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Daily Pivots: (S1) 128.25; (P) 128.59; (R1) 129.02; More....

Intraday bias in EUR/JPY remains neutral first. 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 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.

Daily Pivots: (S1) 0.8966; (P) 0.9027; (R1) 0.9102; More...

Intraday bias in EUR/GBP remains on the upside for 0.9098 resistance. Decisive break there will extend the rise to 0.9304 key resistance next. On the downside, below 0.8988 minor support will turn intraday bias neutral and bring some consolidations first, before staying another rally.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Sustained break of 0.8939 resistance will confirm that it's in a medium term rising leg for 0.9098 and above. And for now, in case of another fall, downside will likely be contained by 0.8620/55 support zone to bring rebound.

Hopes that the Indian Rupee would continue its rebound from all-time lows experienced throughout 2018 on the back of sustained weakness in Oil prices have been rocked by news that respected Reserve Bank of India (RBI) Governor Urjit Patel has resigned from his position.

The departure of Patel from the RBI has not only heightened investor uncertainty over India, but more worryingly will probably encourage the return of speculation of potential political influence over central bank policy in India. With Patel’s sudden exit eroding investor confidence as India prepares for a general election next year, I would expect the Rupee to continue its tumble on this shocking development for a while yet.

Sterling seeks stability in face of Brexit setback

The main takeaway that is still dominating international headlines is the announcement that UK Prime Minister Theresa May has spectacularly pulled the key Brexit vote in Parliament just one day before it was scheduled.

The GBPUSD is trading near its lowest levels since April 2017 in response to this unexpected Brexit twist. If investors become more anxious that the United Kingdom is falling into either a no-deal Brexit or even worse, a disorderly Brexit trap, then a move to a 1.20’slow cannot be ruled out over the coming weeks. As the week progresses markets will be keeping a very close eye on whether May has the ability to renegotiate with Brussels in a bid to save the deal, if she will end up facing a leadership challenge, or the possibility of a second Brexit referendum. With the chaos in Westminster raising the likelihood of a no-deal Brexit scenario, the British Pound is in trouble.

Focusing on the technical picture, the GBPUSD is undeniably bearish on the daily and weekly charts. The sharp breakdown below 1.2700 has placed bears in a firm position of control with 1.2500 acting as the next significant point of interest.

Regional and emerging markets set to follow global indices

The theme of international political events overshadowing fluctuations in global markets is going to run the risk of regional and emerging markets following the trajectory of their global counterparts.

Renewed uncertainty over what exactly is going to happen next with Brexit combined with continued signs of political risk in France, alongside prolonged US-China trade tensions represents the perfect combination of a risk-off cocktail for investors.

All of these factors are weighing on risk appetite, where investor attraction towards taking on risk in their portfolio diminished early this week. Most major global markets, emerging market currencies and commodities like Oil all suffered falls on Monday, which is a broad indicator of risk aversion taking place.

Dollar buoyed by safe-haven demand

Market caution has sent investors sprinting to the Dollar which remains the go-to currency in times of uncertainty.

The Dollar Index is trading marginally above 97.10 as of writing and is likely to extend gains on safe-haven flows. However, with expectations mounting over the Fed taking a break on interest rates next year and soft economic data fanning concerns about US economic growth, Dollar bulls may tire more quickly than anticipated. In regards to the technical picture, the Dollar Index has the potential to hit 95.40 in the near term.

Commodity spotlight – Gold

Gold prices held steady this morning on prospects of the Fed taking a break on raising rates next year.

The outlook for the yellow metal this week will primarily hang on the Dollar’s performance. It will be a struggle for Gold prices to trade higher if risk aversion ends up boosting the Greenback. In regards to the technical picture, prices remain in an upward trend on the daily charts with support found at $1,240. Bulls have the chance to attack $1,250.70 and beyond as long as $1,240 proves to be a reliable support level.

Daily Pivots: (S1) 1.5761; (P) 1.5825; (R1) 1.5859; More....

