Sample Category Title

Pivot (invalidation): 14.2200

Our preference Long positions above 14.2200 with targets at 14.4300 & 14.5000 in extension.

Alternative scenario Below 14.2200 look for further downside with 14.1600 & 14.0700 as targets.

Comment The RSI advocates for further advance.

Pivot (invalidation): 1219.50

Our preference Long positions above 1219.50 with targets at 1227.50 & 1230.50 in extension.

Alternative scenario Below 1219.50 look for further downside with 1215.50 & 1211.00 as targets.

Comment The RSI is supported by a rising trend line.

The USD weakened substantially against its major counterparts yesterday and during today’s Asian session as Fed Chairman Powell made some dovish comments. Specifically Fed Chairman Powell stated in a speech yesterday that interest rates are just below a neutral level of 2.5-3.5%. The comment was interpreted as implying that the Fed would be near the end of its rate hike cycle as it is in strong contrast to prior comments that the bank may raise rates past neutral. Volatility could continue for the USD as the FOMC’s last meeting minutes are to be released today and the document could be scrutinized by the market and analysts for clues on further rate hikes.

EUR/USD rallied yesterday, as it broke consecutively the 1.1305 (S2) and the 1.1345 (S1) resistance lines (now turned to support) and tested the 1.1385 (R1) resistance level. Today the pair could prove sensitive to the financial releases affecting the EUR, while at the same time the USD related financial data releases as well as the release of FOMC last meeting minutes could influence the USD side of the pair. Should the bears dictate the pair’s direction, we could see the pair, breaking the 1.1345 (S1) support line and aim for the 1.1305 (S2) support level. On the other hand should the bulls continue to reign the over the pair’s direction after yesterday’s rally, we could see the pair breaking the 1.1385 (R1) resistance line and aim for the 1.1425 (R2) resistance hurdle.

Sterling drops as BoE’s Brexit expectations are released.

BoE released its financial stability report yesterday and warned that the UK may be hit harder than the last financial crisis, should it leave the EU in a disorderly manner, according to media. The bank also sees a more rapid decline of the economy than the UK government, should the UK leave the EU without a deal and also warned that the pound may reach or even break below parity level with the USD, always according to media reports. Despite BoE governor being considered as too gloomy by hard Brexiteers, we see the case for the warning to mount pressure on the UK political scene. We could see the pound continuing to trade in a choppy manner as more Brexit headlines are expected.

Cable rose as yesterday after some choppy trading, as it broke the 1.2780 (S1) resistance line (now turned to support) and tested the 1.2850 (R1) resistance line. We could see the pair reacting more intensely should there be further Brexit headlines, as well as on the US financial releases and the release of the FOMC last meeting minutes, later today. Should the market continue to favor the pair’s long positions, we could see it breaking the 1.2850 (R1) resistance line and aim for the 1.2920 (R2) resistance barrier. Should on the other hand, the pair come under the market’s selling interest, we could see the pair, breaking the 1.2780 (S1) support line and aim for 1.2700 (S2) support area.

In today’s other economic highlights:

On a busy Thursday, in the European session, we get Germany’s unemployment data for November as well as the preliminary HICP rate for November. From the Eurozone we get the Final consumer Sentiment, Economic Sentiment and Industrial Sentiment all being for November. In the American session, we get from the US the Core PCE price index, the personal spending rate and the pending home sales figure (all for October). Also in the American session we get Canada’s current account figure for Q3. Please be advised that the release of the FOMC’s meeting minutes, could potentially have market moving effects, especially after Fed Chairman Powell’s speech yesterday.

GBP/USD H4

Support: 1.2780(S1), 1.2700 (S2), 1.2630 (S3)

Resistance: 1.2850 (R1), 1.2920 (R2), 1.3000 (R3)

EUR/USD H4

Support: 1.1345 (S1), 1.1305 (S2), 1.1255 (S3)

Resistance: 1.1385 (R1), 1.1425 (R2), 1.1470 (R3)

AUDUSD bull pressure bulls up towards 0.7337/81 zone as more strength is expected. On the upside, resistance lies at the 1.7400 level. A turn above here will shift attention to the 0.7450 level and then the 0.7500 level. A violation will set the stage for a retarget of the 0.7550 level. Its daily RSI is bullish and pointing higher suggesting further strength. Support is seen at the 0.7300 level where a breach will aim at the 0.7250 level. Below here will set the stage for a run at the 0.7200 level with a cut through here targeting further downside pressure towards the 0.7150 level. On the whole, AUDUSD faces further upside pressure with eyes its resistance zone at 0.7381.

