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EURCHF plunged to a new two-month low of 1.1266 after the aggressive sell-off below the 1.1300 handle on Tuesday. The near-term bias is looking negative with the RSI pointing down and is approaching the 30 level, while the MACD oscillator dived below the trigger line with strong momentum. Also, the 20- and 40-simple moving averages (SMAs) are following the bearish rally in price.

More declines would likely push the pair towards the support level of 1.1220, identified by the trough on September 21. Failure to hold above this support would drive the price towards the September’s 13-month low of 1.1180. If broken, this would bring into focus the psychological level of 1.1100.

In case of bullish actions, immediate resistance could be met the 1.1300 handle, before touching the 23.6% Fibonacci retracement level of the downleg from 1.1500 to 1.1266, around 1.1320. Higher up, further resistance could come from the 61.8% Fibonacci, which coincides with the 1.1355 level.

Concluding, EURCHF is creating a bearish tendency following the pullback on the 1.1500 critical level.

EURNZD plunged after touching a three-year high of 1.7925 in early October, crossing below its 50- and 200-day simple moving averages (SMAs) to briefly touch 1.6550 – a low last seen in January. A decisive move below 1.6550 would mark a lower low on the daily chart, signaling a resumption of the downtrend.

Short-term oscillators support the bleak picture. The RSI detects accelerating downside momentum, though the fact it just fell below its oversold 30 level implies a short-term rebound shouldn’t be ruled out. Meanwhile, the MACD may soon test its red trigger line; a crossing below it would be a negative signal.

Further declines may meet preliminary support near 1.6550, which was tested on November 11. If the bears pierce below it, the next obstacle may be the 1.6450 zone, marked by the inside swing high on September 25, 2017. Even lower, the October 17, 2017 low at 1.6330 could attract attention.

On the flipside, a rebound may stall at 1.6790, the November 22 top. An upside break could open the way for 1.7110, an area that acted as support in July and August, with the zone around it encapsulating the 200-day SMA at 1.7138. Higher still, the bulls may aim for the October 19 trough of 1.7350, assuming they pierce the 50-day SMA at 1.7260 first.

Summarizing, the overall picture seems negative, and a clear close below 1.6550 would reaffirm that.

Italian Economy Minister Giovanni Tria said today that the coalition government is seeking to adjust its 2019 budget plan. They'd still have to support economic growth, but at the same time need to avoid disciplinary actions by European Commission. Tria said "we are attentively seeing if there is financial space to improve the balance between the need to support growth and the need to solidify the sustainability of the public accounts."

Separately, Deputy Prime Minister Luigi Di Maio, leader of Five-Star Movement, said "we must talk with the EU to find a solution, but we cannot betray the promises we made, otherwise we will become like all the other (governments)."

Bulls are taking a breather after strong rally in past two days (0.8% advance), with firm bullish bias being intact and focusing targets at 114.20 (12 Nov) and 114.54 (2018 high). Tuesday's marginal close above 113.75 pivot (Fibo 76.4% of 114.20/112.30) was bullish signal, however, bulls may enter consolidative phase before continuing. Weaker momentum and overbought slow stochastic support the notion. Dip-buying strategy remains favored, with dips facing initial support at 113.48 (broken Fibo 61.8%) then 113.34 (rising 20SMA) and extended downticks expected to find ground above 10SMA (113.17).

Res: 113.90, 114.20, 114.54, 114.73
Sup: 113.48, 113.34, 113.17, 113.05

It seems that investor sentiment is turning more and more optimistic. Asian shares, have turn positive with both Hong Kong and China mainland indices turning into green. The USD also gained strength, with the dollar index at 97.51 (+0.15%) as the sino-american trade conflict appears to be deescalating (from the investors’ perspective).

Indeed, one day after Trump’s tough statement concerning the negotiation with Chinese counterparts and the threat of intensifying trade duties, White House economic adviser, Larry Kudlow, has reversed the outlook of the trade talks during the G20 summit in Argentina. Larry Kudlow mentioned the possibility that the two leaders would have constructive discussions and that they could come up with an agreement on the table. We remain dubitative that such an agreement could be reached within in such a short period of time, although negotiations have been starting since a few weeks prior to the event. The outcome of the meeting will most certainly be more intense negotiations and, at best, a postponement of 25% tariffs on $ 200 billion Chinese imports.

Following the announcement, US equities have been bouncing back into positive territory at closing despite a start in the red during yesterday’s session. The blue-chip Dow Jones Industrial Average index closed at +0.44% while the S&P 500 and tech NASDAQ indexes closed at +0.33% and +0.01%. Asian indexes followed the same trend, with the Japanese Nikkei 225 closing +1.02%, Hong Kong Hang Seng +1.33% and China mainland CSI 300 +1.33%, as well, its highest close since 2. November (+3.56%).