A temporary top is in place at 1.5887 and intraday bias is turned neutral for some consolidations first. Another rise is expected as long as 1.5596 support holds. On the upside, above 1.5887 will target 1.5984 support turned resistance. Break will bring retest of 1.6357 high. However, break of 1.5596 will indicate completion of the rebound and target 1.5346 support.

In the bigger picture, no change in the view that 1.6357 is a medium term top. But the strong rebound ahead of 1.5271 cluster support (38.2% retracement of 1.3624 to 1.6357 at 1.5313) suggests price actions from 1.6357 are developing into sideway consolidation, rather than a deep correction. The range of 1.5271/6357 is likely set for the consolidation. And we don't expect a break of the range any time soon. But decisive break of 1.6357 will resume the larger up trend from 1.3624 (2017 low) to 1.6587 (2015 high).

The USD/JPY bullish impulse is expected to complete a waveC (purple) within wave B (pink) after which price should move down lower again to complete wave C of wave E (light purple).

The USD/JPY strong bullish momentum is indicating a wave 3 (blue) pattern. The current pullback could therefore be a wave 4 (blue) unless price breaks below the 38.2% Fibonacciretracement level because wave 4 price usually does not enter the price territory of wave 1 (blue). In that case, price could test the support (blue) again and a break below it could indicate a downtrend. A bullish break above the resistance (red) trend line could indicate a bullish breakout.

Daily Pivots: (S1) 1.1218; (P) 1.1263; (R1) 1.1290; More...

EUR/CHF's break of 1.1260 support confirms resumption of whole decline from 1.1501. Intraday bias stays on the downside for 1.1173 low next. For now, we'd expect strong support inside 1.1154/98 key support zone to bring reversal. On the upside, above 1.1277 minor resistance will turn intraday bias neutral first.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

General Trend:

• Equities markets open cautiously higher as China confirms talks with US on trade and China expected to make announcement on resumption of soybean buying. Bond yields generally higher.
• China expected to announce details of their resumed purchases of US soybeans, all purchases expected to go into reserves
• Shares of Samsung Biologics in South Korea rise over 20% after Korea Exchange says it can remain listed despite accounting fraud investigation
• Chinese press speculates that the PBoC will resume OMO operations soon, possibly this week
• Brexit vote cancelled, UK PM May to make rounds in Europe to drum up support for next steps
• Japan winter bonuses to rise 3.28% y/y to 834,391, 6th consecutive year of increases and larger increase than 2017’s 2.18%
• Aussie dollar rose 0.2% on the news that China Vice Premier Liu: Spoke with US Treasury Sec Mnuchin and Trade Rep Lighthizer on how to implement consensus reached by two leaders, pushing forward timetable, roadmap for next stages of trade talks
• Gambling names stronger in Hong Kong on the report that gaming Rev is up 6% in the first week of December

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.3%
• (JP) Japan Cabinet approval rating -5 ppts to 41% - NHK poll
• (JP) Reportedly Japan's 3 carriers are to ban Huawei, ZTE from infrastructure - Japanese Press
• 7201.JP Tokyo Stock Exchange (TSE) considering putting co on alert list – Nikkei
• (JP) JAPAN Q4 BUSINESS SURVEY INDEX (BSI) LARGE ALL INDUSTRY Q/Q: 4.3 V 3.8 PRIOR; BSI LARGE MANUFACTURING Q/Q: 5.5 V 6.5 PRIOR
• (JP) Japan Nov Money Supply M2 y/y: 2.3% v 2.6%e; M3 y/y: 2.1% v 2.3%e
• (JP) Japan winter bonuses expected to be at record high of ¥834,391 ($7,400) according to recent poll; marking the 6th consecutive year of growth and +3.28% growth y/y v 2.18% last year – Nikkei
• (JP) Japan Fin Min Aso: Q3 GDP reflects natural disasters; don't believe the economy is getting worse; do not remember Trump talking about FX with PM Abe
• (JP) Japan MoF sells ¥700B v ¥700B indicated in 0.90% 30-yr JGBs, avg yield: 0.7940% v 0.8740% prior, bid to cover 3.78x v 3.99x prior
• 7201.JP Tokyo court approves detention of Ghosn and Kelly until Dec 20th