We have received a lot of mixed signals in recent days, we still stick to a 60% probability of a ceasefire in the US-China trade war after the G20 meeting over the weekend (dinner to be Saturday evening). This should be positive for risk markets. We see roughly five reasons.

1. Trump initiated the talks this time. Since leaving the negotiation table in May and starting the trade war, Trump has several times said that ‘now is not the right time to talk to China’. The fact that Trump initiated this round of talks by first calling Chinese President Xi Jinping and then preparing for a ‘meeting plus dinner’ at the G20, suggests that Trump has changed his view and now believes it is the right time to start talking again.

2. Trump’s hand starting to weaken? The reason that Trump has taken the step to meet with Xi could very well be related to the fact that US stock markets have started to wobble. Trump has been boasting that Chinese markets were collapsing and US markets were strong. This picture has changed recently as US markets have suffered a set-back, whereas Chinese markets have actually stabilised. Hence based on pure relative stock market performance, Trump’s hand has weakened a bit lately. Using Trump’s ‘Art of the Deal’ logic, his philosophy is to put maximum pressure on his opponent. But the pressure may decline if it becomes clearer that the US will also pay a price for a trade war.

3. Further escalation could back-fire. If the US and China do not reach a ceasefire the next step will be at least a further increase in tariffs on 1 January from 10% to 25% on USD200bn worth of Chinese goods. In addition a further escalation with 10% tariffs on the rest of imports from China, corresponding to USD267bn, would start to have a bigger impact on US manufacturers and consumers. Companies are increasingly starting to complain about the tariffs and consumers would also feel more pain. China’s response could slowly start to be a boycott of US consumer goods such as iPhones and GM cars. It would hurt the stocks of many US companies with high exposure to China – and hence add to the stock market headwinds. A consumer boycott may not be orchestrated from Beijing but could simply be triggered by some Chinese celebrities urging a boycott on social media. While Chinese consumers like US consumer brands, their patriotism should also not be underestimated. If the Chinese economy faces serious pressure due to US tariffs, consumers would likely start supporting their own products.

4. China unlikely to increase concessions even if Trump adds more tariffs. It is very doubtful that Trump would achieve much by adding more tariffs on China. He may of course think so and do it anyway, but China will probably stretch them as far as they are willing to go in this round of talks. China will not give concessions that it believes will hurt the economy in the long term. It would rather pay the short term cost of facing higher tariffs.

5. China will demand a ceasefire to enter a new round of negotiations. China has many times stated that it will not be bullied by the US, and that negotiations should take place with mutual respect and equality. It will not negotiate with a gun to its head. It is therefore unlikely that they will continue talks if Trump moves on with the tariff on 1 January as he indicated in the interview with Wall Street Journal on Monday. Instead China can be expected to retaliate one way or the other.

The mixed signals in recent days from Trump and his economic adviser Larry Kudlow have added some uncertainty up to the meeting. However, we do not think it is a coincidence Trump does an interview with Wall Street Journal so shortly ahead of the meeting with threats to add more tariffs on China. In his book ‘Art of the Deal’ one of the 11 rules is that you should ‘use your leverage’ and ‘the worst thing you can do is seem desperate to make it’. Another point he says is ‘One thing I’ve learned about the press is that they’re always hungry for a good story, and the more sensational the better’. Hence he is clearly very conscious of how to use the media to send signals.

Of course there is a risk that Trump will simply not be satisfied with Chinese concessions and continues the trade war. We put this probability at 40% - so still quite high. In our view, it would be ‘overplaying’ his hand, as he is unlikely to get much out of China as indicated above – and it would increasingly hurt the US economy. He will likely need to have a final deal in place before he enters into the 2020 election year as one of his key campaign promises has been to fix the bad deals with China made by previous presidents. As it will take time to negotiate all points he will need to get started soon.

A ceasefire and plan for further talks

A deal at the dinner after the G20 meeting would not be a fully-fledged final deal. Rather it would probably be similar to the agreement between the US and EU in which no tariffs are implemented while talks move on.

