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Notes/Observations

• Arrest of Huawei's CFO in Canada raises questions about the durability of the US-China trade truce
• OPEC meeting in Vienna on production cuts. No decision yet; Analysts view anything below a 1M bpd of cuts as bearish by the market

Asia:

• Canada reportedly arrested Huawei global CFO, Deputy Chairwoman and daughter of founder, Wanzhou Meng in Vancouver on trade sanction violation suspicions in the US
• BOJ Gov Kuroda: Risks for Japan's economy was tilted to the downside; economy was expanding gradually, negative Q3 GDP growth due to temporary factors like natural disasters

Europe:

• UK Government reportedly seeking compromise to avoid defeat at Dec 11th vote; to include Parliamentary Veto on Backstop. PM May said to be looking at all options in order to win the vote
• UK PM May being pushed to call off Parliament vote on Brexit next week over worries that if it fails the Govt will break down. Speculation that if the vote does happen she could lose by 100 MPs or more
• Northern Ireland DUP Brexit Spokesman Wilson: We had arrangement to keep government in power, government broke its promises
• EU said to be prepared to offer PM May lifeline if her deal is rejected next week by extending Article 50 - Italy PM Conte said to present 2019 budget plan to EU's Juncker on Tuesday, Dec 11th
• France Parliament voted in favor of abandoned fuel tax rise ( note: had previously been halted for 6 months)

Americas:

• Fed's Beige book: Most of the 12 districts reported modest or moderate growth, while both Dallas and Philadelphia noted slower growth, and St. Louis and Kansas City reported slight growth

Energy:

• OPEC delegate: some nations saw a reduction of under 1M bpd as an adequate cut. OPEC meeting on Thursday, Dec 6th might not agree specific numbers. Must factor impact of Canada's supply reduction last week and potential reductions from Venezuela, Iran
• Iran Oil Min Zanganeh: Iran was seeking exemption from OPEC decision, Iran did not want to join JMMC. Aimed for prices in the $60-70/bbl range
• Oman Energy Minister: OPEC+ agreed to recommend a cut, has consensus for Oil production cut. Baseline for cut would be Sept or Oct 2018 levels. Cut would be effective from Jan for six months duration. OPEC could agree to 1M bpd production cut. OPEC+ committee (JMMC) did not discuss size of output cut
• Russia said to agree to cut oil output in tandem with OPEC and allies in 2019; debated regarding figures and baseline for cuts still ongoing
• OPEC+ producers and Russia reportedly in talks about of extending its pact until end of 2019. Reportedly discussing idea of reverting to 2016 oil production quotas for 2019. According to Russia calculations a return to 2016 oil quotas could result in cuts of 1.2M bpd

Macro

• (CN) China: Markets sold off on news that Huawei's CFO has been arrested in Canada, reportedly on suspicion of violating U.S. sanctions on Iran. The concern is that the arrest will complicate the trade talks between the U.S. and China. The U.S. has been telling allies not to use Huawei products and developments have impacted hopes of a thawing in trade relations amid mounting concerns about the outlook for U.S. and world growth.
• (EU) Eurozone: The ECB still debating possibility of a new round of TLTROs according to press reports citing unidentified sources as saying that officials are discussing ideas of how to reduce monetary stimulus. Nothing has been decided yet and this is unlikely to feature already at next week's meeting. It's likely though that they will only raise the deposit rate at first and then perhaps offer multi-year loans at floating rates tracking the MRO on a permanent basis.
• (DE) Germany: Factory orders unexpectedly improved 0.3% m/m in October, against expectations for a contraction. The third consecutive monthly increase raises expectations of a rebound in Q4 GDP growth from contraction in Q3, but the still weak numbers it will be modest , with the manufacturing sector in particular feeling the strain from rising protectionism, and Brexit risks.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -2.30% at 346.12, FTSE -2.57% at 6,744.22, DAX -2.53% at 10,911.70, CAC-40 -2.42% at 4,824.58, IBEX-35 -2.00% at 8,832.00, FTSE MIB -2.37% at 18,870.50, SMI -1.89% at 8,771.20, S&P 500 Futures -1.79%]
• Market Focal Points/Key Themes: European Indices trade sharply lower with the majority of indices down over 2% following sharp declines in Asia and weaker US Index futures. Trade tensions continue to weigh on market with the arrest of Huawei CFO in Canada at the request of US authorities adding to concerns on US-China relations. China called arrest violation of Human rights. Suppliers of Huawei under pressure with ST Micro down sharply, elsewhere SGL Carbon trades lower after mid to longer term guidance, UK gambling names trade lower after voluntarily agreeing to stop television advertising during live sports events. On the earnings front Ted Baker is higher after a positive trading update, while Caretech, Ferrexpo also trading higher. Meanwhile Beazley Group, easyHotel are among names trading lower on earnings. Looking ahead to the US morning notable earners include Kroger, Lands End, Michaels Companies, Patterson, Secureworks and Signet Jewelers among others.

