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The Aussie dollar benefited from fresh risk appetite on deal of US/China presidents to put trade conflict on hold and hit new four-month high at 0.7393. The pair started week with almost 70-pips gap higher and extended advance on fresh optimism that trade war could be avoided.

Positive sentiment is supported by bullish setup of daily techs and weekly bullish engulfing.

Fresh advance signals continuation of recovery leg from the base formed at 0.7050/40 zone, which was paused for three-week consolidation.

Bulls cracked barrier at 0.7381 (21 Aug high) and could extend towards next pivotal barrier at 0.7445 (Fibo 38.2% of 0.8135/0.7019 fall).

Overbought slow stochastic warns that bulls may take a breather before continuing, with supports at 0.7335 (16 Nov high) and 0.7320 (Fibo 38.2% of 0.7199/0.7393 upleg, expected to hold and keep fresh bulls intact.

Res: 0.7393, 0.7445, 0.7464, 0.7483
Sup: 0.7347, 0.7335, 0.7320, 0.7284

Notes/Observations

Asia:

• Asian Indices trade sharply higher after President Xi and President Trump have agreed that the US will not impose a 25% tariff on Jan 1st, to retain 10% level for 90 days.
• China agrees to purchase more from the US to work on imbalance, will work to reach an agreement on trade in the next 90-days
• China has agreed to remove tariffs on Car imports
• China Caixin PMI Manufacturing for November comes in line

Europe:

• European PMIs were mixed, France, Spain, Germany among those which beat forecasts, Italy misses, reaching an almost 4 year low.
• Growth of production only marginal as demand continues to falter; Business confidence remains weakest in around six years
• Reports from Italy suggest Italy preparing to accept new lower budget deficit targets in the range of 1.9-2.0%
• UK Manufacturing PMI beats, companies remained confident on balance.
• Dax, FTSE, CAC, Eurotoxx trade ~2% higher on trade optimism.

Americas:

• US Futures trade sharply higher on Trump-Xi truce. Nasdaq futures over 2% higher in the pre market

Energy:

• (QA) Energy minister: country to withdraw from OPEC from Jan 2019; Not committed to OPEC agreements after exiting
• (CA) Alberta (Canada): Mandates 325K bpd cut in oil output to ease supply glut and deal with low crude prices (~9% of total output), effective from Jan 2019; relates to oil-sands and conventional oil
• Russia's Putin and the Saudi Crown Prince discussed the oil markets, but no concrete decisions about oil output cuts were made.

Macro

• (US) United States: The news that the Trump and Xi came to a truce, with China has agreeing to "reduce and remove" tariffs below 40% on imports of U.S. vehicles, according to President Trump, put a bid under the broader market. This may not be as big of a win as it is initially thought though. At the beginning of the year China had a 25% tariff on foreign cars, which it reduced to 15%. But after Trump hit China with tariffs, Xi pushed the US car tariff to 40%. So as and when details emerge the real question will be whether China will go below 15%.
• (UK) United Kingdom: The immediate Brexit focus remains on the House of Commons vote scheduled for Dec 11th. Despite the best efforts of Prime Minister May and her allies to sell it, it looks likely it will be voted down. Over the weekend Agriculture Minister Michael Gove warned fellow Eurosceptic Brexiteers in the Conservative party that if members didn't vote the deal through, there would be a good chance of another Brexit referendum as, he said, there could now be a majority in the House of Commons in favor of another public vote. The Labour party said it will table a no confidence vote in an attempt to remove the prime minister if the deal is voted down, and force a general election. Failing that, Labour said they would call for a new EU referendum.
• (SK) South Korea: South Korean November PMI new export orders fell by the most in over 5 years with new orders shrinking by most in over 2 years. As one of the world's most export-oriented economies, South Korea is sensitive to global growth. In good times it can be a magnet for speculative capital, which is why foreign investment has poured into the market in recent years.
• (EU) Eurozone: Manufacturing PMI unexpectedly revised up to 51.8 from 51.5 in the preliminary reading, but still down from 52.0 in October and the lowest reading since August 2016. Importantly export trade declined for a third month running. Across the three main economies German growth appears to be slowing, France is dropping back towards stagnation and Italy reported a second consecutive month of supposed contraction. Markit reported "hopes that the soft patch may prove short-lived are countered by business optimism about prospects for the year ahead remaining among the gloomiest seen since the sovereign debt crisis in 2012".

