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EUR/USD is subdued in the Tuesday session. Currently, the pair is trading at 1.1320, down 0.07% on the day. On the release front, the U.S. releases CB Consumer Confidence, which is forecast to dip to 136.2 points.

Brexit was on the minds of the markets on the weekend, as the 27 EU leaders approved the withdrawal agreement as well as the political declaration on economic relations between Britain and the EU after Brexit. The European leaders were in a surly mood, taking pains to warn Britain not to try to squeeze more concessions out of the EU. Dutch Prime Minister Mark Rutte summed up the European position, declaring “there is no Plan B”. The EU has signaled that the deal signed on Sunday is “take it or leave it” – if the U.K. doesn’t sign on, the result will be a no-deal “brutal Brexit”, which could be catastrophic for the British economy.

Prime Minister May joined the EU summit on Sunday and again urged British lawmakers to approve the deal, saying it met most of Britain’s demands. Still, May will have an uphill battle pushing the deal through parliament, with the Labor party set to torpedo the agreement, and many Conservative MPs unhappy about the U.K. remaining in a customs union with the continent. As well, the DUP is concerned that the agreement, which keeps Northern Ireland in a customs union with Ireland, weakens the link between Northern Ireland and the rest of the United Kingdom. The stakes are high for Theresa May – if she can’t shepherd the deal through parliament, there will be calls for her resignation, which could lead to early elections in the U.K.

A strong resistance cluster formed by the combination of the 200-hour simple moving average and the weekly PP at 0.6810 pressured the New Zealand Dollar south against the US Dollar.

As for the near future, it is likely that the currency pair could break the resistance of 100-hour SMA at 0.6801 and surge towards the upper boundary of a downtrend line during the following trading session.

On the other hand, the NZD/USD currency exchange rate could reverse from current price level and continue moving down towards a support level formed by the weekly S1 at 0.6745 today.

Downside risks prevailed in the market on Monday, thus allowing the Australian Dollar to depreciated by about 60 base point against the US Dollar during the previous session.

The currency pair began today's session with strong bullish momentum. However, the surge was stopped by the combination of the 200-hour simple moving average and the weekly PP at the 0.7256 region.

Technical indicators flash bearish signals on the 4(H) time frame. Therefore, it is likely that the currency exchange rate might continue its decline within this session and could target the monthly support level at 0.7200 today.

Upside risks dominated the US Dollar versus the Canadian Dollar on Monday. The currency pair appreciated by about 76 base points during the end of yesterday's trading session.

A strong support cluster formed by the weekly PP and the 100-hour simple moving average was providing support for the exchange rate during the first half of Tuesday session.

Everything being equal, it is likely that the currency exchange rate continues its bullish momentum today and potentially target November swing high of 1.3329.

However, the monthly resistance level at 1.3291 could prevent the price from hitting the target within this session.

Upside risks dominated the common European currency versus the Japanese Yen on Monday. The currency pair appreciated by about 98 base points during yesterday's session.

However, the surge was halt by a strong resistance cluster formed by the combination of the weekly and the monthly PPs at 128.89.

Technical indicators on the daily time frame suggest that the EUR/JPY currency exchange rate might continue its decline today.

If this decline continues, the pair could aim at the lower boundary of an ascending trendline at 128.00 during the following trading session.

Notes/Observations

• Italy – EU budget standoff appears less confrontational for the time being

Asia:

• Japan PM Abe: Next initial budget to have measures to address sales tax, include tax cuts for car owners and rebates on some cashless purchases; to account for ¥2.0T of general budget (after the close yesterday)

Europe:

• Italy government confirmed its 2019 budget goals but was still considering lowering budget deficit target. Still awaiting full cost evaluation and any eventual budget savings would be used mainly to boost investments
• UK Parliament to vote on Brexit deal on Tuesday, December 11th. Confirmed 5 days of debate between 4-11th Dec ahead of the 'meaningful vote' on Brexit. PM Office set Dec 9th as the provisional date for the Corbyn (Labour Party Leader) Debate
• Brexiteers said to back PM May Brexit plan if she says when she is quitting. Tories said to have urged PM May to set out a timetable for her departure and to soften opposition

