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Daily Pivots: (S1) 1.3148; (P) 1.3209; (R1) 1.3259; More...

Intraday bias in USD/CAD remains on the downside for the moment. Rise from 1.2781 should have completed at 1.3359, ahead of 1.3385 key resistance. Further fall should be seen to 38.2% retracement of 1.2781 to 1.3359 at 1.3138 first. Break will target 61.8% retracement at 1.3002. On the upside, break of 1.3385 resistance is needed to confirm upside momentum. Otherwise, risk will stay on the downside even in case of strong rebound.

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.

The relief rally led by the US-China trade war truce didn’t last long. Investors in Asia wereseen taking profits from Monday’s bounce in equities. The Nikkei 225 fell by more than 1.6% with all ten sectors in the red. The ASX 200 and Kospi 200 declined by 1%.Meanwhile Chinese stocks, which are the most closely watched by traders due to the association with the trade tensions were flat by the end of the Asia morning session.

The bullish spirits faded so quickly amid rising doubts and conflicting messages received from top officials inthe Trump Administration. Trump Tweeted that China has agreed to reduce and remove tariffs on cars coming into China from the U.S. However, neither Treasury Secretary Steven Mnuchin nor Trump’s top economic adviser Larry Kudlow were able to confirm the news. Such inconsistent messages will leave markets guessing and struggling to reach aconclusion, thus leading to volatile price action in financial assets.

Is the U.S. Treasury yield curve indicating a near recession?

While equity markets are likely to continue to be driven by updates on the U.S.-China trade agreement, something of interest happened on Monday that also caught the attention of investors. The U.S. 2-year and 5-year yield curve inverted for the first time since the global financial crisis in 2007. Meanwhile, the 2-year and 10-year curve is 13 basis points away from inverting. Historically, inversions of the yield curve have preceded many of the U.S. recessions, and that’s likely to keep investors alert over the next few weeks. Although we do see signs of U.S. economic slowdown, I don’t think we’re near hitting a recession yet. What we are experiencing at this stage is expectations that the Fed is near the end of tightening policy while price inflation remains on or below target. Yesterday’s manufacturing ISM data showed activity in the sector remained strong with the index rising to 59.3 in November, well above analysts’ expectations. However, the price component of the index declined by 10.9 points, which may explain why the longer end of the yield curve is getting pressured.

Sterling out of sync

While most major and emerging market currencies rallied against the Dollar on Monday, Sterling didn’t find the needed support. GBPUSD dropped briefly below 1.27 testing its October lows. The Pound weakness reflects increasing uncertainty over whether the British Parliament will approve the proposed Brexit deal.

This ongoing uncertainly islikely to keep the currency under pressure until December 11.

Daily Pivots: (S1) 1.1322; (P) 1.1352; (R1) 1.1385; More.....

EUR/USD recovers notably today but it's staying in range of 1.1267/1472. Intraday bias remains neutral first. As long as 1.1472 resistance holds, deeper decline is expected in the pair. On the downside, break of 1.1267 will target 1.1215 low first. Firm break there will resume larger down trend from 1.2555 for 1.1186 fibonacci level next. However, considering bullish convergence condition in daily MACD, firm break of 1.1472 will be suggest medium term bottoming and turn outlook bullish for 1.1814 resistance instead.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Market movers today

This morning we published our Big Picture on the global economy - while the growth in the global economy will continue to moderate, we do not see an imminent recession risk in 2019. The US will see solid growth thanks to still expansive fiscal policy and optimism is high, while the euro area and China will experience short-term challenges giving way to a gradual recovery in 2019. This morning we also published our Fixed Income Top Trades for 2019 and our FX Top Trades for 2019 .

Today, the ECFIN could be the formal start of an excessive deficit procedure (EDP) against Italy. However, as conciliatory remarks have been made by Conte and Tria, markets have found renewed optimism about a potential budget compromise, albeit we think it is still too soon to call.

The House of Commons debate on the UK's Brexit deal starts today ahead of the 11 December vote.

In Norway, we get Norges Bank's preferred gauge of economic activity, the regional network survey. We expect a moderate decrease in the aggregated output index for the next six months from 1.46 to somewhere between 1.2 and 1.4. In Denmark the FX reserve numbers for November are released. See page two for more details.