Equities

• Consumer discretionary: William Hill [WMH.UK] -2.5%, Paddy Power Betfair [PPB.UK] -3.5% (major U.K. gambling companies agree to stop advertising during live sports broadcasts), Ted Baker [TED.UK] +5% (trading update), easyHotel [EZH.UK] +2.5% (earnings), Euromoney Institutional Investor [ERM.UK] -1% (acquisition), Genus [GNS.UK] +11% (analyst action), Norwegian Air [NAS.NO] -8.5% (load factor), Wizz Air [WIZZ.UK] -1.5% (extended partnership with Wirecard)
• Materials: SGL Carbon [SGL.DE] -9% (resolution on 5-yr plan)
• Financials: Beazley Group [BEZ.UK] -1.5% (trading, California wildfires updates)
• Healthcare: Genfit [GNFT.FR] +6.5% (positive study results)
• Industrials: DS Smith [SMDS.UK] -2.5% (earnings), Volkswagen [VOW3.DE] -2% (confirms savings program; targets medium-term margin), Dialight [DIA.UK] -8.5% (trading update), Autoliv [ALIV.SE] -2.5% (reports sum accrual related to EC probe)
• Technology: STMicroelectronics [STM.FR] -4.5% (Huawei CFO arrested), Wirecard [WDI.DE] -3.5%, (extended partnership with Wizz Air)
• Telecom: Nokia [NOKIA.FI] -2%, Ericsson [ERICB.SE] +1.5% (Huawei CFO arrested)

Speakers

• UK PM May making the media rounds noted that some MPs were trying to take a 'no-deal' Brexit off the table. She reiterated that a backstop would be an integral part of any Brexit deal with EU. It was the govt duty to deliver on Brexit and was looking at Parliament role to decide on entering backstop
• EU's Moscovici: Real dialog had begun with Italy; talks were on the right path
• France Budget Min Darmanin: National accounts targets would be maintained even after fuel tax hike for 2019 being scrapped
• EU parliament said to approve rules on bank's new non-performing loans (NPLs). To finalize rules with member States
• RBA's Debelle reiterated stance that next likely move in rates was higher rather than lower; next move some way off. RBA still had the scope for further rate cuts. Floating exchange rate mattered and remained an important shock absorber
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng stated that China and US had reached a high level of consensus; confident that a trade deal could be reached in 90 days. Would start from agricultural, auto and energy sectors with the ultimate joint goat being the removal of all new tariffs
• China Foreign Ministry: Canada and US had yet to clarify reason for arrest of Huawei CFO
• OPEC Delegates on production cut scenarios noted that OPEC was waiting to hear how much Russia was willing to contribute before any decision on its own cut. Could cut 1M bpd if Russia was willing to contribute 150K bpd; Could cut over 1.3M bpd if Russia was willing to contribute 250K bpd. OPEC+ oil production unlikely to be larger than 1.4M bpd
• Russia Energy Min Novak: Difficult for Russia to cut oil production at a fast pace during the winter period
• Various oil ministers comment ahead of OPEC bi-annual meeting in Vienna
• Saudi Oil Min Al-Naimi: stated that no agreement on cuts yet; cuts should be sufficient but not overly large; believed that 1M bod cut would be adequate. Important to have non-Opec members on board and that aAll options on table at OPEC meeting including no deal . Options included0.5-1.0M barrel production cut. His view was for no exemptions to OPEC cuts Iran Oil Min Zanganeh: Won't agree to any OPEC cut if Iran was not exempt and would not join any OPEC agreement while under sanctions. Iran would stay in OPEC Iraq Oil Min Adel Abdel Mehdi: Not yet started actual discussion on output cuts but noted 1.3M BBL/day oil cut was among OPEC scenarios . Concerned about Oil inventory buildup in 2019 and aimed to keep oil inventories at 5-year average. Would follow any decision by OPEC Russia Energy Min Novak: Difficult for Russia to cut oil production at a fast pace during the winter period

