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Cable accelerated sharply lower in early European trading on Tuesday as comments from President Trump soured the sentiment and neutralized expected positive impact from Brexit deal.

Fresh weakness dipped near 15 Nov low at 1.2722, signaling bearish continuation after Monday’s long-legged Doji.

Risk of retesting key supports at 1.2695 (30 Oct) and 1.2661 (15 Aug) rises as negative sentiment is supported by bearish daily techs.

Sustained break lower would accelerate on triggering stops below and could travel towards 1.2588 (21 June 2017 trough) and 1.2508 (Fibo 76.4% of 1.1930/1.4373).

Falling 10SMA (1.2828) which tracks bears in past two weeks, marks solid barrier which is expected to keep the upside protected.

Res: 1.2808, 1.2828, 1.2882, 1.2906
Sup: 1.2722, 1.2695, 1.2661, 1.2582

EUR/USD

Current level - 1.1326

The intraday bias is bearish, for a dip to 1.1270-80, followed by a reversal and rise towards 1.1470.

USD/JPY

Current level - 113.52

The rise since 112.60 low is in its final stage and after a brief spike to 113.90 a reversal should follow, for a dip to 112.60.

GBP/USD

Current level - 1.2777

The downtrend since 1.2930 peak is still intact and I favor a dip to 1.2690 area before reversal and bounce towards 1.3040.

Yesterday USD slightly strengthened against the basket of major currencies. The USD index (#DX) closed in the green (0.16%). The high possibility of a full-on trading war between the US and China is in the spotlight. The US President, Donald Trump, increased the import tax on the Chinese ware that cost more than $200 billion up to 25% instead of the current 10%. The financial market participants are waiting for the meeting between the leaders of China and the United States during the G20 summit.

EUR stabilized after the differences between Italy and the EU due to the Italian budget project can soon be resolved. Matteo Salvini announced that the Italian government would lower the budget deficit and fit it under the requirements of the European Union.

The oil market kept a bearish sentiment. At the moment, the WTI futures are testing a 51.30 USD/barrel mark.

Market Indicators

The US stock market began to recover: #SPY (+1,61%), #DIA (+1,47%), #QQQ (+2,31%).

The 10-year US government bonds yield has stabilized. At the moment, the indicator is at 3.05-3.06%.

The Economic News Feed for 27.11.2018:

CB Customer Confidence Index – 17:00 (GMT+2:00).

The USD strengthened as worries about the US- Sino trade relationships intensified after a comment made by US President Trump. In an interview, US president Trump stated that he expects to actually impose additional tariffs on $200B worth of Chinese imports. We could be seeing part of a negotiation tactic on behalf of the US, ahead of the G20 meeting later in the week and the Trump-Xi meeting. Analysts mention that the USD strengthening could also be a result of a hawkish Fed as well as market nervousness which benefits the greenback in its dual nature as a safe haven. Analysts also tend to focus on the Fed’s next releases and statements which are to be made by Fed officials for further clues about the number of future rate hikes. Volatility could continue for the greenback, as statements by Fed officials are expected and the G20 meeting is getting nearer.

USD/JPY rose yesterday, clearly breaking the 113.25 (S1) resistance line (now turned to support). We could see the pair stabilising today, however should the USD continue to strengthen we could an upward trendline forming since the 23rd of the month. If the pair finds fresh buying orders along its path, we could see it breaking the 113.95 (R1) resistance line, while if it comes under the market’s selling interest, we could see it breaking the 113.25 (S1) support level and aim for the 112.72 (S2) support zone.

Euro weakens on Draghi’s comments

The euro weakened against the USD as ECB President Draghi acknowledged a possible slowdown of growth in the Eurozone. The comments practically acknowledged that the Eurozone has lost some growth momentum, however it’s not enough for the bank to stop a reversal of the stimulus previously provided. Analysts point out that the lower than expected reading of the Ifo business sentiment yesterday in conjunction with the speech by Mario Draghi at the European Parliament drove the Euro lower. The common currency had marked some gains earlier during the day as the Italian government signalled that it would be willing to discuss reducing its budget deficit. We could be seeing the single currency staying under pressure as more financial releases are due out near the end of the week.