Selected market news

The trade-related rally in global risk markets fizzled out somewhat overnight with US stock futures pointing lower and Asian markets seeing a mixed session. This comes as US officials yesterday scrambled explaining exactly what had been agreed in the meeting between the US and Chinese presidents with Larry Kudlow saying that the agreement was 'stuff that they're (Chinese officials, red) going to look at and presumably implement'. Meanwhile the ISM manufacturing recorded another strong reading in November with the headline index rebounding to 59.3, pointing to still solid growth in the US economy, which is in line with our latest update on the US and global economy.

The oil price is steady after the sharp increase yesterday, despite Qatar's announcement that it will leave the OPEC group on 1 January, possibly due to the strained relations with Saudi Arabia and pressure from US president Trump. Qatar is OPEC's 11 th biggest oil producer, but only accounts for less than 2% of total output, implying a limited impact on this week's OPEC production cut discussions. On this note, Saudi Arabia and Russia are reported to disagree on how to share the production cuts. We look for a rebound in the oil price in Q1 next year.

Yesterday, Italian spreads narrowed after the Italian government signalled willingness to compromise on its 2019 budget in order to fend off possible EU punishment under the growth and stability pact. At the Eurogroup meeting yesterday, however, finance ministers endorsed the EU Commission's critical position.

Daily Pivots: (S1) 1.2674; (P) 1.2749; (R1) 1.2800; More...

As long as 1.2824 minor resistance holds, further decline is expected in GBP/USD. Break of 1.2692 will target 1.2661 low. Decisive break there will resume larger down trend from 1.4376. On the upside, above 1.2824 minor resistance will turn intraday bias to the upside for rebound. After all, price actions from 1.2661 are viewed as a consolidation pattern. Even in case of strong rebound, upside should be limited by 1.3316 fibonacci level to bring down trend resumption eventually.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

General Trend:

• Markets open generally weaker across the region with little follow through after weekend truce between US and China on trade was reached. Energy names in Hong Kong lower after oil prices rose overnight.
• China PBoC Gov Yi Gang reiterates flexible monetary policy in China magazine interview
• USD/JPY falls 0.5% testing 113.08; Nikkei notes that it expects Q3 GDP to fall in Japan after weaker business CAPEX came in yesterday
• Focus remains on whether China will list tariffs on US autos, China automakers fell on the news
• Chip names Samsung, Hynix and Micron lower on expectations of oversupply of NAND and DRAM
• PBOC skips OMO for the 28th consecutive trading session and sets yuan firmer after SCJ again speculates PBOC will not allow yuan to get to 7 level
• China 10-yr Govt bond yield falls to 3.35% (19-month low)
• Markets will now look ahead to US non-farm payroll on Friday and OPEC+ meeting on Dec 6th

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.2%
• (JP) Japan govt said to consider extending home loan tax breaks by 3 years - Nikkei
• (JP) Japan public-private consortium to scrap nuclear power project in Turkey - Nikkei
• (JP) Japan Nov Monetary Base y/y: 6.1% v 5.9% prior; Monetary Base End of Period: ¥501.6T v ¥506.9T prior
• (JP) Fitch: Japan insurers will maintain exposure to domestic equities in 2019; investment still the greatest risk for Japan insurers
• 6753.JP Sharp cuts 3,000 foreign workers in Japan as it shifts production of iPhone sensors to a plant in China owned by parent Foxconn - Nikkei
• HMC Reports Nov Total US Sales 120.5K, -9.5% y/y
• 7203.JP Toyota reports Nov US vehicle sales 190.4K units v 193.5Ke, -0.6% y/y
• 4010.JP Raises FY20 target of Net profit ¥220B (prior ¥180B); Op profit ¥410B (prior ¥380B) - medium term plan
• (JP) Japan Q3 GDP may fall further after corporate capex survey results – Nikkei
• (JP) Japan MoF sells ¥2.2T v ¥2.2T indicated in 0.10% 10-yr JGBs, avg yield 0.074% v 0.135% prior, bid to cover 3.82x v 4.33x prior