Accordingly, USD/CNY is bouncing higher, gaining +0.20% since yesterday. Today’s PboC fixing at 6.95 (prior: 6.9463) suggests further pressure on both CNY and CNH.

On the daily chart of gold we see metal trading in a possible seven-swing correction from the lows, which can in weeks or months ahead look for resistance and a bearish turn near the 1250/1300 region.

A later drop in impulsive fashion (five-waves) from the mentioned area, and a break below the lower channel line conneceted from August lows and a further break below the 1181 bearish level would confirm a completed blue wave B correction and a bearish continuation. This bearish continuation could develop in a five-wave cycle.

GOLD, Daily

The Euro trades in red for the fourth straight day and hit new two-week low at 1.1267 in early European trading on Wednesday. Strong bearish signal was generated on Tuesday's close below 200WMA/Fibo 61.8% of 1.1215/1.1472 (1.1313) which exposed 2018 low at 1.1215 (12 Nov).

Strong signals that the US would proceed with its plan and increase tariffs on imports from China, as early as next week, hawkish tone from Fed speakers on Tuesday, signaling that Fed remains on track for Dec rate hike and issues with Italy's budget as the EU showed no willingness to compromise and may proceed faster with disciplinary action are three key factors that keep the single currency pressured.

Extension below key supports at 1.1215 (2018 low) and 1.1186 (Fibo 61.8% of larger 1.0340/1.2555 uptrend) would spark extension of the downtrend from 1.2555 (2018 high, posted on 16 Feb).

Corrective upticks should be capped by converged 10/20SMA's 1.1357) to keep bears intact.

Res: 1.1300, 1.1313, 1.1343, 1.1357
Sup: 1.1267, 1.1215, 1.1186, 1.1117

Notes/Observations

• Focus remains on upcoming G20 and if consensus will be reached on issues and if US and China will be able to ease trade tensions
• Fed Chair Powell due to speak in NY later today, ahead of Thursday's release of the FOMC minutes

Asia:

• China Ambassador to US Cui stated that he did not believe anyone in Beijing was thinking seriously about pulling back from US Treasury debt market if trade dispute worsened

Europe:

• UK PM May said to have backed down in Brexit disagreement with Parliament, which would allow the Brexit deal to be amended before vote on Dec 11th

Americas:

• President Trump may cancel meeting with Russia's Putin at G20 over Ukraine. Reiterates view that FED rate policies were hurting the economy; I'm not even a little bit happy with my selection of Chair Powell

Energy:

• Weekly API Oil Inventories: Crude: +3.5M v -1.5M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.1% at 357.6, FTSE -0.1% at 7007, DAX +0.0% at 11313, CAC-40 +0.3% at 4995, IBEX-35 +0.4% at 9120, FTSE MIB -0.2% at 19110, SMI +0.1% at 8907, S&P 500 Futures +0.1%]
• Market Focal Points/Key Themes: European Indices trade mixed this morning following a higher session in Asia and slightly higher US futures. On the corporate front shares of Schoeller Bleckmann, Adler Real Estate and On the Beach Group trade higher on earnings with Vapiano and Brewin Dolphin a notable decliner following results and outlook. Following a host of investor days Danish Energy name Orsted trades lower while Axa trades higher after raising mid term ROE target. Kering trades lower following the investigation of Gucci CEO and former CEO in alleged €1B tax evasion; Bayer rises after launching a cost cutting program. Looking ahead earnings include retail names Tiffany's, Burlington Stores, Dick's Sporting Goods as well as Canadian name Royal Bank of Canada.

Equities

• Consumer discretionary: Kering [KNE.FR] +1% (reportedly Gucci CEO Bizzarri and predecessor Di Barco under investigation in alleged €1B tax evasion case), Vapiano [VAO.DE] -4.5% (earnings; cuts outlook)
• Energy: Orsted [ORSTED.DK] -2.5% (investor day)
• Financials: LondonMetric [LMP.UK] -0.5% (earnings), Societe Generale [GLE.FR] +0.5% (investor slides comments on medium-term targets and acquisitions), Axa SA [CS.FR] +1.5% (investor day; FY18 targets raised; medium-term outlook affirmed)
• Healthcare: Shire [SHP.UK] -2% (ex-Chairman of Takeda Pharmaceuticals reportedly opposes takeover transaction), Bayer [BAYN.DE] +1.5% (Reportedly plans to launch a cost cutting program which would include job reductions and streamlining organization)
• Industrials: Continental [CON.DE] -5.5% (CFO comments on potential headwinds persistence in near future), RPC Group [RPC.UK] +0.5% (earnings), Knorr-Bremse AG [KBX.DE] +1% (earnings; affirms outlook)
• Telecom: Telecom Italia [TIT.IT] -1.5% (Italian senate propositions on company's future)