Currencies/Fixed Income

• The USD was slightly firmer as pressure on risk assets continued, with the arrest of the Huawei's CFO in Canada (for extradition to the US) adding further question marks about the credibility and the durability of the short-term trade war truce struck between the US and China over the weekend. Greenback aided by concerns over global growth, with its implications for stock markets and yield curves world-wide
• EUR/USD trading below the 1.1340 level
• GBP/USD trading at 1.2730 area
• The JPY benefited from safe-haven flows with USD/JPY lower by 0.4% at 112.70

Economic Data

• (NL) Netherlands Nov CPI M/M: -0.2% v +0.4% prior; Y/Y: 2.0% v 2.1% prior
• (NL) Netherlands Nov CPI EU Harmonized M/M: -0.5% v +0.5% prior; Y/Y: 1.8% v 1.7%e
• (DE) Germany Oct Factory Orders M/M: +0.3% v -0.4%e; Y/Y: -2.7% v -3.1%e
• (CZ) Czech Oct Retail Sales Y/Y: +2.7%e v -2.2% prior; Retail Sales (ex- auto) Y/Y: 5.0%e v 1.4% prior
• (HU) Hungary Oct Industrial Production M/M: +2.0 v -2.1% prior; Y/Y: 3.3% v 2.3%e
• (DE) Germany Nov Construction PMI: 51.3 v 49.8 prior
• (SE) Sweden Nov Average House Prices (SEK): 2.837M v 2.827M prior
• (IS) Iceland Nov Preliminary Trade Balance (ISK) -17.7B v -12.1B prior
• (ZA) South Africa Q3 Current Account Balance (ZAR): -177B v -167B prior; C/A to GDP Ratio: -3.5% v -3.4% prior
• UN FAO World Food Price Index: 160.8 v 163.5 prior; Y/Y: -1.3% v -0.9% prior
• (ZA) South Africa Nov SACCI Business Confidence: # v 95.8 prior
• (GR) Greece Sept Unemployment Rate: 18.6% v 18.9% prior

Fixed Income Issuance

• (FR) France Debt Agency (AFT) sold total €3.998B vs. €3.0-4.0B indicated range in 2023, 2025 and 2026 Bonds (4 tranches)
• Sold €935M in 1.75% May 2023 Oat; Yield: % v -0.01% prior; bid-to-cover: 2.77x v 1.58x prior
• Sold €910M in 0.5% May 2025 Oat; Avg Yield: -0.15% v 0.42% prior; Bid-to-cover: 2.79x v 4.85x prior
• Sold €1.053B in 3.5% Apr 2026 Oat; Avg Yield: 0.23% v 0.67% prior; Bid-to-cover: 2.59x v 4.07x prior
• Sold €1.10B in 0.25% Nov 2026 Oat; Avg Yield: 0.38% v 0.54% prior; Bid-to-cover: 2.14x v 2.05x prior
• (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% 2027 I/L bonds; Avg Yield: -1.4731% v -1.4214% prior; Bid-to-cover: 2.78x v 2.76x prior