EUR/USD during the European session yesterday, rose breaking the 1.1345 (R1) resistance line, however corrected lower during the American session and stabilized below it later on. Should the EUR remain under pressure we could see the pair dropping even lower and if the bears dictate the pair’s direction, we could see it breaking the 1.1305 (S1) support line and aim for the 1.1255 (S2) support barrier. Should on the other hand the bulls reign over the pair’s direction, we could see the pair breaking the 1.1345 (R1) resistance line and aim for the 1.1385 (R2) hurdle.

In today’s other economic highlights:

In the American session today, we get from the US the CB consumer Confidence indicator for November and later on the API weekly crude oil inventories figure. As for speakers, ECB’s Mersch, Fed’s Clarida, Chicago Fed president Evans, Minneapolis Fed president Kashkari and Atlanta Fed president Bostic speak.

USD/JPY H4

Support: 113.25 (S1), 112.72 (S2), 112.15 (S3)

Resistance: 113.95 (R1), 114.50 (R2), 115.10 (R3)

EUR/USD H4

Support: 1.1305 (S1), 1.1255 (S2), 1.1200 (S3)

Resistance: 1.1345 (R1), 1.1385 (R2), 1.1430 (R3)

West Texas Intermediate (WTI) crude oil futures are trying to pare some of the previous month’s heavy losses, however the momentum is still too weak. During Monday’s session, the price completed a fresh 15-month low around the 50.00 handle, recording a significant bearish day. The MACD oscillator seems to be ready for a potential upside retracement in the near term as it climbed above the trigger line in the negative zone.

If the price continues to move slightly higher, immediate resistance is coming from the 20-simple moving average (SMA) around 52.26, before touching the 52.80 barrier. Even higher, oil could trade towards the 40-SMA near 54.10. Furthermore, the next area within 54.80 – 55.25 could be the next resistance zone to look for.

Alternatively, the price could re-touch the 50.00 handle again, taken from the latest lows, while the 49.00 obstacle, identified by the trough on October 2017, could be another significant stop for investors. Further declines could lead oil until 47.80, taken from the low on September 2017.

Overall, WTI crude has been developing in a strong bearish tendency after the bounce off the 76.90 resistance, failing to post a significant upside retracement.

• Euro unable to sustain Italy-related gains, as ECB President Draghi struck a more cautious tone amid weakening data
• Dollar exploits euro’s softness, advancing nearly across the board; today all eyes will turn to a speech by Fed Vice Chair Clarida at 1330 GMT
• US stocks rebound, but “hawkish” Trump remarks on trade temper optimism
• Pound tumbles as markets digest Parliament will likely vote against Brexit deal
• Euro lifted by Italian optimism, but ECB drags it back down

The common currency drifted higher early on Monday after reports the Italian government will consider lowering its budget deficit target for 2019. Euro/dollar climbed to 1.1385 from 1.1330 but soon gave back those gains to trade even lower, after ECB President Draghi and Chief Economist Praet struck a cautious tone with respect to policy. While both made it clear the Bank remains committed to ending its QE program, they acknowledged the loss of momentum in growth and rising protectionism risks, implicitly signaling that a continuation of this trend may delay their normalization plans.

Indeed, the bar to extend QE purchases beyond their current end-date is probably high, not least due to technical issues pertaining to a scarcity of eligible bonds from core economies, as well as credibility concerns. That said, if key indicators soften further, policymakers would probably shift to a more cautious bias with regards to future hikes; concerns around this are likely among the key reasons behind the euro’s recent underperformance. Focus now turns to Friday’s preliminary inflation figures, one of the last pieces of tier-one data before the ECB’s December 13 meeting.