Speakers

• EU Commission to open disciplinary action against Italy over its debt before Christmas (Dec 19th said to be the date).- Italy budget deficit target must be closer t 2.0% for EU. Eurogroup might discuss matter in January. Both Italian Dep PMs (Salvini and Di Maio) are involved with EU discussions
• EU's Dombrovskis: Italy needed 'significant correction' of 2019 fiscal budget
• Italy PM Conte: Dealing with the EU won't be easy; to push forward with reform. Social stability was more important
• Italy Fin Min Tria reiterates that dialogue is needed with EU to seek budget solution. Economic slowdown gives reason for anti-cyclical cycle. Italy will reduce debt with economic growth. Reiterates that Govt forecasts was based upon correct numbers (analysis)
• UK Chancellor of the Exchequer Hammond (Fin Min): PM May's Brexit deal is far better than a no-deal exit; have to prepare for no-deal to minimize disruptions
• Germany Fin Min Scholz: Want reform package for Euro Zone to include turning ESM into a European Monetary Stabilization Fund (EMF). Want a minimum taxation for companies and introduce FTT at EU level. Confident of global digital tax by mid-2020
• France PM Philippe: Gasoline tax to rise as planned on Jan 1st
• Russia Central Bank Gov Nabiullina: Domestic economy growing around potential
• Russia Fin Min Siluanov: Moderately tight policy creates predictability
• Russia Energy Min Novak: Nov MTD oil production approx 40K bpd below Oct levels (**Reminder: Russia Oct oil production was seen at 11.41M bpd (record level)

Currencies/Fixed Income

• USD remained on firm footing and buoyed by Fed expectations, trade tensions support safe haven bids. Market participants looking ahead to the planned Trump-Xi meeting at the upcoming g G-20 summit this weekend in Argentina
• EUR/USD staying below the 1.13 level as the Italian budget situation remained in focus
• Various polls on Parliament sentiment indicate that PM May's deal will be defeated in Parliament. GBP/USD managing to get a small gain in the session to test 1.2775.

Economic Data

• (DE) Germany Dec GfK Consumer Confidence: 10.4 v 10.5e
• (SA) South Africa Q3 BER Consumer Confidence: 7 v 15e
• (FI) Finland Oct House Price Index M/M: -1.0% v +0.9% prior; Y/Y: 0.4% v 1.4% prior
• (HU) Hungary Oct Unemployment Rate: 3.7% v 3.8%e
• (SE) Sweden Nov Consumer Confidence: 97.5 v 99.5e; Manufacturing Confidence: 116.2 v 114.4e; Economic Tendency Survey: 106.7 v 107.0e
• (SE) Sweden Oct Retail Sales M/M: -1.1% v +0.3%e; Y/Y: -0.1% v +2.0%e
• (EU) Euro Zone Oct M3 Money Supply Y/Y: 3.9% v 3.5%e
• (CH) Swiss Nov Credit Suisse Expectations Survey: -42.3 v -39.1 prior
• (IT) Italy Oct PPI M/M: 1.8% v 0.4% prior; Y/Y: 7.1% v 5.6% prior
• (AT) Austria Nov Manufacturing PMI: 54.9 v 53.8 prior (34th month of expansion)

Fixed Income Issuance

• (IN) India sold total INR150B vs. INR150B in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK1.5B vs. SEK1.5B indicated in 0.75% Nov 2029 bonds; Avg Yield: 0.7087% v 0.8112% prior
• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: 0.163% v 0.159% prior; Bid-to-cover: 1.60x v1.60x prior

Looking Ahead

• 05:30 (EU) ECB allotment in 3-month LTRO (€1.5Be)
• 05:30 (DE) Germany to sell €2.0B in 0.25% Aug 2028 bund
• 06:00 (IR) Ireland Oct Retail Sales M/M: No est v 1.5% prior; Y/Y: No est v 6.5% prior
• 06:00 (BR) Brazil Oct PPI Manufacturing M/M: No est v 2.5% prior; Y/Y: No est v 16.7% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell combined RUB10B in 2020 and 2024 OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Nov 23rd: No est v -0.1% prior
• 07:05 (FR) ECB's Coeure (France) in Frankfurt
• 08:00 (ES) ECB's De Guindos (Spain) at conference
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Q3 Preliminary GDP Annualized (2nd reading) Q/Q: 3.5%e v 3.5% advance; Personal Consumption: 3.9%e v 4.0% advance
• 08:30 (US) Q3 Preliminary GDP Price Index: 1.7%e v 1.7% advance; Core PCE Q/Q: 1.6%e v 1.6% advance
• 08:30 (US) Oct Advance Goods Trade Balance: -$77.0Be v -$76.3B prior (revised from -$76.0B)
• 08:30 (US) Oct Preliminary Wholesale Inventories M/M: 0.4%e v 0.4% prior; Retail Inventories M/M: No est v 0.2% prior
• 09:30 (BR) Weekly Brazil Currency Flow data
• 10:00 (US) Oct New Home Sales: 575Ke v 553K prior
• 10:00 (US) Nov Richmond Fed Manufacturing Index: 15e v 15 prior
• 10:00 (CO) Colombia Oct National Unemployment Rate: No est v 9.5% prior; Urban Unemployment Rate: 9.6%e v 10.5% prior
• 10:20 (BE) ECB's Praet (Belgium, chief economist)
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:30 (BR) Brazil Oct Total Outstanding Loans (BRL): No est v 3.169T prior; M/M: 0.5%e v 0.4% prior; Personal Loan Default Rate: No est v 4.9% prior
• 11:30 (UK) Bank of England (BOE) Financial Stability Report and Stress test results
• 11:45 (UK) BOE Gov Carney
• 12:00 (US) Fed Chair Powell in NY
• 12:00 (CA) Canada to sell Dec 2050 Inflation-linked bonds
• 13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)