Looking Ahead

• OPEC bi-annual meeting in Vienna continues
• (DE) German Chancellor Merkel's CDU party begins 2-day National Convention in Hamburg
• (RU) Russia Nov Light Vehicle Car Sales Y/Y: No est v 8% prior
• 05:30 (UK) DMO to sell £1.75B in 1.75% Jan 2049 Gilt
• 06:00 (ZA) South Africa Oct Electricity Production Y/Y: No est v -0.8% prior; Electricity Consumption Y/Y: No est v 0.3% prior
• 06:00 (IE) Ireland Oct Live Register Monthly Change
• 06:45 (US) Daily Libor Fixing
• 07:00 (CL) Chile Oct Nominal Wage M/M: 0.2%e v 1.0% prior; Y/Y: 4.4%e v 4.5% prior
• 07:30 (US) Nov Challenger Job Cuts: No est v 75.6K prior; Y/Y: No est v 153.6% prior
• 08:00 (RU) Russia Gold and Forex Reserve w/e Nov 30th: No est v $461.8B prior
• 08:10 (UK) Baltic Dry Bulk Index
• 08:15 (US) Nov ADP Employment Change: +195Ke v +227K prior
• 08:20 (BR) Brazil Nov Vehicle Production: No est v 263.3K prior; Vehicle sales: No est v 254.7K prior; Vehicle Exports: No est v 38.7K prior
• 08:30 (US) Q3 Final Nonfarm Productivity Q/Q: 2.3%e v 2.2% prelim; Unit Labor Costs Q/Q: 1.0%e v 1.2% prelim
• 08:30 (US) Oct Trade Balance: -$55.0Be v -$54.0B prior
• 08:30 (US) Initial Jobless Claims: 225Ke v 234K prior; Continuing Claims: 1.70Me v 1.710M prior
• 08:30 (CA) Canada Oct Int'l Merchandise Trade (CAD): -0.7Be v -0.4B prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (MX) Mexico Sept Gross Fixed Investment: +0.3%e v -2.4% prior
• 09:00 (MX) Mexico Nov Vehicle Production: No est v 363.5K prior; Vehicle Exports: No est v 305.8K prior
• 09:45 (US) Nov Final Markit PMI Services: 54.4e v 54.4 prelim; PMI Composite: No est v 54.4 prelim
• 10:00 (US) Nov ISM Non-Manufacturing Index: 59.0e v 60.3 prior
• 10:00 (US) Oct Factory Orders: -2.0%e v +0.7% prior; Factory Orders (Ex-transportation): No est v 0.4% prior
• 10:00 (US) Oct Final Durable Goods Orders: -2.4%e v -4.4% prelim; Durables Ex-Transportation: 0.1%e v 0.1% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v 0.0% prelim; Capital Goods Shipments (Non-defense/ex-aircraft): No est v 0.3% prelim
• 10:00 (CA) Canada Nov Ivey Purchasing Managers Index (Seasonally Adj): No est v 61.8 prior; PMI unadj: No est v 64.6 prior
• 10:30 Weekly EIA Natural Gas Inventories
• 11:00 Weekly DOE Oil Inventories
• 11:00 (EU) EU's Moscovici in Lisbon
• 11:00 (US) Treasury announcement for upcoming 3-year, 10-year and 30-year auctions during week of Dec 10th
• 11:30 (US) Treasury to sell 4-week and 8-week Bills
• 12:00 (US) Fed Reports Q3 Financial Accounts: Household Change in Net Worth: No est v $2.191T prior
• 12:15 (US) Fed's Bostic (dove, voter) on US economic outlook
• 18:30 (US) Fed's Williams (moderate, voter) in NY
• 18:45 (US) Fed's Powell gives welcoming remarks at housing conference

The pair fell sharply in early European trading on Thursday and fully reversed previous day's recovery, as renewed risk-off mode on Huawei CFO boosted yen.

Fresh weakness penetrated daily cloud after cloud top contained dips in past two days.

Bearish daily techs lack momentum that could result in repeated hesitation to clearly break into cloud and expose key supports at 112.30/24 zone (daily cloud base/20 Nov trough/100SMA), break of which would generate strong bearish signal on completion of failure swing pattern on daily chart.

Conversely, repeated close above daily cloud top would keep the pair in extended congestion as long as a cluster of daily MA's (between 113.05 and 113.32 caps). Sustained break above 113.32 (converged 10/20SMA's) would neutralize downside risk and generate bullish signal.

Res: 112.79, 113.05, 113.32, 113.65
Sup: 112.57, 112.30, 112.16, 112.04

The pound, rose yesterday on news of a possible no Brexit, despite a shock slide in the Services PMI for November. According to Reuters, economists at JP Morgan, increased the odds of the UK remaining in the EU after ECJ’s opinion on Tuesday. The pound however corrected lower as the UK attorney general’s advice for the UK government was made public. The attorney general noted that the Irish backstop could very well prove permanent, practically providing a different regime from Northern Ireland. The letter could make the positions of hard Brexiteers even more rigid, especially DUP’s, ahead of the vote in Parliament on the 11th of December. We could see volatility continuing for the pound today as more Brexit headlines are expected.