A ceasefire could also include a framework for further negotiations with a list of areas that needs further negotiation. It may also include areas, where China will commit to concessions – such as opening up further, increasing protection of intellectual property rights, more buying of US goods in agriculture and energy (without a specific amount). China will also aim for a US commitment to WTO reform and a system of multilateralism.

The first hurdle will be the actual G20 meeting

Before getting to the US-China meeting on Saturday evening, the two countries need to cross the first hurdle of the actual the G20 meeting. There will most likely be pressure from other G20 leaders to stop the trade war as it is one of the main risks for growth over the coming year. WTO reform will be on the agenda, and a framework for reform will be hard to agree on. Finally, it will be interesting to see if they are able to agree on a joint statement. The APEC meeting in Papa New Guinea recently ended without a joint communiqué for the first time in its 29-year history – apparently because the US insisted on certain language that China would not accept.

Rates: Powell breaks with October comments, but states the obvious
Fed Powell said that policy rates are close to neutral, breaking with his October view that they were a long way from such level. Markets only discount 1 hike next year, which is too dovish. Powell might have soothed investors' conscience that the Fed won't kill the economy by raising rates too much too quickly, but the December dot plot could be a harsh wake-up call.

Currencies: USD declines off recent highs on perceived soft Powell comments
Positive USD momentum halted yesterday. Markets interpreted comments from Fed's Powell as pointing to a lower Fed rate path in 2019. The jury is still out whether the Fed will indeed act as soft as the market anticipates. Even so, in a ST perspective, the upside of the USD dollar is probably capped. FX markets will continue to monitor the Fed today as several governors will speak in Boston

The Sunrise Headlines

• US stock markets rallied yesterday after Fed's Powell signalled policy rates are close to neutral. The Nasdaq outperformed (+2.95%). Asian equities are trading mixed with China underperforming its peers.
• US Trade Representative Robert Lighthizer said he was examining all available tools to raise US levies on Chinese cars to 40%. Such a move would equal China's currently applied tariff to US vehicles
• The Mexican central bank has lowered growth forecasts for 2018 from 2%-2.6% to 2%-2.4%. Growth for 2019 has also been revised downwardly to 1.7%-2.8%. The report comes 3 days before Mexico's new president Obrador takes office.
• Nancy Pelosi was nominated by a 203-32 vote by the Democratic caucus to become House speaker. A final vote by the full House is scheduled in January. Pelosi already served as speaker from 2007 to 2011.
• An unexpectedly large increase in US crude inventories to a 2018 high sent oil tumbling again yesterday, with Brent crude trading back below $60/b. and WTI crude hovering near the $50-handle.
• Switzerland saw its economy unexpectedly shrink in Q3. Growth fell to -0.2% QoQ vs. 0.4% expected. Q2 growth was revised upwardly to 3.5% on an annual basis but Q3 growth dropped to 2.4% YoY while markets anticipated 2.9%.
• Today's economic calendar contains German and US inflation data, EMU economic confidence, weekly claims, FOMC Minutes and the ECB's semi-annual financial stability review. Several ECB/Fed governors are scheduled to speak

Currencies: USD Declines Off Recent Highs On Perceived Soft Powell Comments

Perceived soft Powell hammers US dollar

USD trading was confined to tight ranges yesterday, as markets awaited a speech of Fed Powell. FX investors apparently didn't expect a soft assessment from the Fed Chair as the dollar held close to recent highs against the euro and the yen. In a brief recap on monetary policy, he said the policy rate is ‘just below the broad range of estimates of the level that would be neutral for economy'. Markets consider this a soft turn from recent Fed communication when some Fed members suggested the policy rate could go beyond neutral (seen around 3% in the September dots). So, markets saw a rising chance of a pause in the rate hike cycle next year. US yields and the USD nosedived. EUR/USD jumped about a full big figure and closed at 1.1366. The USD/JPY decline was more modest as the hope for less tighter Fed policy also caused a forceful equity rebound. USD/JPY came off 114+ levels and closed at 113.68. Overnight, Asian equities opened in positive territory in the wake of the US rally, but gains are moderate and are evaporating as the session proceeds. Regional markets apparently stay cautious ahead of the meeting between Trump and XI Jinping. Even so, the dollar stays in the defensive. EUR/USD trades in the 1.1385 area. USD/JPY is drifting further south in the 113 big figure (113.25 area). Today, the calendar is well filled with German CPI, US income and spending data (including price deflators). However, in the wake of Powell's speech the focus will be on the Fed with the publication of the FOMC Minutes and a chorus of Fed members speaking at conference in Boston. To what extent will they confirm the soft market interpretation of the Powell comments? Of late, the USD was in good shape. EUR/USD drifted lower in the 1.1216/1.1651 range. The Powell comments cap recent USD rebound. Some more USD softness might be on the card, but we don't expect the USD to weaken beyond key technical levels. Interest rate markets are already positioned for a very soft 2019 Fed scenario (about one hike). We still see no reason for EUR/USD to strengthen above the 1.15/1.1621 range top.