The USD strengthened as US trade tensions intensified yesterday, while at the same time Fed officials made some hawkish comments. Media stated, that the US President could impose tariffs on imported cars, in which case the German and Japanese economies would be hit. The article of a German magazine, cited “EU sources” stating that tariffs could be imposed on imported cars of 25%, as early as next week. Meanwhile China warned of dire consequences, if US hardliners try to separate the US and Chinese economies. As trade wars intensify and widen, markets turn their attention to the G20 meeting, which could prove to be landmark date. At the same time Fed’s Richard Clarida, supported further hikes by the Fed, though the rate hike path may prove to be data dependent. Market focus could be turned to today’s financial releases as well as Jerome Powell’s speech, as volatility could rise for USD pairs.

EUR/USD dropped yesterday, as it broke the 1.1305 (R1) support line (now turned to resistance). We maintain our bearish outlook for the pair, as the downward trendline incepted since the 23rd of November, remains intact. Should the bears continue to dictate the pair’s direction, we could see the pair, breaking the 1.1255 (S1) support line. On the other hand should the bulls take over, we could see the pair breaking the 1.1305 (R1) resistance line and aim for the 1.1345 (R2) resistance barrier.

Sterling weakens as Brexit is in the Balance

The sterling weakened yesterday as doubts increased whether Theresa May will be able to get UK Parliament’s approval for her Brexit deal. According to media, Theresa May has stopped any efforts of preventing lawmakers rewriting her Brexit plans. If the media are correct, then it could signal that MPs will be able to call for a different deal or even a new referendum. Analysts point out that the markets may be pricing in the scenario of the deal not passing through parliament, at least not the first time. We expect there to be increased volatility for the pound for the next two weeks as UK Parliament’s vote looms until December 11th.

Cable dropped as the pair broke the 1.2780 (R1) support line (now turned to resistance). Should the pound continue to weaken, we could see the pair dropping even further. Should the pair be under the market’s selling interest we could see it breaking the 1.2700 (S1) key support level and aiming for the 1.2630 (S2) support zone. Should on the other hand the market favor the pair’s long positions, we could see the pair breaking the 1.2780 (R1) resistance line and aim for the 1.2850 (R2) resistance area.

In today’s other economic highlights:

In the European session today, we get Germany’s GfK Consumer climate indicator for December, while in the American session, we get from the US the 2nd release of the GDP growth rate for Q3, the trade balance figure and the new home sales figure, both for October. Later on oil prices may have increased volatility, as the EIA crude oil inventories figure is due out. Also please be advised, that BoE will release its financial stability report along with the results of its stress tests for UK banks. As for speakers, ECB’s Praet, BoE Governor Mark Carney and Fed’s Chairman Jerome Powell speak.

GBP/USD H4

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

Resistance: 1.2780 (R1), 1.2850 (R2), 1.2920 (R3)

EUR/USD H4

Support: 1.1255 (S1), 1.1200 (S2), 1.1153 (S3)

Resistance: 1.1305 (R1), 1.1345 (R2), 1.1385 (R3)

The euro has come under renewed technical selling pressure against the greenback during the European trading, with the price falling towards the 1.1270 support region. The EURUSD pair is now trading below the neckline of a bearish head and shoulder pattern with a sizeable downside projection. The FOMC Meeting Minutes and FED Chair Jerome Powell’s scheduled speech are the key risk events for the EURUSD later today.

The EURUSD pair is strongly bearish while trading below the 1.1270 level, key technical support is now found at the 1.1216 and 1.1175 levels.

If the EURUSD pair holds above the 1.1270 level, buyers may test the 1.1300 and 1.1330 resistance levels.