Korea

• Kospi opened +0.1%
• (KR) US Treasury announces North Korea-related sanctions on three people, including one close adviser to Leader Kim Jong Un
• (KR) South Korea Oct delinquency rate for bank loans more than 30 days overdue 0.58% v 0.55% prior - SK FSS
• 207940.KR Korea exchange rules that the co. is still qualified to remain listed on the market despite being cited for accounting fraud
• 660.KR CEO Lee Seok-hee: global market for memory chips is anticipated to continue to grow despite short-term tumbles, need to devise strategies based on long-term visions – Yonhap
• (KR) South Korea new Fin Min Hong: Need to create more jobs; should try to boost economic vitality - inaugural speech

China/Hong Kong

• Hang Seng opened -0.5%, Shanghai Composite +0.1%
• (HK) Hong Kong Chief Exec Lam: Will not use public funds to bailout housing market - SCMP
• 941.HK China Govt grants 5G licenses to China Mobile, China Unicom and China Telecom – SCMP
• (CN) Abacus, 500 Startups and SCMP partner to create China Internet report: internet penetration just above 50%; smartphone users 3x and mobile payments 11x more users than the US
• (CN) China to announce detail of its first purchase of US soybeans, most soybeans purchased from US farmers expected to be added to state reserves – SCMP
• (HK) HSBC analyst: Hong Kong not fully ready to raise rates - HK press
• HUAWEI.CN CFO Wanzhou Meng bail hearing ends without decision, has been a request for house arrest
• (CN) China PBoC Open Market Operation (OMO): Skips v skipped prior (33rd straight skip)
• (CN) China PBoC sets yuan reference rate: 6.8996 v 6.6893 prior
• (CN) China Vice Premier Liu: Spoke with US Treasury Sec Mnuchin and Trade Rep Lighthizer; discussed how to implement consensus reached by two leaders, pushing forward timetable, roadmap for next stages of trade talks
• HUAWEI.CN Some Chinese companies have announced policies requiring the exclusive use of Huawei products in a bid to support the company following the arrest of its CFO; some also to penalize employees who purchase iPhones - press
• (HK) Gaming Rev for the 1st 9-days of Dec said to be +6% y/y - local press
• (CN) China PBoC expected to resume open market operations (OMO) soon to fill short term liquidity gaps into the end of the year; Analysts expect the central bank to roll over CNY286B in medium-term lending facility (MLF) loans this Friday - China Securities Journal
• (CN) China Central Economic Work Conference to start Dec 14th - press

Australia/New Zealand

• ASX 200 opened +0.1%
• (NZ) New Zealand Nov Card Spending Retail m/m: -0.4% v 0.3%e; Total m/m: -0.2% v -0.1% prior
• (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 117.7 v 119.5 prior
• (AU) AUSTRALIA Q3 HOUSE PRICE INDEX Q/Q: -1.5% V -1.6%E; Y/Y: -1.9% V -2.0%E
• (AU) Australia Nov NAB Business Confidence: 3 v 5 prior; Conditions: 11 v 13 prior

Other Asia

• (PH) Philippines Oct Trade Balance: -$4.2B v -$3.73Be

North America

• (US) New York Fed Nov Survey of Consumer Expectations: Inflation outlook remains stable while home price expectations continue to decline
• (US) White House advisor Kushner: Congress is very close on a prison reform bill – Fox
• QCOM Confirms its been granted preliminary injunctions against Apple in China; Preliminary injunction order are effective now for iOS12; if Apple is violating the prelim injunction, will seek action by enforcement tribunals

Europe

• (FR) France Pres Macron: Has asked the govt to increase wages by €100/month starting in Jan; To cancel social security tax increase on pensioners who earning under €1,000/month
• (UK) PM May: confirms she will delay vote on Brexit; there is broad support for aspects of the deal, the Backstop is creating concerns
• (UK) EU's Tusk: decided to call European Council on Brexit Art. 50 on Thurs; We will not renegotiate the deal, including the backstop, but we are ready to discuss how to facilitate UK ratification
• (UK) House of Commons Speaker agrees to emergency debate tomorrow on PM May decision to delay Brexit vote – press
• (UK) PM May to meet with German Chancellor Merkel on Tues as part of effort to secure Brexit support; will be in The Hague tomorrow, then Berlin, followed by separate bilateral meetings with Juncker and Tusk in Brussels – press
• (IT) EU Finance Commissioner Moscovici: EU talks with Italy about budget will resume on Dec 12th, the clock is ticking

