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Daily Pivots: (S1) 1.3196; (P) 1.3232; (R1) 1.3301; More...

USD/CAD rebounded strongly after hitting 1.3160, ahead of 38.2% retracement of 1.2781 to 1.3359 at 1.3138. But upside is limited below 1.3359 and intraday bias is turned neutral first. On the upside, decisive break of 1.3359.85 resistance zone will confirm resumption of medium term up trend. But before that, risk remains mildly on the downside for another fall. Break of 1.3160 will target 61.8% retracement at 1.3002.

In the bigger picture, current development argues that medium term corrective pattern from 1.3385 is extending with another falling leg. While deeper decline could be seen, downside should be contained by 50% retracement of 1.2061 to 1.3385 at 1.2723 to bring rebound. An eventual upside break out is still expected to 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685, at a later stage.

Daily Pivots: (S1) 0.7312; (P) 0.7353; (R1) 0.7380; More...

AUD/USD's rebound was limited at 0.7393 and retreated sharply. Intraday bias is turned neutral first. For now, as long as 0.7199 support holds, corrective rise from 0.7020 medium term bottom should still extend higher. On the upside, above 0.7393 will target 38.2% retracement of 0.8135 to 0.7020 at 0.7446. However, on the downside, break of 0.7199 will suggest that such rebound has completed earlier than expected. Intraday bias will be turned back to the downside for retesting 0.7020 low.

In the bigger picture, a medium term bottom is in place at 0.7020 ahead of 0.6826 key support (2016 low). Stronger rebound would be seen to corrective 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.

The US stock markets closed sharply lower overnight while treasury yields also dived. Such patterns continue in Asia, seeing major indices pressured while JGB year yields also drop. There are clear flows out of stocks into bonds. Fed has already turned less hawkish with Chair Jerome Powell's turn last week. US and China also announced trade truce. The current development argues there are problems lying deeper in the global economy.

In the stock markets, DOW dropped -799.36 pts or -3.10% overnight to close at 25027.07. S&P 500 lost -3.24% while NASDAQ declined -3.80%. Technically, it's actually not a a surprise as DOW is seen as in medium term correction from 26951.81 high. Thus, it's common to have a down leg in such corrections. But DOW's failure to break even 26000 with the rebound is a disappointment and a sign of lack of confidence. In Asia, Nikkei dropped sharply to as low as 21708.82 but pares back some losses. It's now down -0.67% at 21887. Singapore Strait Times is down -1.0%. Hong Kong HSI is down -1.84% while China Shanghai SSE is down -0.68%.

In the treasury markets, US 10 year yield closed below 3% level for the first time since September. More importantly, 10-year yield dropped sharply by -0.68 to 2.924. 30-year yield dropped even deeper by -0.100 to 3.178. US yield curve is inverted between 3- and 5-year and that's another development that worried investors. It should also be noted that German 10-year bund yield closed at 0.264 yesterday, lowest since May, and less than half of October high at 0.577. Japan 10-year JGB yield dropped to as low as 0.053 earlier today, and hit the lowest since July. And, 10 year JGB yield hit as high as 0.166 just back in early October. So, the movements in the bond markets are rather drastic.

In the currency markets, Australian Dollar is overwhelmingly the weakest one for today. The Aussie suffers double blow of risk aversion and large GDP miss. Sterling follows as the second weakest as Prime Minister Theresa May's debate of her Brexit deal in the parliament didn't go too well. Swiss Franc is the third weakest. For today, Dollar is now the strongest one, followed by Canadian and then Euro.

China MOFCOM on US-China trade talk: Will implement specifics as soon as possible

China's Ministry of Commerce issued an extremely brief Q&A statement today regarding the results of Xi-Trump summit. In short, the MOFCOM said the meeting was successful. And, the economic and trade teams from both sides will actively promote the work of negotiations within 90 days in accordance with a clear timetable and road map. Most importantly, China pledged to implement the specifics, "sooner the better".