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.92% at 364.08, FTSE +2.25% at 7,137.18, DAX +2.61% at 11,550.95, CAC-40 +2.04% at 5,105.39, IBEX-35 +1.72% at 9,234.00, FTSE MIB +2.18% at 19,607.50, SMI +1.68% at 9,152.60, S&P 500 Futures +1.81%]

Market Focal Points/Key Themes:

Equities

• European Indices trade sharply higher this morning following G20 summit agreements between U.S. and China, higher session in Asia and higher US futures. On the corporate front shares of oil and automobile giants trade higher on Russia's President Putin and the Saudi Crown Prince discussion of the oil markets and Trump tweet that China agreed to reduce and eliminate tariffs on U.S. made cars, respectively. Vapiano trades higher after CEO appointment. McColl's Retail Group is a notable decliner following issued profit warning. Following CEO comments on medium-term targets, French technological name STMicroelectronics trades higher almost 7%. On M&A front, Glaxosmithkline trades slightly higher after confirmation to divest Horlicks and other products to Unilever. Deutsche Bank trades higher after two days of raids last week and CEO comments refusing takeover talks. Looking ahead earnings include Finisar Corporation, RMR Group, Hexindai and Mesa Air Group.
• Consumer discretionary: Unilever [UNA.NL] +0.5%, Glaxosmithkline [GSK.UK] 1.5% (GSK confirms to divest Horlicks and other products to Unilever for €3.3B in total), Vapiano [VAO.DE] +3.5% (appoints CEO), McColl's Retail Group [MCLS.UK] -26% (profit warning), Starbreeze [STAR.SE] -65% (CEO to step down), Stobart Group [STOB.UK] -8% (trading update; dividend cut)
• Energy: Total [FP.FR] +2.5%, Royal Dutch Shell [RDSA.NL] +2.5%, Eni [ENI.IT] +2% (To invest in a new polypropylene plant in South Korea; Russia's Putin and the Saudi Crown Prince discussed the oil markets), Drax Group [DRX.UK] +1% (agreement with Iberdrola)
• Financials: Deutsche Bank [DBK.DE] +3.5% (CEO refuses takeover talks), Banca Generali [BGN.IT] +4% (medium-term targets; acquisition)
• Healthcare: argenx [ARGX.BE] +12% (collaboration agreement), Shire [SHP.UK] +1% (Takeda reaches agreement on $3.7B loan from JBIC for acquisition)
• Industrials: Daimler [DAI.DE] +7%, BMW [BMW.DE] +6.5%, Volkswagen [VOW3.DE] +4.5%, Fiat [FCA.IT] +2.5% (Trump twitted regarding China to reduce tariffs on U.S. made cars), Implenia Ag [IMPN.CH] +2.5% (profit warning), Babcock International Group [BAB.UK] +1.5% (JV awarded major contract)
• Technology: STMicroelectronics [STM.FR] +6.5% (CEO comments on medium-term targets)
• Materials: K+S AG [SDF.DE] +7% (affirms outlook)

Speakers

• (QA) Energy minister: country to withdraw from OPEC from Jan 2019; Not committed to OPEC agreements after exiting
• (IT) Italy Dep PM Salvini: EU cannot ask for a 1.9% target
• (IT) EU Commission Vice President Dombrovskis: In intense contact with Italy; tone has changed, Substantial correction needed on Italy budget
• (FR) France FinMin Le Maire: Current policies to end spending/taxes upward spiral; Tax cut and public spending cut must accelerate

Currencies/Fixed Income

• Following progress in the trade talks, the USD has dipped on risk on sentiment; GBPUSD briefly traded above 1.28 before fading while the EUR/USD trades over 0.5% higher as overall risk on tone as well as Italian Budget deficit target compromise helping lift the pair. Oil futures trade over 4% higher as trade progress as well as a production cut in Canada lifted futures.