Sterling initially rebounded on headlines yesterday of a possible second referendum, but the gain was reversed as the BOE painted highly negative consequences from a disorderly Brexit. Today, the UK money supply and lending data will be published. The focus for sterling trading will remain on Brexit. EUR/GBP will probably remain in a some kind of erratic trading pattern near current weak levels as long as uncertainty on the approval of the Brexit remains as high as it is right now

USD (trade-weighted): dollar declines of recent peak levels as markets ponder chance on a Fed pause post Powell

XAUUSD (1225.28): Gold prices posted a strong rebound off the 1213.50 level of support. The strong rally initially met the resistance level at 1223.50 only to post a dip before breaking past this resistance level. In the near term, gold prices could maintain the momentum targeting 1242.25. To the downside, the bias is likely to change if gold posts a reversal and eases back to the 1223.50 level and then back to the 1213.50 support.

GBPUSD (1.2845): The British pound was seen briefly slipped below the 1.2808 level but price action reversed the losses. GBPUSD was seen clearing the 1.2808 level and is likely to see some upside momentum in the near term. The consolidation however is expected to be maintained. We expect another modest decline back to the 1.2808 - 1.2806 level where support could once again be established. Following a reversal at this level, the GBPUSD will be seen aiming for 1.2940 followed by a likely retest of the resistance level at 1.3086.

EURUSD (1.1389): The EURUSD currency pair posted a strong bullish engulfing candlestick pattern yesterday. Price action is likely to test the 1.1400 level in the near term. A breakout above this level is required for the EURUSD to post further gains. This comes as the currency pair is seen posting a near inverse head and shoulders pattern. If the neckline resistance at 1.1462 - 1.1435 is breached, then the minimum upside target is seen at 1.1620.

The U.S. second revised GDP estimates showed that the economy advanced 3.5% in the third quarter of the year. This marked an unchanged print from the first estimates.

New sales report disappointed as with most other housing market data. New home sales rose 544k during the month missing estimates of a 583k increase. Revisions to previous month's data showed new home sales being revised higher to 597k.

The Fed Chair, Jerome Powell gave his much anticipated speech yesterday. Powell said that the Fed funds rates were nearing the neutral level. This sent the U.S. stock markets higher. Commodities also gained as gold prices jumped on his comments. The U.S. dollar index closed 0.55% lower on the day.

Powell's comments come after earlier in the day, President Trump expressed his displeasure at the Fed's rate hike plans once again.

The Bank of England Governor Mark Carney also gave his views on Brexit, which was overshawdowed by Fed Powell's comments. Carney cautioned that in the event of a disorderly Brexit, inflationary pressures will need to be contained. The BoE would therefore act by hiking interest rates.

Carney's comments come as the UK leaders will decide in early December on the draft Brexit deal that was approved by the EU leaders last week. The GBP rallied somewhat, largely due to a weaker greenback.

A somewhat busy day today, Switzerland will be releasing its quarterly GDP numbers. Economists forecast that GDP advanced 0.4% in the third quarter, a somewhat slower pace of increase compared to the 0.7% increase previously.

This is followed by the German preliminary inflation report for November. Consumer prices likely advanced by 0.2% on the month, marking the same pace of increase as the month before.

The ECB President Mario Draghi is due to speak later in the day followed by the ECB releasing the financial stability report.

The NY trading session will see the core PCE data coming out. Core PCE price index is expected to rise by 0.2% on the month. This follows personal spending and income which are expected to rise 0.4% respectively.

Pending home sales data will be another data point this week on the housing markets. Pending home sales are forecast to rise by 0.8% on the month accelerating from a 0.5% increase previously.

The evening is capped off with the release of the Fed's monetary policy meeting minutes.