Yesterday, Trump sounded positive with his tweet and said "President Xi and I want this deal to happen, and it probably will". But he also noted that is a real deal doesn't happen, "I am a Tariff Man". And even now, he added, "We are right now taking in $billions in Tariffs."

BoJ Wakatabe: Inflation only halfway to target, may revert to deflation

BoJ Deputy Governor  Masazumi Wakatabe said today that the first characteristic of the current economy is it's being "widespread". And it's "bring about benefits to a wide range of economic entities." And, the second characteristic is that "inflation rate turning positive", "which is different from the case in the mid-2000s".

On outlook, he reiterated the bank's rhetorics that the economy is expected to continue on an "expanding trend". But he also noted various risks including US-China trade friction. On prices, he said CPI is likely to "increase gradually" as the economic expansion continues.

Though, Wakatabe also warned that for now, inflation remained at around 1%, "only halfway" to 2% target. And, "in a case where downward pressure is exerted on the economy again, it may revert to deflation. Thus, it's appropriate to continue with the "large-scale monetary easing".

Australia GDP grew merely 0.3% in Q3, Aussie pressured broadly

Australia GDP grew merely 0.3% qoq in Q3, just half of expectation of 0.6% qoq. That's also a sharp slow down from Q2's 0.90%. On annual basis, GDP growth slowed to 2.8% yoy, well below expectation of 3.4% yoy. In November Monetary Policy Statement, RBA projected GDP growth to be at 3.5% in 2018. And it's now highly likely to miss such projection. Based on the steep slowdown in momentum, it's getting doubtful if 2019 forecast of 3.25% growth would be met. And, RBA might need to revise down its projections in the next MPS in February. But after all, the slowdown will firm up the case for RBA to continue to stand pat throughout 2019, and probably deeper into 2020.

Also from Australia, AiG perfomance of services index rose to 55.1, up from 51.1. From China, Caixin PMI services rose to 53.8, up from 50.8 and beat expectation of 50.8.

BoC to keep policy rate unchanged at 1.75%

Bank of Canada is expected to keep its policy rate unchanged at 1.75% today, after a rate hike of 25 bps in October. Despite bets of another move this month, we believe policymakers would take a wait- and- see mode to assess the impact of the sharp fall of oil prices on Canada's economy. Another focus is BOC's forward guidance, whether Governor Stephen Poloz would stick to his hawkish stance that the policy rate would need to rise to the neutral rate would be closely watched.

More in BOC Preview: Will Poloz Maintain Hawkish Stance?

Looking ahead

Eurozone will release PMI services final and retail sales. UK will release PMI serices too. BoC rate decision will be a focus and Fed will release Beige Book. Release of other US data, including ISM services and ADP employment, are postponed to tomorrow.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7312; (P) 0.7353; (R1) 0.7380; More...

AUD/USD's rebound was limited at 0.7393 and retreated sharply. Intraday bias is turned neutral first. For now, as long as 0.7199 support holds, corrective rise from 0.7020 medium term bottom should still extend higher. On the upside, above 0.7393 will target 38.2% retracement of 0.8135 to 0.7020 at 0.7446. However, on the downside, break of 0.7199 will suggest that such rebound has completed earlier than expected. Intraday bias will be turned back to the downside for retesting 0.7020 low.

In the bigger picture, a medium term bottom is in place at 0.7020 ahead of 0.6826 key support (2016 low). Stronger rebound would be seen to corrective 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.

Economic Indicators Update

BoJ Deputy Governor Masazumi Wakatabe said today that the first characteristic of the current economy is it's being "widespread". And it's "bring about benefits to a wide range of economic entities." And, the second characteristic is that "inflation rate turning positive", "which is different from the case in the mid-2000s".

On outlook, he reiterated the bank's rhetorics that the economy is expected to continue on an "expanding trend". But he also noted various risks including US-China trade friction. On prices, he said CPI is likely to "increase gradually" as the economic expansion continues.