Economic Data

• (IT) ITALY NOV PMI MANUFACTURING: 48.6 V 48.9E (2nd straight contraction)
• (ES) SPAIN NOV PMI MANUFACTURING: 52.6 V 51.5E (61st month of expansion)
• (UK) NOV MANUFACTURING PMI: 53.1 V 51.7E
• (FR) FRANCE NOV FINAL PMI MANUFACTURING: 50.8 V 50.7E
• (DE) GERMANY NOV FINAL PMI MANUFACTURING: 51.8 V 51.6E
• (CH) Swiss Oct Real Retail Sales Y/Y: 0.8% v -0.6%e
• (CH) Swiss Nov PMI Manufacturing: 57.7 v 56.4e
• (RU) Russia Nov PMI Manufacturing: 52.6 v 51.3e (3rd straight month of non-contraction)
• (IE) Ireland Nov PMI Manufacturing: 55.4 v 54.9 prior (66th month of expansion)
• (TR) Turkey Nov CPI M/M: -1.4% v -0.3%e; Y/Y: 21.6% v 23.0%e
• (NL) Netherlands Nov PMI Manufacturing: 56.1 v 57.1 prior (63rd month of expansion)
• (NO) Norway Nov PMI Manufacturing: 56.1 v 56.0e (5th month of expansion)
• (PL) Poland Nov PMI Manufacturing: 49.5 v 50.3e (1st contraction in 47 months)
• (HU) Hungary Nov PMI Manufacturing: 53.5 v 55.0e (36th month of expansion)
• (DK) Denmark Nov Manufacturing PMI: 58.2 v 67.1 prior

Fixed Income Issuance

• Non seen

Looking Ahead

• 10:30 (MX) Mexico Nov Manufacturing PMI: No est v 50.7 prior
• 11:00 (IS) Iceland Q3 Current Account Balance (ISK): No est v 2.0B prior
• 12:00 (IT) Italy Nov New Car Registrations Y/Y: No est v -7.4% prior
• 13:00 (MX) Mexico Nov IMEF Manufacturing Index: No est v 49.7 prior; Non-Manufacturing Index: No est v 50.2 prior

The U.S. and China have declared a truce in the trade war, and have agreed not to introduce new tariffs, and try to reach to an agreement in the next 90 days. As a result, the U.S. dollar has been languishing at lower levels while the stock markets have been rapidly climbing upwards.

Shanghai’s stock exchange, blue chip index, China A50, has risen by more than 3% so far while Hong Kong’s Heng Seng has increased by 2.7%. Meanwhile, futures for the American S&P 500 have climbed by 2.5%, marking a 6.8% growth over the last 10 days.

The dollar retreated to its monthly lows against the Chinese yuan, decreasing by 0.7% since the start of the day. Crude oil, has increased by more than 5%, thus rising to $62 and $53.4 per barrel for Brent and WTI respectively.

In addition, oil price surged due to the expectation of a decline in production in 2019 following the meeting of OPEC and other major exporters scheduled for this week.

It seems that investors preferred to focus on the positive signals and in particular, on the fact that there will be no new tariffs in the next three months. Meanwhile, the pressure arising from the fears of growth slowdown in the light of trade tariffs had pushed the shares of the Chinese companies down in the preceding months. As a result, the China A50 index had reached a lower level of trading range for the last 5 months, below 11,000. In the case of the development of positive dynamics, China A50 index, which is now at 11,250, may not meet substantial resistance up to 11,800.