Cable rose yesterday breaking consecutively the 1.2700 (S1) resistance line (now turned to support) and the 1.2780 (R1) resistance hurdle, however corrected below the latter, later on. As uncertainty increases and cable seems to remain below the downward trendline incepted since the 21st of November, we maintain our bearish bias regarding the pair’s direction. Should the bears continue to dictate the pair’s direction we could see it breaking the 1.2700 (S1) support line and aim for the 1.2630 (S2) support level. On the other hand, should the bulls take over, we could see the pair breaking the 1.2780 (R1) resistance line.

OPEC meeting and oil production cuts

OPEC meets in Vienna today, in order to decide any further action regarding the production of oil. According to media reports, Oman’s Oil Minister stated that early discussions between the group’s most powerful members and Russia seem to point towards oil production cuts for a period of 6 months. Analyst’s estimations about the size of the possible production cuts, vary from 1-1.5 million barrels per day. The group could be facing US president Trump’s opposition who tweeted that the world does not want to see or needs higher oil prices. We expect volatility for oil prices, should the final decision and the organisation’s communique differ from the market’s expectations.

WTI prices moved in a sideways manner over the past three days between the 52.10 (S1) support line and the 54.15 (R1) resistance line. Technically it is important to note that the black gold’s price action has broken the downward trendline incepted since the 3rd of October and seems to be waiting OPEC’s decision, hence we lift our bearish bias, at least temporarily. Should the commodity come again under the selling interest of the market once again, we could see it breaking the 52.10 (S1) support line and aim if not break the 49.40 (S2) support level. Should on the other hand, oil’s long positions be favored by the market, we could see its price action breaking the 54.15 (R1) resistance line and aim if not break the 56.15 (R2) resistance zone.

In today’s other economic highlights:

In today’s European session, we get Germany’s factory orders growth rate for October. In the American session from the US we get the ADP employment figure for November, the trade balance figure for October, the factory orders growth rate for October, the ISM non-manufacturing PMI figure for November and the EIA crude oil inventories figure. Staying in the Americas, from Canada we get the October’s trade balance figure and the Ivey PMI for November. As for speakers, RBA’s Debelle, BoE’s Ramsden, BoC Governor Stephen Poloz and Atlanta Fed President Raphael Bostic speak. We would focus more on BoC governor Stephen Poloz’s press conference, as he will be speaking about the yesterday’s interest rate decision.

WTI H4

Support: 52.10 (S1), 49.40 (S2), 47.35 (S3)

Resistance: 54.15 (R1), 56.15 (R2), 58.45 (R3)

GBP/USD H4

Support: 1.2700 (S1), 1.2630 (S2), 1.2555 (S3)

Resistance: 1.2780 (R1), 1.2850 (R2), 1.2925 (R3)

NZDUSD has been underperforming in the past days, drifting lower from the five-month high of 0.6968 and below the 20- and 40-simple moving averages in the 4-hour chart. In the short term, technical indicarors point to more weakness, with the RSI dropping to bearish territory below 50 and the MACD losing further ground below the trigger line.

In case of further declines, immediate support could come from the 23.6% Fibonacci retracement level of the upward move from 0.6423 to 0.6968, around 0.6840. If the sellers manage to push below that hurdle, that could mark a drop towards the 0.6815 region, identified by the highs on November 26. More downside could send prices even lower until the 38.2% Fibonacci of 0.6760.

If the bulls take control, the price could hit the five-month peak of 0.6968. A potential upside violation of this region could open the door for the 0.7050 resistance, taken from the highs on June 13.

Overall, the market’s outlook appears bullish following the considerable rebound on the 0.6423 trough.

The Euro stands at the back foot on Thursday following triple Doji in past three days but remains within near-term congestion and still without clearer direction signal.

Strong upside rejection on Tuesday continues to weigh and bearish near-term bias remains in play while 30SMA (1.1357) caps.

Strong bearish momentum on daily chart adds to outlook.

On the other side, recent downside attempts were repeatedly limited by 200WMA at 1.1311 (several spikes lower but without close below), keeping bearish action limited.

