesses themselves think momentum will slow further".

On falling house prices, though, Oster noted "businesses do not yet suggest they are having a material impact." And, "falling house prices in themselves may have a 'wealth effect' on households but given the prior large run up the impact of the declines to date is unclear".

Also from Australia, house price index dropped for the third quarter by -1.5% qoq in Q3, matched expectation. Over the year, house priced dropped -1.9% yoy. Among the capital cities, Sydney's house prices dropped -1.9% qoq, -4.4% yoy. Melbourne's dropped -2.6% qoq, -1.5% yoy. However, gains was recorded in Hobart (1.3% qoq, 13.0% yoy), Adelaide (0.6% qoq, 2.0% yoy) and Brisbane (0.6% qoq, 1.7% yoy).

Released from Japan, BSI large manufacturing index dropped to 5.5 in Q4, M2 rose 2.3% yoy in November. Machine tools orders dropped -16.8% yoy in November.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.58; (P) 112.98; (R1) 113.71; More..

Intraday bias in USD/JPY is mildly on the upside for 114.03 resistance. Break there should resume the rebound from 111.37 and target 114.54 key resistance next. On the downside, break of 112.23 will extend the consolidation from 114.54 with deeper fall. But after all, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. Larger rise from 104.62 is expected to resume later.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Economic Indicators Update

The Canadian dollar has ticked higher in the Tuesday session, after considerable losses on Monday. Currently, USD/CAD is trading at 1.3384, down 0.11% on the day. On the release front, there are no Canadian events. The U.S. releases key inflation reports, starting with PPI on Tuesday and CPI on Wednesday.

A bit of positive news on the trade war front was enough to spark a rally on global equity markets. Following reports on Tuesday that U.S and Chinese negotiators had spoken by phone, investor risk appetite jumped higher, sending Asian and European stock markets sharply higher. Will the spike in risk appetite boost the Canadian dollar? Canada stands to gain from a respite in the U.S-China trade dispute, which has taken a toll on Canadian exports, a critical driver of economic growth.

Canadian employment numbers sparkled in December, but that will not be enough to revise current monetary policy. The BoC is in caution mode, and a recent decline in GDP has solidified that stance. The bank remained on the sidelines at its policy meeting last week, and is expected to stand pat again in January. With the Fed expected to scale back its “gradual rate hike” policy to just one hike next year, there is less pressure on the BoC to raise rates. The Fed is widely expected to raise rates at next week’s meeting, which would be the fourth rate increase this year. The rate hikes have slowed economic growth, as seen by lower GDP readings and a dismal nonfarm payrolls report for November.

EURGBP has advanced considerably over the preceding two days, hitting a new more-than three-month high of 0.9086. Today’s pullback shifted the technical indicators from upside direction to sideways movement. The RSI indicator is sloping down after reaching overbought zone, while the ROC oscillator is flattening in the positive area.

An upside run in the price may retest the previous peak of the one-year high of 0.9100. Above that, investors would be interested to see whether bullish dynamics can overcome the previous peak and meet the 0.9300 psychological hurdle.

Alternatively, a decline in the price may retest the 0.8995 support barrier, before heading even lower towards the 0.8930 level, where it topped on November 19. More downside pressure could send prices until the 20- and 40-simple moving averages (SMAs) in the daily chart, near 0.8890 and 0.8845 correspondingly.

To conclude, the short-term outlook is bullish, however, in the long-term picture the price lacks direction.

Entering into US session, Sterling is trading as the strongest one for today, paring some of yesterday's steep losses. Strong wage growth is a positive factor for the pound. Also, traders are awaiting the results of Prime Minister Theresa May's EU tour. Both European Council President Donald Tusk and European Commission President Jean-Claude Juncker are clear that they won't renegotiate the Brexit agreement. But they're willing to give further assurance to help May secure parliamentary approval. We'll see what they're going to offer. Separately May's spokesman also said the Brexit deal vote will happen before January 21, 2019.

Meanwhile, Australian Dollar follows as the second strongest on return of risk appetite. Sentiments are lifted by renewed optimism on US-China trade negotiation. So far, Chinese authorities and even media are distancing the arrest of Huawei's executive to trade talks. Vice Premier Liu He had a telephone conversation with US Trade Representative Robert Lighthizer on timetable and roadmap for the next stage of negotiations. China dove Treasury Secretary Stephen Mnuchin was also present. Additionally, Bloomberg reports that China is considering to bring down auto tariffs from the current 40% to 15%. And a proposal has been submitted for review by the cabinet in the coming days. The news give solid boost to European stocks and US futures.

Quick update: Trump also just tweeted "Very productive conversations going on with China! Watch for some important announcements!"

https://twitter.com/realDonaldTrump/status/1072480983683870720

In Europe, at the time of writing:

• FTSE is up 1.58%
• DAX is up 1.97%
• CAC is up 1.99%
• German 10 year yield is up 0.0182 at 0.264
• Italian 10 year yield is up 0.033 at 3.130

Earlier in Asia:

• Nikkei dropped -0.34%
• Hong Kong HSI rose 0.07%
• China Shanghai SSE rose 0.37%
• Singapore Strait Times dropped -0.43%
• 10 year JGB yield rose 0.0057 to 0.047

The DAX index has recorded sharp gains in the Tuesday session. Currently, the index is at 10,834, up 1.02% on the day. In economic news, both German and Eurozone ZEW Economic Sentiment both improved in December, but still posted sharp declines. In the U.S, the markets are braced for a sharp drop from PPI and Core PPI, with estimates for 0.0% and 0.1%, respectively. On Tuesday, the eurozone releases industrial production.