Though, Wakatabe also warned that for now, inflation remained at around 1%, "only halfway" to 2% target. And, "in a case where downward pressure is exerted on the economy again, it may revert to deflation. Thus, it's appropriate to continue with the "large-scale monetary easing".

His full speech here.

Australia GDP grew merely 0.3% qoq in Q3, just half of expectation of 0.6% qoq. That's also a sharp slow down from Q2's 0.90%. On annual basis, GDP growth slowed to 2.8% yoy, well below expectation of 3.4% yoy. In November Monetary Policy Statement, RBA projected GDP growth to be at 3.5% in 2018. And it's now highly likely to miss such projection. Based on the steep slowdown in momentum, it's getting doubtful if 2019 forecast of 3.25% growth would be met. And, RBA might need to revise down its projections in the next MPS in February. But after all, the slowdown will firm up the case for RBA to continue to stand pat throughout 2019, and probably deeper into 2020.

Australian Dollar is suffering double blow of GDP miss and risk aversion. it's trading as the weakest one for today so far, followed by New Zealand Dollar. While AUD/USD's fall from 0.7393 is deep, there no change is the outlook as long as 0.7199 support holds. That is, corrective rebound from 0.7020 is still in favor to extend to 38.2% retracement of 0.8135 to 0.7020 at 0.7446 before completion. Nevertheless, break for 0.7199 will suggest that such correction is completed earlier than expected.

STOCKS

Our caution about chances of a dip/ consolidation in most indices seems to have been well founded. Some more dip to test Supports a little lower down is possible in the near term. There is a possibility of a more robust upmove starting from such Supports later on. We have to keep a watch out for that.

Indices in China and India tested but did not break above near term Resistances yesterday suggesting that we may have to allow for a near term corrective dip or at least some sideways consolidation after the rally in November. In fact, the Nikkei (22036.05, -538.71) saw a sharp decline, possibly triggered by a sharp fall in Dollar-Yen.

The Shanghai (2665.96, +11.16, +0.42%) is crowding into Resistance at 2670. It might need to dip a bit towards 2600 to make room for a sustainable break above 2670 later. The Nifty (10869.50, -14.25, -0.13%) has dipped a wee bit and might come down to Support at 10700 from where a more successful attempt to break above 11000 might take place.

The Nikkei (22036.05) fell sharply yesterday instead of providing a bullish confirmation and may now dip towards 21600 before it once again attempts to move higher. NOTE, of course, that a break below 21600 (not envisaged at the moment) would turn out to be very bearish. Let us see how that shapes up.

Even the DAX (11335.32, -130.14, -1.14%) saw a good dip and might need to test long-term Support at 11200 before it can embark on a more sustainable upmove towards 12200.

In line with our apprehension of a consolidation/ dip, the Dow (25027.27, -799.36, -3.10%) has seen a sharply profit-taking fall, scaring everyone with a massive drop as doubts are raised about the US-China trade truce and about a possible growth slowdown. However, we see good Support at 24750 with good chances of a rise towards 27000 in the medium term. Bearishness needs a break below 24500 (at least) and 24000 (preferably), which may have a probability of less than 50%.

COMMODITIES

Commodities are overall stable. Gold, copper and silver have some room on the upside for the bear term but could face important resistances that could pull them down by the next couple of weeks.

Watch out for resistances on Gold, Silver and Copper at 1260, 15 and 2.85 respectively from where a fall is possible in the medium term.

Gold (1241.50) has dipped a bit after testing almost 1250 yesterday. Now 1239-1240 is the support and while that holds a rise to 1260 is possible. Near term view is bullish.

Silver (14.56) is trading a bit lower but is likely to rise towards 15 in the near term followed by a dip back towards 14.50/00 in the longer run.