Americas:

• President Trump expected to move ahead with plan to increase China tariffs to 25% on $200B worth of goods; iPhones made in China could be included in new round of tariffs. Reiterated that if no deal was reached, expected to impose tariffs on all Chinese imports. Highly unlikely would accept Beijing request to delay increase
• President Trump: Brexit deal sounds like a good deal for the EU; Brexit deal as it stands means UK may not be able to trade with the US; we don't like what is happening, hopefully it will get worked out (Note: PM May spokesperson (responding to President Trump): Brexit agreement meant the UK could do a US trade deal

Macro

• (IT) Italy: Reportedly the ruling coalition are willing to cut deficit target to 2.2% of GDP from 2.4% planned initially, according to Italian press reports. According to the report, Prime Minister Conte said the 2019 deficit would be reduced to 2.2% from 2.4%, representing EUR €3.6B in spending cuts compared to the original plan. Both Salvini and Di Maio are reportedly convinced that it is not worthwhile "to go to war" with the EU.
• (UK) United Kingdom: Sterling has come under pressure after Trump's remarks yesterday about the UK not being able to negotiate a trade deal with the U.S. under the Brexit deal, which is true as the backstop arrangement for Irish land border means that the UK will remain in the customs union until such time as facilitative arrangements can be organised. The specter of the deal not passing in parliament remains though with PM estimated to be short of at least 60 votes to get the deal passed. The deal is sub-optimal for the economy compared to remaining in the EU.
• (US) United States: With the G20 on Friday, Trump indicated that he plans to tariff the remaining $267B balance of Chinese imports at 10-25% in the absence of a deal with the Chinese later this week. He said it was highly unlikely that he would accept Beijing's request to hold off on increasing tariffs to 25% on $200B in imports in the meantime. He plans to sign the USMCA accord at the G20, putting further pressure on the Chinese. Interestingly Trump also indicated in the same interview that he's more concerned about the Fed than China.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.15% at 357.80, FTSE -0.25% at 7,018.75, DAX -0.06% at 11,347.30, CAC-40 -0.03% at 4,993.28, IBEX-35 +0.24% at 9,113.15, FTSE MIB -0.12% at 19,210.50, SMI -0.40% at 8,893.50, S&P 500 Futures -0.11%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mixed this morning following a mixed session in Asia overnight and flat US futures. Italian Budget and Brexit developments continue to be in the forefront, Italy confirmed their 2019 budget but was still considering lowering it, while the UK Parliament will vote on the proposed Brexit deal on the 11th Dec. On the corporate front shares of Thomas Cook trades sharply lower after lower profits and suspended dividend. UDG, Austria Post, Nostum Oil & Gas, Gooch & Housego, Cranswick, Topps tiles and Convatec are among other names trading lower after earnings. Trigano trades higher on earnings, with Gregggs, GB Group and Pennon Group among other risers on upbeat earnings, while Vallourec also rises sharply after positive 2019 EBITDA guidance. Looking ahead notable earnings include Hibbett Sports, Ferroglobe, Eaton Vance and Cracker Barrel.
• Consumer discretionary: Thomas Cook [TCG.UK] -24%; TUI AG [TUI.UK] -2.5% (Thomas Cook prelim earnings; suspends dividend; cautious outlook), Trigano [TRI.FR] +9% (earnings), Greggs [GRG.UK] +12% (trading update), Pets-at-Home [PETS.UK] -1% (earnings), Accor SA [AC.FR] +2% (investor day), Korian SA [KORI.FR] +2% (acquisition)
• Real Estate: Vopak [VPK.NL] n/c (investor day, acquisition)
• Financials: CaixaBank [CABK.ES] -0.5% (investor day), Shaftesbury [SHB.UK] -0.5% (earnings)
• Healthcare: UDG Healthcare [UDG.UK] -9% (earnings), Indivior [INDV.UK] -4% (to host investor call to discuss strategy)
• Technology: Dialog Semiconductor [DLG.DE] +0.5% (Trump in interview mentions possibility to imply tariffs on Apple's iPhones imported from China)
• Telecom: Tele2 [TEL2A.SE] +8% (EU antitrust officials reportedly to approve without conditions Deutsche Telekom purchase of Tele2's Dutch assets)