Korea

• Kospi opened -0.1%
• (KR) SOUTH KOREA Q3 FINAL GDP Q/Q: 0.6% V 0.6%E (second reading below 1% target); Y/Y: 2.0% V 2.0%E (slowest y/y growth since Q3 2009)
• (KR) SOUTH KOREA NOV CPI M/M: -0.7% V -0.6%E; Y/Y: 2.0% V 2.0%E; Core CPI y/y: 1.3% v 1.1% prior
• (KR) Total of 54 listed firms in South Korea paid a combined KRW9.1T in interim or quarterly dividends this year v KRW4.6T y/y – Yonhap
• (KR) US Defense Sec Mattis: North Korea is the most urgent threat to US – Yonhap
• (KR) South Korea Fin Min Nominee Hong: Economy is in a difficult situation; more concerned about falling sentiment indexes; to take preemptive steps against internal and external risks amid concerns over an economic downturn - speaking at parliament

China/Hong Kong

• Hang Seng opened -0.2%, Shanghai Composite -0.1%
• (CN) China Securities Journal reiterates, China yuan is unlikely to weaken to 7 this year
• (CN) China PBoC Gov Yi Gang: To keep monetary policy flexible; will be adjusted appropriately according to changes in the economic situation - China Finance
• (CN) China considering lowering US auto tariffs - China Daily
• (CN) China exports slightly relieved on China/US trade truce but know that relations are still strained; most say 25% tariffs would kill their business – SCMP
• (CN) China PBoC Open Market Operation (OMO): Skips open market operation v skipped prior (28th straight skip)
• (CN) China PBoC sets yuan reference rate: 6.8939 v 6.9431 prior (strengthens by 0.7%, most since June 2017)
• (CN) Follow Up: China Officials are in talks about the possibility of reducing tariffs on US autos, no details yet but expected to go back to original levels - China Securities Daily

Australia/New Zealand

• ASX 200 opened -0.1%
• (AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED; Low rates support the economy
• (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 119.5 v 118.6 prior
• (AU) AUSTRALIA Q3 BOP CURRENT ACCOUNT BALANCE (A$): -10.7B V -10.2BE; NET EXPORTS OF GDP: 0.4% V 0.3%E
• RVA.AU Announces First Implant of the Fantom Encore Bioresorbable Scaffold in Italy
• YAL.AU Completes institutional part of entitlement offering; shares to resume trading (+7%)
• TLS.AU Speculation is growing that Telstra will put data centers up for sale; Superloop, NextDC, and private equity likely to be interested - The Australian (SLC +5%)
• BDR.AU Due to budget constraints and changes in management, have undertaken insufficient drilling to add to its mineral resources and ore reserves estimates in 2018

Other Asia

• (SG) Singapore PM Lee: to reshuffle cabinet after 2019 budget

North America

• (US) CME raises NYMEX Crude Oil Futures maintenance margins by 17.1% to 4,275/contract (effective for Jan)
• (US) Fed Chair Powell: Affirms call for patience on further rate hikes, economy could shift mid-2019; Productivity picked up but not clear if trend is sustained - unscheduled comments from Yellen award
• White House Econ Adviser Kudlow: Cannot legally end subsidies only for GM; sees subsidies for electric cars ending in 2020 or 2021
• (CN) White House econ adviser Kudlow: cautiously optimistic about reaching US-China deal; Clarifies 90-day timetable for completing US-China trade talks begins Jan 1st (implies deadline for trade deal will be Apr 1st)
• CRON Confirms Discussions Regarding Potential Investment by Altria Group

Europe

• (UK) Parliamentary Speaker: there is arguable case that UK govt committed contempt of parliament over motion for Brexit legal advice; Contempt debate will postpone UK govt Brexit deal debate
• (UK) Nov BRC Sales LFL y/y: -0.5% v +0.3%e; Total Retail Sales y/y: +0.5% v 1.3% prior (slowest increase since Oct 2017)

Levels as of 12:50ET

• Hang Seng -0.6%; Shanghai Composite -0.2%; Kospi -1.2%; Nikkei225 -2.2%; ASX 200 -0.9%
• Equity Futures: S&P500 -0.8%; Nasdaq100 -1.0%, Dax -0.8%; FTSE100 -0.7%
• EUR 1.1319-1.1382; JPY 113.06-113.67 ; AUD 0.7349-0.7379;NZD 0.6924-0.6963
• Feb Gold +0.3% at $1,243/oz; Jan Crude Oil +0.8% at $53.38/brl; Feb Copper +0.6% at $2.81/lb

Daily Pivots: (S1) 0.9963; (P) 0.9981; (R1) 0.9997; More...