Copper (2.7655) has faced rejection from the weekly resistance near 2.85 and while that holds, another dip to 2.70 is possible. Ranged movement within 2.70-2.85 is likely to continue for some more time before a break on either side is seen. Immediate view is bearish towards 2.70

API report yesterday stated an increase in crude supply of 5.36mln barrels for the week ending 30th Nov

Brent (61.38) tested 63.39 on the upside before coming off from there. While above 60, Brent looks bullish and could rise towards 65.00/50 in the medium term with some interim dips to 62-60 levels. Overall some ranged move in the 60-65 region could be possible in the next 1-2 weeks. A break below 60, if seen could open up chances of re-testing 58.

WTI (52.69) has immediate resistance at 55 and could come off towards 50 just now. A ranged move within 50-55 is possible in the near term.

FOREX

Currencies are overall mixed. Strength in US Dollar could keep Euro weak while Aussie, Yen and Rupee could see some strength amidst the strength in Dollar Index. Pound is trading near crucial support at 1.27 and needs to stick on either side to give clarity on further direction.

Dollar Index (97.07) is rising as expected and could be headed towards 97.50/75 in the near term. View remains bullish and the uptrend remains intact while above 96.50.

Euro (1.1331) tested 1.1418 before coming off from there back towards 1.13. As mentioned yesterday, some consolidation in the 1.14-1.13 region is possible followed by a dip to 1.12. Important resistance near 1.1400-1.1450 continues to hold for the near term.

Sharp decline in the Dollar Yen (112.95) has pulled down Nikkei too. Resistance near 114 seems to be strong and while the downside momentum continues, Dollar Yen could continue to decline towards 112.50-112.00 in the next 2-3 session. For longer term bearishness, a break below 112 is needed for price confirmation.

Pound (1.2695) is currently trading below support at 1.27. An immediate bounce back from here could keep the bullish sentiment alive, else a sustain fall below 1.27 could open up chances of testing 1.25 in the longer run. Watch price action at current levels.

Aussie (0.7309) is coming off from 0.74. There is scope of rising towards 0.745-0.750 on the daily candles, while Aussie trades above support at 0.7350.

Dollar Rupee (70.4950) is likely to re-attempt a test of 70.60 again today while the downside could be capped at 70.20/10. A rise in Crude prices this week could pull up Dollar Rupee gradually higher towards 71

INTEREST RATES

Yields are trading lower globally. The German, Japan and US yields are all down and look bearish for the near term. Yield spreads have also fallen sharply and could remain low for the week.

Sharp decline in the US Yields across all tenures. Yield spreads have also fallen sharply. The US 10-2Yr Spread moves up to 12bp from Support near 10.5bp as the 2Yr (2.79%) finally falls below 2.80%. The 10Yr is 2.91%.

The US 5-2Yr Spread remains at 0% for now. We hope to see the 2Yr drop faster now, something it had been refusing to do so far.

The US-Japan 10Yr differential (2.85%) has dropped sharply as the Dollar Yen declined from levels near 114. The spread could come down to test 2.80% before pausing there for a few sessions. Near term looks bearish and could indicate some more fall in Dollar Yen and Nikkei.

The Japan 10YR (0.059%) has fallen sharply too and could test support near 0.040-0.035% in the near term before bouncing back towards 0.05-0.08% in the longer run.

The German yields are also falling sharply breaking below near term support levels. Near term looks bearish for the yields. The 10YR (0.26%) could now be headed towards 0.1% or even lower.

Key Highlights

• The US Dollar failed to break the 1.0000 resistance and declined against the Swiss Franc.
• There is a major bearish trend line formed with resistance near 0.9980 on the 4-hours chart of USD/CHF.
• The Swiss Consumer Price Index in Nov 2018 declined 0.3% (MoM), more than the -0.1% forecast.
• Today, the Euro Zone Services PMI for Nov 2018 will be released, which is forecasted to remain at 53.1.

USDCHF Technical Analysis

After a major drop, the US Dollar found support near the 0.9910 level against the Swiss Franc. The USD/CHF pair recovered above 0.9950, but it struggled to break the 1.0000 barrier.