Levels as of 12:50ET

•  Hang Seng -0.1%; Shanghai Composite +0.2%; Kospi +0.1%; Nikkei225 -0.3%; ASX 200 +0.4%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.4%, Dax -0.2%; FTSE100 -0.0%
• EUR 1.1351-1.1370; JPY 113.01-113.36 ; AUD 0.7185-0.7215;NZD 0.6866-0.6887
• Feb Gold +0.2% at $1,252/oz; Jan Crude Oil +0.3% at $51.16/brl; Feb Copper +0.4% at $2.74/lb

Daily Pivots: (S1) 1.3324; (P) 1.3370; (R1) 1.3448; More...

USD/CAD rebounds strongly after drawing support from 4 hour 55 EMA. But it's staying below 1.3444 resistance. Intraday bias remains neutral first. As long as 1.3160 minor support holds, further rally is still expected. On the upside, break of 1.3444 will turn bias back to the upside. Larger rally from 1.2061 should target 1.3685 fibonacci level next.

In the bigger picture, up trend from 1.2061 (2017 low) is still in progress and should target to 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685. This will remain the preferred case as long as channel support (now at 1.2949) holds.

Daily Pivots: (S1) 0.7169; (P) 0.7198; (R1) 0.7218; More...

No change in AUD/USD's outlook and focus remains on 0.7199 support. Decisive break there will suggest that the corrective rebound from 0.7020 has completed earlier than expected. Deeper fall should then be seen back to retest 0.7020 low. On the upside, above 0.7259 minor resistance will turn bias back to the upside. In that case, corrective rise from 0.7020 would extend to 38.2% retracement of 0.8135 to 0.7020 at 0.7446 before completion.

In the bigger picture, a medium term bottom is in place at 0.7020 ahead of 0.6826 key support (2016 low). Stronger rebound might be seen to correct the whole fall from 0.8135 high. But we'd expect strong resistance from 0.7500 support turned resistance to limit upside. Medium term fall from 0.8135 should resume and extend to take on 0.6826 low at a later stage, after the correction from 0.7020 completes.

• ECB to revise growth and inflation downwardly
• End of APP is no monetary tightening but less accomodation
• Subtle tweaks rather than major surprises
• The ‘best’ market reaction is no market reaction

Same chorus, different meeting

Not much was expected from the latest ECB policy meetings. Indeed, the past few months in general held no significant modifications to either the monetary policy stance or the tone struck by Draghi in the press conferences following the ECB decision. The October meeting proved to be the most interesting however, given the bout of volatility that spread across all markets since the month’s start. The ECB President had to walk a thin line in acknowledging the market nervousness against a backdrop of increased economic uncertainty while in doing so not rattling frantic investors even further by suggesting the ECB shares their concerns to a material extent. The lack of a significant market reaction during the press conference suggests he did so masterfully.

The turmoil in equity markets, vulnerabilities in emerging economies, increased protectionism, Italy on an outright collision course with the European Commission and the brexit stalemate contributed to the downside risks to the Euro area economy. It is in such a context Draghi strongly defended the ECB’s previous (September) rather optimistic economic and monetary assessment. He delivered a similar view at the end of November, in one of his last public appearances to the European Parliament before the ECB’s blackout period.

Draghi mentioned that the data were “somewhat weaker than expected” lately, (implicitly) referring to, amongst others, continuously declining PMI confidence indicators and to the poor GDP growth of 0.2% QoQ in the third quarter. But in the President’s view, such a gradual slowdown is normal as expansions mature and growth eventually converges back toward potential. The poor Q3 growth performance has also to a great extent to do with country and sector-specific factors that are considered temporary. Draghi points out the car industry has been disrupted by regulatory issues in Q3 and already sees signs of normalization.