USD/CHF failed to break through 1.0006 minor resistance again and intraday bias stays neutral first. On the downside, break of 38.2% retracement of 0.9541 to 1.0128 at 0.9904 will resume the fall from 1.0128 to 0.9848 key support level. Break there will indicate near term reversal and target 61.8% at 0.9765. On the upside, break of 1.0006 will argue that the pull back from 1.0128 has completed. Intraday bias will be turned back to the upside for retesting 1.1028.

In the bigger picture, rise from 0.9541 could have topped at 1.0128. But as long as 0.9541 support holds, we'd still expect rise from 0.9186 to resume at a later stage. Break of 1.0128 will target 1.0342 key resistance. However, break of 0.9514 will pave the way back to 0.9186 low.

Daily Pivots: (S1) 113.40; (P) 113.61; (R1) 113.86; More..

USD/JPY's break of 113.18 minor support suggests resumption of fall from 114.03. Intraday bias is turned back to the downside for 112.30 support first. Break there will target 111.37 and below. On the upside, break of 114.03 resistance will resume the rise from 111.37 to 114.73 resistance. Overall, price actions from 114.54 are seen as a consolidation pattern. Hence, even in case of deep decline, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound.

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.

For the 24 hours to 23:00 GMT, the EUR slightly rose against the USD and closed at 1.1355.

Macroeconomic news indicated that the Euro-zone's final manufacturing PMI declined to 51.8 in November, marking its lowest level since August 2016. In the preceding month, the PMI had recorded a reading of 52.0. Market participants and preliminary figures had anticipated the PMI to fall to a level of 51.5.

Separately, in Germany, the final Markit manufacturing PMI slid to a 31-month level of 51.8 in November, confounding market expectations for a fall to a level of 51.6. The preliminary figures had also indicated a similar a drop. In the prior month, the PMI had registered a level of 52.2.

The US dollar declined against major currencies yesterday, after US and China agreed to a 90-days truce on trade tariffs.

In the US, data showed that the US final Markit manufacturing PMI dropped to a level of 55.3 in November, compared to a reading of 55.7 in the preceding month. The preliminary figures had indicated a fall to 55.4. Moreover, construction spending unexpectedly eased 0.1% on a monthly basis in October, falling for the third straight month and compared to a revised similar fall in the previous month. Market participants had envisaged construction spending to climb by 0.4%. On the contrary, the nation's the ISM manufacturing activity index unexpectedly rose to a level of 59.3 in November, defying market expectations for a fall to a level of 57.5. The index had registered a level of 57.7 in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.1369, with the EUR trading 0.12% higher against the USD from yesterday's close.

The pair is expected to find support at 1.1332, and a fall through could take it to the next support level of 1.1295. The pair is expected to find its first resistance at 1.1393, and a rise through could take it to the next resistance level of 1.1417.

Going ahead, traders would await the Euro-zone's producer price index for October, set to release in a few hours.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.34% against the USD and closed at 1.2726, amid continuing Brexit concerns.

Data indicated that UK's manufacturing PMI advanced to a level of 53.1 in November, notching its highest level in two months and beating market expectations for a gain to a level of 51.7. In the prior month, the PMI had recorded a reading of 51.1.

In the Asian session, at GMT0400, the pair is trading at 1.2738, with the GBP trading 0.09% higher against the USD from yesterday's close.

The pair is expected to find support at 1.2683, and a fall through could take it to the next support level of 1.2628. The pair is expected to find its first resistance at 1.2809, and a rise through could take it to the next resistance level of 1.2880.

Looking ahead, investors would keep an eye on the Bank of England's Governor, Mark Carney's speech, due in a few hours. Additionally, Britain's construction PMI for November, will also be on investors radar.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.