A bit of positive news on the trade war front was enough to spark a rally on global equity markets. Following reports on Tuesday that U.S and Chinese negotiators had spoken by phone, investor risk appetite jumped higher. The DAX has climbed over 1 percent on Tuesday, led by banking and automaker stocks. BMW and Daimler are more than 2 percent higher, while Volkswagen has surged almost 4 percent. As well, Deutsche Bank has gained 2.6 percent.

The ECB holds a policy meeting on Thursday, and policymakers are expected to finally wind up the bank’s bond purchase program. The scheme commenced in March 2015 and has grown to some EUR 2.5 trillion in assets. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. Inflation has moved closer to the ECB target of around 2 percent, and the eurozone economy performed well earlier in the year. This prompted the ECB to announce that it would wind up the program in December. However, economic conditions have deteriorated in recent months, as the nagging U.S.-China trade war has weighed on the global economy and hurt the export and manufacturing sectors in Germany and the eurozone. ECB policymakers are not expected to change course, but any hints of re-introducing stimulus in 2019 would likely send European markets lower.

EUR/USD is slightly higher in the Tuesday session, erasing the losses seen on Monday. Currently, the pair is trading at 1.1396, up 0.36% on the day. On the release front, both German and Eurozone ZEW Economic Sentiment both improved in December, but still posted sharp declines. In the U.S, the markets are braced for a sharp drop from PPI and Core PPI, with estimates for 0.0% and 0.1%, respectively. On Tuesday, the eurozone releases industrial production and the U.S. publishes CPI reports.

Financial experts remained very concerned over the economic prospects in Germany and the eurozone. The German ZEW Economic Sentiment survey improved to -17.5, beating the estimate of -25.0 points. However, the indicator has been mired in negative territory for a 9th consecutive month. The eurozone reading of -23.2 was also dismal, although it was slightly above the forecast of 21.0 points. The ZEW was bleak in its assessment of the December readings: The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone. This is indicative of relatively weak economic growth in the fourth quarter. If upcoming Q4 data misses expectations, the euro will be under heavy pressure.

The ECB holds a policy meeting on Thursday, and policymakers are expected to finally wind up the bank’s bond purchase program. The scheme commenced in March 2015 and has grown to some EUR 2.5 trillion in assets. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. Inflation has moved closer to the ECB target of around 2 percent, and the eurozone economy performed well earlier in the year. This prompted the ECB to announce that it would wind up the program in December. However, economic conditions have deteriorated in recent months, as the nagging U.S.-China trade war has weighed on the global economy and hurt the export and manufacturing sectors in Germany and the eurozone. ECB policymakers are not expected to change course, but any hints of re-introducing stimulus in 2019 would likely send the euro sharply lower.

The Australian dollar bounced above daily cloud after Monday's inverted Hammer candle signaled stall of steep five-day downtrend. Fresh recovery was also boosted by US/China talks hopes, with oversold daily slow stochastic adding on expectations for stronger upside action. The pair still holds below initial barriers at 0.7226/31 (Monday's high/100SMA), break of which would ease bearish pressure and expose upper pivots at 0.7262/72 (20 /10 SMA's). Sustained break here is needed to confirm reversal and shift focus higher. On the other side, the downside remains vulnerable as last week's long red weekly candle which also formed weekly bearish engulfing pattern, weighs. Limited recovery under 20SMA (also near Fibo 38.2% of 0.7393/0.7177 bear-leg) would signal positioning for fresh weakness. Break of Monday's low at 0.7177 would open pivotal supports at 0.7163 (Fibo 61.8% of 0.7020/0.7393) and 0.7139 (daily cloud base).

Res: 0.7231, 0.7262, 0.7272, 0.7311
Sup: 0.7191, 0.7177, 0.7163, 0.7139

The pair eases on Tuesday after Monday’s 0.6% rally (the biggest one-day rally since 30 Oct) was capped by pivotal Fibo barrier at 113.35 (Fibo 61.8% of 114.03/112.23 ber-leg).

Fresh bullish acceleration after strong downside rejections at 100SMA (112.23) keeps near-term bias with bulls, underpinned by thickening daily cloud, which contained multiple attacks.

Mixed daily techs lack clearer direction signal, with sustained break above 113.35 needed to signal extension of bull-leg from 112.23 double-bottom, towards targets at 113.61 (Fibo 76.4%) and 113.82 (03 Dec lower top), with key near-term barrier at 114.03 (28 Nov high) expected to come in focus.

Broken Fibo 38.2% barrier now marks solid support at 112.92 with extended dips to be contained above the top of widening daily cloud (112.70).

Res: 113.35, 113.65, 113.61, 113.82
Sup: 112.92, 112.70, 112.46, 112.23