S&P 500 will have to pass an important test earlier. During the knee-jerk reaction on Monday, the index climbed above the 200-and 50-day moving averages, which according to technical analysis, is a strong signal to buy. At the moment, futures are situated around 2810, at which point the index retreated to a decline in October and November. Thus, its ability to climb above that point will reflect the positive attitude of market participants and as a result, it may rapidly return to the October’s highs.

The dollar will have to pass an equally important test. The dollar index fell by 0.5% this morning, testing the support area for its uptrend. The demand for risky assets has been growing and the main reasons were the expectations of a breakthrough in trade negotiations as well as the softening of the Fed’s tone. All these factors may break the U.S dollar’s upward trend.

GBPAUD opened the day with a significant negative gap, reaching a new eleven-month low around 1.7250. The MACD is warning that further losses could follow up as the indicator keeps losing momentum below its red signal line, however with the RSI being ready to cross below 30 into oversold area, chances for a rebound are running high.

A significant leg lower would violate the 50.0% Fibonacci of 1.7223, probably hitting support at 1.7090, taken from the low on January 11. The next stop for investors to have in mind is the 1.6900 mark, reached on November 2017.

However, if the price manages to regain today’s losing ground, the pair could challenge again the 1.7470 obstacle. An upside penetration of this barrier could drive the market until the 38.2% Fibonacci retracement level of the upleg from 1.5725 to 1.8730, near 1.7575. More advances could meet the 20-day simple moving average (SMA) currently at 1.7717.

To sum up, GBPAUD seems to be in bearish correction mode, but if it continues this tendency could shift the long-term upside outlook to a more negative one in the long term.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.13827
Open: 1.13499
% chg. over the last day: -0.67
Day's range: 1.13748 – 1.13838
52 wk range: 1.1299 – 1.2557

On Friday EUR/USD had a bearish mood. The quotes lowered by more than 70 points. Currently the currency pair is recovering. The local support and resistance are 1.13500 and 1.13800. Positions should be opened from these levels. The financial market participants are waiting for reports from the EU and the US.

The news feed on 03.12.2018:

Industrial Purchasing Managers' Index (GER) – 10:55 (GMT+2:00);

Industrial Purchasing Managers' Index (US) – 17:00 (GMT+2:00);

Indicators do not provide precise signals, the price has crossed 50 MA and 200 MA.

The MACD histogram is close to 0.

Stochastic Oscillator is located in the neutral zone, the %K line is crossing the %D line. There are no precise signals.

Trading recommendations

Support levels: 1.13500, 1.13250, 1.13000
Resistance levels: 1.13800, 1.14100, 1.14400

If the price fixes above 1.13800, the EUR/USD quotes are expected to grow. The movement is tending to 1.14100-1.14400.

An alternative may be a decrease in the EUR/USD currency pair to the level of 1.13250-1.13000.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.27821
Open: 1.27291
% chg. over the last day: -0.33
Day's range: 1.27916 – 1.28248
52 wk range: 1.2662 – 1.4378

The technical picture of the GBP/USD is still ambiguous. The pound is trading in flat. The financial market participants are waiting for the additional drivers. At the moment, the local support and resistance levles are 1.27700 and 1.28100 respectively. Positions should be opened from these levels.

At 11:30 (GMT+2:00) the Industrial PMI index will be published in UK.

Indicators do not send accurate signals: the price has crossed 50 MA and 200 MA.

The MACD histogram is in the positive zone, which indicates a bullish mood.

Stochastic Oscillator is leaving the overbought zone, the %K line is below the %D line, which sends a signal to sell GBP/USD.

Trading recommendations

Support levels: 1.27700, 1.27400
Resistance levels: 1.28100, 1.28500, 1.28800

If the price fixes below the support level of 1.27700, the GBP/USD quotes are expected to decline. The movement is tending to 1.27400-1.27000.