Meanwhile, the underlying drivers of domestic demand remain firmly in place. Household income is supported by ongoing labour market strength. Business investment in turn is facilitated by very favourable financing conditions.

On price developments the ECB chair’s confidence remains unabated. Headline inflation is boosted by energy base effects but underlying price pressures continue to be muted. Yet, Draghi sees good reasons for underlying inflation to gradually rise in the months ahead as wages are increasing and producer and import prices are recovering. Therefore the ECB remains convinced of a sustained convergence of inflation toward target, even after winding down the net asset purchases this month.

Subtle balancing act

Turning to the December meeting, we expect subtle tweaks rather than major surprises. The ECB wants to strike a delicate balance of reassuring markets while taking into account the increased risks surrounding the economic environment. Therefore, we expect Draghi to stick to the very gradually normalizing monetary policy path set out in June. In particular, we anticipate the ECB to keep rates at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

We see little reason for an extension of the net asset purchases, despite weaker than expected data. The ECB will bury the net asset purchasing programme by the end of December, also as plotted out in June. With regards to the reinvestment policy, we anticipate that the Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

At the October meeting Draghi indicated multiple times that the assessment described above would be reviewed in the light of new economic projections. It will be particularly interesting to see whether and how the latest data and economic and financial developments have affected the ECB’s December forecasts. Given the softer activity data and increased uncertaintity, we anticipate a minor downward revision of growth for the current year while 2019 and 2020 projections remain unchanged. The ECB will also provide 2021 data, which we expect to show growth slowing but remaining solid. Inflation projections will also face a downward – oil price inspired – revision, reaching the ECB’s below but close to 2% target by the end of the forecasting horizon (i.e. 2021).

With these minor adjustments the ECB wants to signal the world economy is doing just fine but that it takes the risks into account. It will be key for markets to see whether the ECB sees these risks important enough to tilt the balance of risks, now broadly balanced, to the downside. Such a move would add to current investor worries and most likely aggravate market turmoil. Draghi will stress the current outlook warrants the (baby step toward) policy normalization but that given the reinvestment policy of the sizeable stock, it should be viewed as a less accommodative stance rather than a tightening move. This balancing act of being perceived not too hawkish nor dovish will be the thread running through the press conference.

Draghi triggered market attention at the last meeting by suggesting the ECB could, in theory, launch new long term refinancing operations ((T)LTRO’s) should the economic environment worsen dramatically. Given the recent data weakness, we expect a considerable amount of related questions. The central bank will probably reiterate the “richness” of its policy toolkit on Thursday while stressing there is no need of using it from a growth perspective, but he might nevertheless signal a roll-over in the run-up to large June 2020 maturity dates.

The ECB-President is also facing questions about Italy. As usual, Draghi will refrain of any high profile comments as it is a fiscal and no monetary matter. Furthermore, negotiations are still ongoing and the ECB is likely to await the conclusions on the matter drawn by the European Council that takes place the same day and the next. Regarding Brexit, Draghi will bring to mind the ECB’s collaboration with the Bank of England to ensure a smooth financial system following any type of Brexit

Markets only expect positive 3M Euribor rates in Q3 2020. Dovsih shift compared with October meeting (green). Source: Bloomberg

ECB to brace for a credibility test

Against the backdrop of increased uncertainty and volatility, market expectiations turned very dovish ahead of this ECB meeting, questioning the normalization path set out in June. 3M Euribor rates aren’t expected to turn positive before the third quarter in 2020. EMU swap rates and German yields are at May 2018 lows. EUR/USD is trading sideways in a rather low 1.12/15 range. The end of the APP is largely discounted since its announcement in June and is, as such, unlikely to trigger a lasting market reaction. We don’t think the ECB’s intentions are to push for even lower market expectations. At the same time it will be key not to trigger any unwarranted financial tightening. We think Draghi’s verbal acrobatics during the Q&A will prove crucial for the matter. In this context, the lack of signifcant market moves should (again) be considered a success for the central bank. Here’s where the Fed meeting next week might come to aid. The US central bank is facing even more investor scrutiny after the heavy market repositioning of late. It’s very well possible investors stay sidelined until December 19.