Speakers

• Head of Italian Senate Finance Committee Bagnai: Neither political nor economic reasons to amend structure of 2019 budget. Government needed to boost consumer demand, investment.
• UK Govt official Lidington (de facto Dep PM): Britain did not need a leadership challenge; PM May could stay on in position if Parliament rejected her Brexit deal. Parliament had a binary choice between accepting the Brexit deal on the table or voting it down
• France President Macron: Won't change course on gasoline taxes; must exit fossil fuels
• Italy Deputy PM Salvini: No new documents to go to the EU on the budget
• Italy Lower House said to begin full budget debate on Dec 3rd. Budget Committee had begun voting on amendments and aimed to complete voting this week
• Sweden FSA Financial Stability Report noted that the domestic economy was still strong but showed signs of weakening. Unexpected big swings in interest rate moves and global uncertainties could test resilience of financial sector
• Poland Central Bank's Lon reiterated stance that interest rates should stay steady throughout the current term
• Turkey President Erdogan stated that new investment and employment initiatives would be coming in December
• India Central Bank (RBI) Gov Patel testified in parliament that the domestic economy was robust (**Note: Had no comments on central bank autonomy and FX Reserves made in testimony)
• China PBoC issued guidelines on improving management of systemically important financial institutions (SIFIs): To impose additional capital and liquidity requirements on these companies
• China Foreign Ministry spokesman Geng Shuang: Trump and Xi to reach mutually beneficially agreements

Currencies/Fixed Income

• Hawkish commentary from President Trump on trade helped the USD maintain a firm tone but dealers were quick to point out that remarks seen as part of the President's negotiating style of piling on the pressure ahead of a crucial meetings (**Reminder: Trump-Xi to meet at this weekend G20 summit in Argentina).
• GBP/USD near 2-week lows as concerns over the upcoming Brexit vote remained a headwind for the pound sterling. Pair at 1.2760 just ahead of the US morning.
• EUR/USD steady around the 1.1320 area as Italy appeared to be less confrontational with a willingness to negotiate as the govt seemed aware of the implications of its actions

Economic Data

• (FI) Finland Nov Consumer Confidence Index: 18.3 v 16.8 prior; Business Confidence: 6 v 8 prior
• (FR) France Nov Consumer Confidence: 92 v 94e
• (SE) Sweden Oct PPI M/M: -0.3% v +1.2% prior; Y/Y: 9.5% v 10.1% prior
• (SE) Sweden Oct Trade Balance (SEK):-8.4B v +2.3B prior
• (SE) Sweden Oct Household Lending Y/Y: 5.8% v 5.9% prior
• (IT) Italy Nov Consumer Confidence Index: 114.8 v 116.0e; Manufacturing Confidence: 104.4 v 104.0e; Economic Sentiment: 101.1 v 102.5 prior
• (PL) Poland Oct Unemployment Rate: 5.7% v 5.7%e
• (ZA) South Africa Q3 BER Business Confidence: 31 v 40e
• (BR) Brazil Nov FGV Construction Costs M/M: 0.3% v 0.3%e

Fixed Income Issuance

• (RU) Russia to sell EUR-denominated 7-year note; yield guidance seen 3% area
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2032 and 2048 bonds
• (IT) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated range in Zero Coupon Nov 2020 CTZ; Avg Yield: 0.995% v 1.626% prior; bid-to-cover: 1.56x v 1.82x prior
• (IT) Italy Debt Agency (Tesoro) sold €1.0B vs. €0.5-1.0B indicated range in 0.10% May 2023 Inflation-linked Bonds (BTPei); Avg Yield: 1.45% v 0.90% prior; Bid-to-cover: 1.65x v 1.72x prior