An alternative may be the GBP/USD currency pair growth to 1.28500-1.28800.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.32793
Open: 1.32359
% chg. over the last day: +0.10
Day's range: 1.31672 – 1.31731
52 wk range: 1.2248 – 1.3387

USD/CAD is seeing some aggressive sales. CAD has strengthened against the USD by more than 100 points and the currency pair has updated the local minimums. It is supported by the growth of the oil quotes. The local support and resistance levels are 1.31600 and 1.31850. Positions should be opened from these levels. The trading instrument has a tendency to decrease.

The newsfeed for Canada is calm.

The price is being traded bellow 50 MA and 200 MA, which indicates the power of sellers.

The MACD histogram is in the negative zone and below the signal line, which gives a strong signal towards the sale of USD/CAD.

The Stochastic Oscillator is located in the oversold zone, the %K line has crossed the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.31600, 1.31300, 1.31000
Resistance levels: 1.31850, 1.32150, 1.32500

If the price fixes below the support level of 1.31600, it is necessary to consider sales of USD/CAD. The movement is tending to 1.31300-1.31000.

Alternative option. If the price fixes above the 1.31850 mark, we recommend looking for entry points to the market to open long positions. The movement is tending to 1.32150-1.32400.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 113.479
Open: 113.654
% chg. over the last day: -0.01
Day's range: 113.395 – 113.437
52 wk range: 104.56 – 114.74

The USD/JPY is showing a variety of trends. The quotes are consolidating. The local support and resistance levels are 113.300 and 113.500. Positions should be opened from these levels. The trading instrument has a tendency to fall. You should keep an eye on the 10-year US government bonds yield.

The news feed on the economy of Japan is calm.

Indicators do not send accurate signals: the price has fixed between 50 MA and 200 MA.

The MACD histogram is near the 0 mark.

Stochastic Oscillator is near the oversold zone, the %K line has crossed the %D line. There are no accurate signals.

Trading recommendations

Support levels: 113.300, 113.000, 112.800
Resistance levels: 113.500, 113.750, 114.000

If the price fixes below the local support of 113.300,, the USD/JPY currency pair correction is expected. The movement is tending to 113.000-112.800.

An alternative may be the USD/JPY quotes growth to 113.750-114.000.

No EU solution for double-listed Swiss shares

The European Union confirmed it will not extend equivalence for the Swiss stock exchange as of 31 December. Discussions are not ended: the Swiss Federal Council is expected to provide a formal statement, while President of the Confederation and Head of the Department of the Interior Alain Berset is planning to discuss the matter with EU Commission President Jean-Claude Juncker in the coming days. A recent letter from the EU lists potential sanctions against Switzerland. For now, despite 30% of trading volumes in Swiss stocks carried out on EU platforms, we expect some volatility in Swiss stocks.

The EU estimates that dual-listed shares from Switzerland are traded significantly in the EU, requiring compliance with EU rules. Australian, Hong Kong and US shares are traded less significantly, thus not requiring further regulation. An institutional agreement that grants judiciary powers to the European Court of Justice would make disputes more cumbersome and jeopardise Swiss rules. The Swiss government has allowed a ban of Swiss shares on EU exchanges, which has been supported by the Swiss Bankers Association and the Federation of Multinational Corporations. EUR/CHF is currently trading at 1.1336, approaching the 1.1350 range.

Brexit disappointment ahead

Things are all downhill from here for Prime Minister Theresa May. Debates in parliament start tomorrow, with a vote on Brexit planned for 11 December. We remain negative on EUR/GBP, expecting a further decline to 0.8810 when the deal is rejected.