Dollar bolstered by euro softness, turns its sights to Fed speakers

The dollar outperformed all its major peers besides the kiwi yesterday, drawing strength mainly from weakness in the euro as opposed to anything US-related. It’s going to be a busy week for the greenback, as the calendar is packed with Fed speakers, US data, and the latest FOMC minutes due on Thursday. The past few weeks have seen a notable repricing of Fed rate-hike expectations and while investors still appear convinced the Fed will hike again in December, doubts have grown about the number of hikes in 2019. Markets are only pricing in a little more than one rate increase in 2019, after the one in December. This is a long way off from the three hikes the Fed itself has penciled in for that year.

In this context, this week’s events may be instrumental in shaping rate expectations and hence, in determining the dollar’s near-term performance. These events will kick off today with a speech by Fed Vice Chair Clarida at 1330 GMT, where investors will try to decipher whether the recent rate repricing was justified, or perhaps a little overdone. Regional Fed Presidents Evans, Bostic, and George will also participate in a panel discussion at 1930 GMT.

Yen crumbles, stocks rebound as risk appetite recovers

Risk sentiment bounced back on “Cyber Monday”, with major US equity indices like the S&P 500 closing 1.55% higher, while defensive assets such as the Japanese yen fell across the board. There was no fresh catalyst behind this shift, which may have been fueled by hopes for a US-China trade “ceasefire” or expectations for a more dovish-sounding narrative by Fed officials this week, or both.

It wasn’t meant to last though, as remarks from President Trump hit the wires after US markets closed, indicating he still intends to slap tariffs on all Chinese imports if the talks with China’s President fail to bear fruit. Sentiment turned around, albeit only a little, with US equity futures pointing to a slightly lower open today and the yen ticking higher. The relatively subdued reaction suggests markets interpreted Trump’s hawkishness as simply another negotiating ploy aimed at generating leverage; investors by and large still seem to anticipate some form of “truce” this week.

Pound crawls lower despite quiet Brexit front

The British pound is the worst performer early on Tuesday, even though there haven’t been any major developments in the Brexit saga. Traders seem increasingly jittery that the UK Parliament will reject the Brexit deal on December 11, positioning themselves accordingly.

While PM May doesn’t appear to command the numbers to push the deal through, her recent pitch has shifted to a “this deal, or no deal at all” approach, perhaps in an attempt to sway moderate lawmakers. Sterling could remain under pressure ahead of the vote as uncertainty grows, with any rebounds likely to remain short-lived. That said, with investors increasingly pricing in a rejection, anything that alters this narrative going forward could see the pound explode higher, particularly since speculative positioning in sterling remains heavily net-short.

UK Cabinet Office Minister David Lidington, Prime Minister Theresa May's de facto deputy, warned today that "There's no plan B because the European Union itself is saying the deal that is on the table is the one that we have had to compromise over."

He added "there is a bit of wishful thinking on the part of some people that a preference expressed by politicians in the UK will somehow lead to a different plan, an alternative being offered."

And, "There is a binary choice for the House of Commons to make: they can accept the deal that is on table, that is a compromise but I think is a good compromise for our national interest, or they can vote it down. The EU 27 is very clear they are not going to reopen this package."

Lidington also admitted that "If the vote were today, it would be a difficult one to win, but I think that we have time between now and (Dec. 11) to make the case."

The Euro holds in red for the third straight day and accelerated lower at the beginning of European session on Tuesday, to crack key support at 1.1313 (Fibo 61.8% of 1.1215/1.1472 / 200WMA), which contained downside attempts in past five weeks.

Negative sentiment was boosted by comments from President Trump, who said he expects to proceed with raising tariffs in Chinese imports. The comments poured cold water on expectations of US/China trade deal and increased safe-haven demand, boosting US dollar.

Traders are awaiting comments from Fed about policy direction, which could add to greenback's bullish stance, if minutes signal rate hike in Dec. Euro's near-term bulls off 1.1215 are giving way, with strong bearish signal expected on daily close below 200WMA/Fibo support that would open way towards next key supports at 1.1215 (12/13 Nov double-bottom) and 1.1186 (Fibo 61.8% of 1.0340/1.2555 rally). Monday's bearish candle with long upper shadow which signaled strong upside rejection, weighs along with rising bearish momentum and daily MA's in firm bearish setup. Base of thick 4-hr cloud marks strong resistance at 1.1343, ahead of converged 10/20SMA's at 1.1362, which are expected to limit upticks and maintain bearish bias.