Looking Ahead

• (PT) Portugal Releases Year-to-Date Budget Report
• 05.30 (UK) Weekly John Lewis LFL sales data
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 06:00 (UK) Nov CBI Retailing Reported Sales: 10e v 5 prior; Total Distribution: No est v 17 prior
• 06:30 (IS) Iceland to sell 6-month Bills; Avg yield: % v 4.430% prior; bid-to-cover: x v 2.17x prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (ES) Spain Oct YTD Budget Balance: No est v -€13.3B prior
• 07:30 (BR) Brazil Oct Current Account Balance: $0.9Be v $0.0B prior; Foreign Direct Investment (FDI): $8.5Be v $7.8B prior
• 07:45 (US) Weekly Chain Store Sales
• 08:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Fed's Clarida in NY
• 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (US) Sept FHFA House Price Index M/M: 0.4%e v 0.3% prior; Q/Q: No est v 1.1% prior
• 09:00 (US) Sept S&P Case-Shiller 20-City M/M: 0.20%e v 0.09% prior; Y/Y: 5.20%e v 5.49% prior; House Price Index (HPI): No est v 213.72 prior
• 09:00 (US) Sept S&P Case-Shiller (overall) Y/Y: No est v 5.77% prior; Overall HPI Index: No est v 205.81 prior
• 09:00 (MX) Mexico Oct Unemployment Rate: 3.4%e v 3.6% prior; Unemployment Rate (Seasonally Adj): 3.4%e v 3.3% prior
• 09:00 (MX) Mexico Oct Trade Balance: -$1.5Be v -$0.2B prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 10:00 (US) Nov Consumer Confidence: 135.9e v 137.9 prior
• 10:00 (MX) Weekly Mexico International Reserves
• 10:00 (EU) ECB's Nouy (SSM chief) in Lisbon
• 11:00 (LX) ECB's Mersch (Luxembourg) in Frankfurt
• 11:30 (US) Treasury to sell 8-Week Bills
• 12:00 (SE) Sweden Central bank (Riksbank) Dep Gov Ohlesson
• 14:30 (US) Fed's Bostic (dove, voter) with Evan (non-voter, dove) and George (hawk, voter) on panel
• 15:00 (NZ) New Zealand Central Bank (RBNZ) Financial Stability Report
• 16:30 (US) Weekly API Oil Inventory data

Dollar seems to be responding rather well to Trump's threat to escalation tariff war with China. And, it's gaining momentum in European session. Nevertheless, reactions in other markets are rather muted. There were some jitters as it's falsely reported that Trump and Xi agreed a deal but was quickly denied. For now, Australian and New Zealand Dollar are still the strongest ones for today. But both look vulnerable and their places could be taken by Dollar and Yen easily.

Sterling and Euro are the worst performing ones so far. There were rumors that Italy's 2019 budget target target could finally settle at 2.2% of GDP instead of 2.4%. UK Prime Minister Theresa May issued a TV debate challenge to Labour's Jeremy Corbyn on Brexit. And Corbyn swiftly accepted. The debate could be held on December 9, just two days ahead of Commons vote on the deal. Eventually, other parties' representatives may also join. These news provided little support to both currencies.

Technically, GBP/USD's break of 1.2764 supports suggests decline resumption and focus will be quickly back on 1.2661 low. USD/CHF is now eying 1.0006 minor resistance and break would put 1.0128 resistance back into focus. We'll see Dollar could sustain its momentum. Or it will be knocked down by Fed Vice Chair Richard Clarida's comment at 1330 GMT.