Elsewhere, markets are buoyant. US President Trump’s indication he will postpone additional tariffs on China has triggered a broad rally. The Hang Seng and Shanghai composite were up 2.55% and 2.57%. The US-China armistice will last for 90 days, enough time to negotiate a longer-term agreement. If this is positive, much-maligned Chinese assets and emerging markets will come roaring back. Meanwhile, promises by Russia and Saudi Arabia to lengthen their deal on oil production cuts has enhanced oil prices. Oil linked currencies NOK, CAD and AUD have bounced off recent lows. Reports that Qatar will leave OPEC next year has had a marginal effect: the nation is only the 11th largest producer in OPEC. Purchasing manager surveys are looking good, suggesting a potential Christmas rally.

US China truce pushes markets higher

Stocks markets are trading heavily in the green across the globe as a temporary truce in the trade war between the US and China buoyed investors.

The working dinner between Trump and Xi on the side-lines of the G20 over the weekend generated as good a result as we could have realistically hoped for, with both sides agreeing to hold off on more tariffs and work towards a more comprehensive agreement. Three months is not a very long time to achieve this so there are naturally plenty of sceptics out there but this is a rare piece of good news in a conflict that has yet to produce any.

Even if three months is not long enough to agree on terms that avert more tariffs and removes those already imposed, it could be long enough to agree a broad outline of what the future relationship will look like and then extend the truce. The important thing is that, while we may be sat here in three months discussing the increase in tariffs after talks failed to produce a solution, there is now a chance that we aren't and investors are understandably lifted by that prospect.

Oil buoyed by deal and hints at output cut this week

Stocks aren't the only things benefiting from the truce, oil is soaring this morning with Brent and WTI up around 4%. A trade war is clearly a big negative for the world economy and therefore oil demand so any agreement that could prevent it is naturally bullish for Brent and WTI prices. The conflict has been one of a number of negative factors that's dragged oil lower over the last couple of months, even now it's trading around 30% off its peak.

The news comes ahead of the OPEC+ meeting this week - the last Qatar will be attending after it announced it will be withdrawing from the cartel - and after Putin hinted at an extension to the oil output agreement which is also intended to lift prices. The question now is how much they will cut and whether it will be sufficient to keep oil from making another run lower.

USDCNY avoids breaching seven handle for now

From a currency perspective, the deal over the weekend has taken some of the pressure off the yuan, which had the greatest amount to lose from continued escalation of the trade war. The dollar is off around four tenths of one percent as a result, with the currency having been one of the greatest beneficiaries of the trade war to date due in part to the large deficit the US currently runs.

The deal keeps the dollar from breaching the much talked about seven handle against the yuan, for now, a level many have suggested is technically very important. Obviously, this is all dependent on the truce being the first step towards a broader agreement, rather than just a three month delay.

The common European currency depreciated about 84 base points against the Japanese Yen on Friday. The currency pair tested the lower boundary of a triangle pattern at 128.40 during the end of the previous trading session.

The exchange rate was moving along the 50– and 100-hour simple moving averages at 128.96/128.81 and the weekly PP during the morning hours of Monday's session.

Technical indicators flash mixed signals today. Therefore, it is likely that the EUR/JPY currency exchange rate trade sideways during the following trading session.

The Australian Dollar traded sideways against the US Dollar on Friday. The currency pair was moving within the range of 0.7328 and 0.7308 during Friday's trading session.

However, the Aussie began today's session with 45 base points profits against the Greenback. Also, a breakout occurred through the upper boundary of a medium-term descending channel during the Asian session.

Given that a breakout had occurred, it is likely that the AUD/USD currency exchange rate continues its upside movement today. The currency pair could aim for the upper boundary of a junior ascending channel at 0.7415

The US Dollar depreciated about 96 base points against the Canadian Dollar on Friday. The currency pair breached the three moving averages during the end of the previous session.

The depreciation continues during the first part of Monday's trading session, and by the middle of the European session, the exchange rate has plunged further 84 base points.

Everything being equal, it is likely that the USD/CAD currency exchange rate continues its decline within this session.

However, a brief retracement towards the weekly PP at 1.3234 could be expected.