Initial direction signals could be expected on lift above 30SMA or break below 200WMA, while confirmation requires break above triangle resistance line (1.1368) or break below support line (1.1301).

Res: 1.1357, 1.1368, 1.1400, 1.1418
Sup: 1.1311, 1.1301, 1.1267, 1.1215

It is a bloodbath today, the sell-off is that intense that the CME had to pause the trading for the S&P500 futures when they opened. Anyone who is long in the market is feeling the pain and the violence which comes with it. We have a market which has more buyers than sellers.

The risk aversion trade has returned with vengeance as the MSCI Asia Pacific index is on track for its worst three-day plunge since October. The entire trade truce element between the US and China which promoted some optimism in the market is under a huge threat after the arrest of the CFO of the Chinese telecom company Huawei. The arrest was made by the Canadian authorities on the extradition request by the US. This has put the entire situation at risk. China has urged both Canada and the US to “rectify wrongdoing”.

The European and US futures are reacting negatively to this development as this will cloud the trade talk in the coming days. The selling pressure is so extreme for the US futures that it has made the CME group to pause trading. Money is clearly flowing out of the riskier assets to a safe haven. As a result, we are seeing the price of Gold and the Japanese yen strengthening. Treasuries 10-year yield has dropped to close enough to 2-year yield and this spurs a major qualm about the inversion of the curve.

Theresa May Can Defer Another Defeat

Back in the U.K., Theresa May is having the worst days of her political career and she has been advised by the cabinet ministers to save herself by delaying the parliament vote which is on the 11th of December. In the upcoming vote, it is widely expected that she will face a defeat. Time is running out and pressure is on and you can see that if you look at the Sterling-dollar pair. It is highly likely that the price may break below the 1.27 level, as we said yesterday. The chances are that we may see another 2-3% drop in sterling in the coming days as the Brexit deal gets voted down, but the chances of the UK coming out of the Brexit with no deal are still minimum. So, January could be the month when we could see Sterling recovering as much as 3% if Parliament comes back with a variant of the current deal.

Oil Cut Is Not The Major Question here

As for the commodity markets, it is the big day, it is all about OPEC. Qatar has decided to leave the cartel and this has left a blueprint for other countries to come out of Saudi monopoly. Remember, Saudi Arabia is the biggest swing producer among cartel members. Smaller producers like Libya have no meaningful say when the committee makes any decision. I think today's meeting is not about production cut but a message which the cartel needs to send out the world. The question which needs to be answered is if the Cartel is still strong enough and most importantly if it can prevent the domino effect which is triggered by Qatar leaving the cartel.

In terms of production cut, it is widely expected that the OPEC and Russia will deliver on the production cut. The production cut could be as much as 1 million b/d as this is the number which matters the most when we factor in the refinery downtime due to their maintenance in the coming months.

On important dilemma which the cartel has is that it needs to also pay attention to president Trump's tweet as well. He has already sent his message loud and clear; keep those taps running and don’t trigger any spike in the oil price. Thus, the OPEC may just have to adopt some sort of fuzzy solution to answer this.

In addition to this, what the committee will have to be careful is the ongoing threat which is coming from the global markets. It is a risk-off mode and investors are widely concerned about the prospectus of the global growth slowing down. Of course, this is an important factor for the oil demand and OPEC will have to justify their production cut with this equation and this why the final verdict coming out of the OPEC meeting could be fuzzy.

RBA Deputy Governor Guy Debelle reiterated the central bank's rhetorics that the "next move in monetary policy is more likely up than down, though it is some way off." But he also emphasized that there is "still scope for further reductions in the policy rate", referring monetary capacity.

Debelle also said RBA has learned from the experience of other central banks using other tools of monetary policy. And "QE is a policy option in Australia, should it be required." He added that "there are less government bonds here, which may make QE more effective."

Besides, he added "floating exchange rate matters and remains an important shock absorber for the Australian economy."

He full speech here.

The Australian dollar extends steep fall into fourth straight day, driven by strong risk-off mode.

Weaker than expected Australian Q3 GDP, released on Wednesday, dovish shift in RBA expectations and narrowing Oct trade surplus, add to negative sentiment, with solid Australian Oct retail sales, unable to improve the tone.