In European markets, at the time of writing:

• FTSE is down -0.31%
• DAX is down -0.15%
• CAC is down -0.19%
• German 10-year yield is down -0.0125 at 0.35.
• Italian 10-year yield is up 0.0035 at 3.266. German-Italian spread stays below 300

Earlier in Asia:

• Nikkei gained 0.64%
• Hong Kong HSI dropped -0.17%
• China Shanghai SSE dropped -0.04%
• Singapore Strait Times dropped -0.10%

European Central Bank President Mario Draghi defended the bank’s move to start phasing out its easy-money policies against criticism from European lawmakers that it is moving too soon as eurozone economic growth slows.

The central bank has been treading a cautious path in recent months, seeking to start winding down its EUR2.6 trillion bond-buying program, known as quantitative easing or QE, without spooking international investors. The program is widely credited with bolstering growth in the 19-nation eurozone economy, which outpaced the U.S. over the past two years.

So far, Mr. Draghi and his top officials have avoided causing any “taper tantrum” in financial markets, similar to that unleashed when the Federal Reserve wound down its own bond-buying programs four years ago. But the ECB is phasing out its giant stimulus program at an awkward time — just as the currency union posts its slowest growth rate in about four years, and as borrowing costs jump in Italy, the bloc’s number-three economy, which is clashing with the European Union over its budget.

Speaking at the European Parliament in Brussels, Mr. Draghi confirmed that the ECB would likely phase out QE after next month. The decision is likely to be formalized at the ECB’s next policy meeting on Dec. 13. For some European politicians, the end of QE can’t come fast enough. Officials in Germany and the Netherlands have complained for years about the ECB’s ultralow interest rates, which they worry hurt savers, pensioners and banks. Gerolf Annemans, a right-wing politician from Belgium, accused the ECB of artificially supporting certain business sectors, hurting banks and creating asset-price bubbles.

US threatens tariffs, slows yuan

US President Donald Trump says he will impose USD 200 billion tariffs effective from 1 January 2019, if the Chinese government does not make concessions at the upcoming G20 summit in Buenos Aires. Trump said another 10-25% of duties on the remaining USD 267 billion of Chinese imports could be implemented thereafter. USD/CNY today's fixing lies at 6.9463, suggesting that the pair's rise (currently: +0.11%) should be limited.

The G20 summit kicks off in three days: markets have not yet reacted much. Either investors have either gotten used to the rhetoric or they think that it is too early to draw conclusions. Both CNY and CNH remain stable, suggesting limited pressure for now. Further tariffs on Chinese goods should weigh on consumer goods, including computer or Apple products that require electronic components manufactured in China.

Asian shares slightly lower after Trump's bluster

Asian equities slumped slightly following US President Donald Trump's warning of new tariffs against China, a few days before he meets the Chinese president. The HK Hang Seng closing -0.17%, followed by Chinese blue chips CSI 300 -0.13% while Australian ASX 200, South Korean Kospi and Japanese Nikkei 225 bounced by +1%, +0.79% and +0.64%. European equities are marginally unchanged, as Italy's bit of consent continues to support the market. The Euro Stoxx 50 is slightly higher (+0.08%), UK FTSE 100 is at +0.09%, French CAC 40 +0.05% and German DAX in neutral territory. Unfavourable economics in the EU (signalled by purchasing data published last Friday) should ultimately weigh on EU equities. The next key publication to monitor carefully will be November inflation, this Friday. Estimates are of a decline of to 2% in November from 2.20% in October.

The common European currency failed to pass the resistance cluster at the 1.1380 level against the US Dollar. As forecast, the event has resulted in a decline. However, on Tuesday morning the currency exchange rate had still not reached its target at 1.13.

In general, the rate is expected to reach the 1.13 mark, where a previously pierced through lower trend line of a large scale pattern is located at. If one looks at the larger scale patterns, it can be seen that the trend line is expected to be broken eventually.

Although, note that the support of 1.13 is bound to pause the decline of the EUR/USD. The rate will need additional resistance levels to pass the 1.13 and reach down to weekly S1 of the simple pivot points at 1.1289.