Looking at the 4-hours chart, the pair faced a strong resistance near the 1.0000 level, 200 simple moving average (green, 4-hours), and the 100 simple moving average (red, 4-hours). The pair also struggled to clear the 38.2% Fib retracement level of the last major downward move from the 1.0128 high to 0.9909 low.

More importantly, there is a major bearish trend line formed with resistance near 0.9980 on the same chart. The pair retreated and declined below the 0.9980 and 0.9960 support levels.

On the downside, the main support is near the 0.9920 and 0.9910 levels. Should sellers gain control below 0.9900, the pair could slide towards 0.9840. On the other hand, buyers need to clear the 1.0000 resistance plus the 100 SMA to gain bullish momentum in the near term.

Fundamentally, the Swiss Consumer Price Index for Nov 2018 was recently released by the Swiss Federal Statistical Office. The market was looking for a 0.1% decline in the CPI compared with the previous month.

However, the result was disappointing as there was a decline of 0.3% in the CPI. The yearly change was 0.9%, less than the 1.0% market forecast. The overall price action remained bearish for USD/CHF and it seems like buyers may continue to struggle near the 1.0000 resistance.

Economic Releases to Watch Today

• Germany’s Services PMI for Nov 2018 – Forecast 53.3, versus 53.3 previous.
• France Services PMI Nov 2018 – Forecast 55.0, versus 55.0 previous.
• Spanish Services PMI for Nov 2018 – Forecast 53.7, versus 54.0 previous.
• Euro Zone Services PMI for Nov 2018 – Forecast 53.1, versus 53.1 previous.
• UK Services PMI for Nov 2018 – Forecast 52.5, versus 52.2 previous.
• BoC Interest Rate Decision – Forecast 1.75%, versus 1.75% previous.

GBPJPY faces further price extension on sell off. This development now eyes the 143.50 level as the next support. A violation will aim at the 144.00 level. A break below here will target the 143.50 level followed by the 143.00 level. Its daily RSI is bearish and pointing lower suggesting further weakness. Conversely, resistance is seen at the 145.50 level followed by the 146.00 level. A cut through that level will set the stage for a move further higher towards the 146.50 level. Further out, resistance resides at the 147.00 level. All in all, GBPJPY faces further downside pressure on more sell off.

Wall Street reverses direction

US indices gave back the G-20 gains, and more, yesterday as a partial inversion of the US yield curve raised the specter of a US recession in the future. News that the US administration is considering a higher postal rate for a major online retailer exacerbated the decline. Australia’s Q3 GDP growth missed estimates.

US30USD Daily Chart

The US30 index fell the most in 6-1/2 weeks yesterday amid concerns about the G-20 deal, the US yield curve and the threat of more tariffs, this time domestically

The index is pivoting around the 200-day moving average, which is at 25,090 today

Fed’s Quarles (neutral, voter) is due to speak today and the Fed releases its Beige Book. Some exchanges may have limited trading hours today in observance of George H.W. Bush.

DE30EUR Weekly Chart

The Germany30 index fell to its lowest in nearly two weeks echoing the mood on Wall Street. Confusing headlines on Italy’s budget added to the pressure

The index remains capped by the 200-week moving average at 11,513 so far this week

Germany’s Markit services PMI for November is due today and is expected to hold steady at 53.3. ECB’s Draghi is also scheduled to speak.

AU200AUD Weekly Chart

The Australia200 index is falling for a second straight day after Q3 GDP came in below forecast

The 200-week moving average at 5,645 is currently being tested. Last month’s low is at 5,597

Australia registered growth of +0.3% q/q, 2.8% y/y versus forecasts of 0.6% and 3.1% respectively. Note: RBA did not mention growth at all in its post-rate meeting statement yesterday.

National Day of Mourning – Wednesday, December 5th

There will be limited trading hours for some US exchanges on Wednesday, December 5th, in observance of George H.W. Bush.