Bears extend further today, following 1% fall on Wednesday and look for test of strong supports at 0.7199/95 (27 Nov trough / daily cloud top (0.7195) and 55SMA (0.7191).

Cloud’s twist next week (0.7170) is also magnetic and sustained break below 0.7199/91 pivots would open way for extension towards 0.7163 (Fibo 61.8% of 0.7020/0.7393 / 13 Nov trough).

Rising negative momentum fuels bears, with broken 20SMA (0.7263) marking solid resistance and stronger upticks expected to hold below broken 10SMA (0.7279).

Res: 0.7237, 0.7263, 0.7279, 0.7305
Sup: 0.7199, 0.7191, 0.7163, 0.7130

Chinese markets and futures for S&P500 has started trading on Thursday with a falling by about 2% after reports that Canada arrested CFO of Huawei, Chinese IT giant, with intention of extraditing her in the United States. This news sparked fears of a new spiral of tightening rhetoric between the world’s largest economies, returning the demand for protective assets.

From the peak levels at the start of the week, index S&P500 lost over 5%, and has returned back three-quarters of its rebound in the second half of November.

Skepticism about the rapid resolution of trade conflicts supports US Dollar, which is once again seen as a safe-haven currency. The thrust aside from the risks helps it to remain it near the bottom edge of the upward channel.

Meanwhile, the single currency cannot choose its trend, being almost unchanged in November. Over the past month, the fluctuations of the pair have become less pronounced, as market participants consolidate their positions in anticipation of important signals from the Fed and the ECB, the most influential world central banks. The EURUSD pair fluctuates around the level of 1.13, which was a significant level of resistance in 2015-2016 years, making it a significant level for markets.

When in 2016th the pair failed to develop its growth above 1.13, it quickly collapsed almost by 10% in the area of 1.0350. Slightly less drastic declines were also in February and October 2015th, when EURUSD has sharply bounced down to 1.05, after a breakthrough of support in the mentioned area. Among the technical factors should also be noted the formation “Head and Shoulders”, which is a signal of decline from the current levels. Simply put, EURUSD remains in a medium-term trend downward with possible targets on 1.03-1.05, or risks for months to remain in the range with support near 1.13.

However, the next few weeks promise to be very eventful with the potential impact on the pair. At the end of this week, data on the U.S. labor market will be released, which may confirm or dispose the hypothesis that the economy is losing momentum which could potentially lead to the pause of the Fed rate hike. The meetings of the ECB (Dec 13) and the Fed (Dec 19) will be equally important, as they can provide markets with hints of the central banks future policies in 2019.

The USD didn't change its position against the basket of major currencies. The USD index (#DX) closed in the green (+0.08%). The demand on the haven currencies has grown due to the news on the arrest of Huawei Technologies CFO Sabrina Meng Wanzhou. She was arrested in Canada on December 1, on demand from the US. She is suspected in breaking the US/Iran trading embargo. Investors worry that her arrest will restore the US/China trade war and worsen the relationships between the countries.

Investors keep evaluating the Brexit situation. Recently, it became known that the UK might not leave the US after all. Theresa May was heavily criticized by the Parliament due to her proposed agreement on the Brexit conditions. Analytics think that the UK might refuse to leave the EU outright due to these disagreements.

Some economic reports from the UK and Canada were published yesterday. The service PMI for the UK reached 50.4 in November while the experts expected 52.5. The Bank of Canada left the key interest rate at 1.75%. The regulator suddenly worsened the inflation expectations forecast which lead to massive sell-off of CAD. During the Asian trading session today, a report on the retail sales in Australia was published, which matched the predictions perfectly at 0.3%. We expect essential reports from Canada and the US today.

The oil market is still bearish. At the moment the WTI futures are at 52.85 USD/barrel. At 18:00 (GMT+2) a crude oil report will be published in the US.

Market Indicators

• The US stock market was closed yesterday due to the farewell to George Bush-senior.
• The 10-year US government bonds yield is at 2,91-2,92%.

The Economic News Feed for 06.12.2018:

• ADP Nonfarm Employment Change (US) – 15:15 (GMT+2:00);
• Non-Manufacturing PMI by ISM (US) – 17:00 (GMT+2:00);
• PMI by Ivey (CAD) – 17:00 (GMT+2:00).