Markets

No one particularly enjoys these markets; even if you’re on the right side of the stick. Believe it or not, traders do have a moral compass when it comes to market routs knowing full well many unsuspecting investors pensions are at stake

This current meltdown has all the nasty hallmarks that traders typically call the perfect storm after investor confidence took a shellacking overnight and are probably left feeling duped, tricked and maybe even snookered by some ill-advised backslapping comments post G-20.

The risk rout continues to dominate conversations this morning. And while trade war is certainly the number one driver of global risk sentiment, the current meltdown is morphing into a Hydra with familiar points of irritation, Trade, Fed, Brexit, Italy, global growth coming to a head

But adding to investor despair is US bond curve inversion, the thing bond markets most fear and it’s happening right in front of us. While US 10y yields are trading sub 2.89% amid an inverted 3s5s curve, 2s10s fell sub 10bp, marking the lowest levels since the Great Financial Crisis.

Equity markets

The S&P was dragged lower, currently 3.25% lower on common concerns. The market nearly recovered a third of that loss, but a Trump headline around 15:00 EST sent it tumbling again. The Administration is reportedly eyeing a higher postal shipping rate for a major online retailer.

Oil markets

Oil prices are sinking on the latest API inventory report

The OPEC summit weeks are always exciting headline-wise, but for those looking for more confirmation of the global supply glut, as if we need a reminder. The American Petroleum Institute came in an unexpected 5.4 mmbls build Again befuddling expectations for higher refining rates to produce a seasonal draw While stockpiles at the Cushing, Oklahoma delivery point for WTI futures increased 1.4 mmbls. While Distillate inventories increased by 3.6 mmbls last week according to the API, exceeding expectations for a smaller seasonal increase. Gasoline inventories rose 4.3 mmbls previous week according to the API, also more than expected. Pretty bearish but we will need to wait for confirmation from the more precise DOE weekly petroleum report

On the headline roulette wheel, the markets were in flux all day digesting headlines from OPEC+ producers, who are still considerably apart going into Thursday’s OPEC summit in Vienna. OPEC is floating trial balloons suggesting all producers cut by 3.0-3.5% from October production levels, with no exemptions. But again we’re back to uncertainty on both sides of the equation, but when compounded by the risk tumult and any positivity from G-20 virtually evaporating, oil priced have come under pressure as risk sentiment contiued to melt after President Trump 3 PM EST headline

Gold Markets

The Global market rout has triggered safe-haven demand for gold. Again, the move above 1240 was triggered by a weaker dollar, but Gold remains very well supported by bearish equity market sentiment as the toxic elixir of Trade, Fed, Brexit, Italy, global growth comes to a head. This despite the USD recovering some overnight losses.

Currency Markets

So, what’s driving the dollar? Haven flow but arguably stop losses are helping the cause as the dollar was on sale yesterday triggered by, in my view the USDCNH risk premia unwind

EUR

Not too surprising EURUSD proved to be one of the most hypersensitive pairs to a strong USD trading lower as much as 100 pips. The Euro will continue to be the best short-term trade to express any US dollar strength given the contentious political landscape, weak economic data and the ECB who will probably contend for the most dovish central bank on the planet

CAD

Speaking of stop losses, Canada bear is out prowling the landscape ahead of Wednesday BoC meeting. But I continue to side with Bay Street CAD $ perma bears as the deep, deep discounts on the Western Canadian Select prices will probably keep the BoC dovish. And like their US counterpart continue to signal further data dependency

What’s next?

None the less I don’t think this latest move is an open invitation to buy dollars ahead of a potential government shutdown and a likely disturbing Mueller disclosure

MYR

The Ringgit had a splendorous day basking in the afterglow of robust bond buying flows as the USDMYR is melting through stop losses like a hot knife through butter. So, the combination of long MYR and large foreign investor bond duration appetite triggered a complete and unexpected reversal on MYR sentiment.

Oil prices are a bit lower today, but unless there are a complete meltdown and no supply cut agreement at this weeks OPEC summit, the MYR should trade well. With support at 4.17 being sliced through with ease, we have entered a new trading range of 4.14-4.17