Res: 1.1343, 1.1362, 1.1382, 1.1421
Sup: 1.1300, 1.1276, 1.1215, 1.1186

GBPUSD outlook remains lower with eyes on 1.2690 zone. The pair retains its broader downtrend supporting its present directional move. Support comes in at 1.2750 level. Further down, support stands at the 1.2690 level where a breach will turn focus to the 1.2650 level. Further down, support is seen at the 1.2600 level. Below here will set the stage for additional weakness towards the 1.2550 level. Its daily RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance lies at the 1.2800. A turn above here will allow for further strength towards the 1.2850 level. Further out, resistance comes in at the 1.2950 level and then the 1.3000 level. On the whole, GBPUSD faces further downside pressure medium term.

• Rates: Will improvement in risk sentiment last?
  Bouncing oil prices, narrowing peripheral spreads and rallying stock markets weighed on core bonds yesterday. Improved risk environment hit a snag overnight as US President Trump upped the ante ahead of his meeting with Chinese president Xi Jinping. Risk sentiment is still key for trading. US Consumer confidence and a speech by Fed vice-chair Clarida are wildcards.
• Currencies: Euro fails to maintain gains despite risk-on. Focus turns to the Fed
  EUR/USD couldn’t maintain initial gains yesterday even as sentiment on risk improved and as Italy and the EU try to solve the impasse on the Italian budget. Today, the focus is on the US data and on Fed speeches. If Fed speakers turn more conditional on further rate hikes, the dollar might lose some ground.

The Sunrise Headlines

• US equity markets marked substantial gains yesterday as risk sentiment improved. Nasdaq (+2%) outperformed. Most Asian stocks are trading in green this morning, with Chinese indices suffering on fading hopes on a US-China deal.
• US President Trump took a pessimistic tone about the meeting with China’s president Xi Jinping later this week at the G20 summit, saying it is likely he will go through with the 25% tariffs on $200bn of Chinese goods if negotiations fail
• US President Trump criticized the Brexit deal, saying it is only a great deal for the EU. He says it is damaging the UK’s ability to trade with the US and urged the UK to renegotiate with the EU, something both parties signalled is not an option.
• Ukraine’s parliament approved President Poroshenko’s call for a 30-day period of martial law after Russia captured three Ukrainian naval ships in a disputed region of the Black sea. Many countries already expressed Ukraine their support.
• UK PM May has challenged opposition and Labour leader Jeremy Corbyn to a televised debate about Brexit. She wants to explain why this deal is the right deal for the UK. The provisional date is currently December 9, a Sunday night.
• Italian PM Conte and his deputies, Salvini and Di Maio, confirmed they will stick to the main 2019 budget goals for now as they await a full cost analysis next year’s spending measures. The deficit target might be lowered though.
• Today’s economic calendar contains US Consumer Confidence. Fed Vice Chair Clarida and regional governors Bostic, Evans and George speak. ECB Nouy, Mersch and Costa feature as well. The US Treasury continues its refinancing

Currencies: Euro Fails To Maintain Gains Despite Risk-On. Focus Turns To The Fed

Euro disappoints. Fed speakers in focus

The euro showed a diffuse picture yesterday. Early in the session, the euro profited from headlines that Italy and the EU tried to reach an agreement on the Italian budget. A positive risk sentiment was supportive too. However EUR/USD gains couldn’t be maintained. German IFO sentiment confirmed Friday’s poor November PMI. In his testimony before the EU Parliament, ECB’s Draghi acknowledged recent weaker data but kept the view that part of the EMU slowdown was due to temporary factors. Still, EUR/USD reversed earlier gains, closing at 1.1328 (from 1.1337 on Friday). USD/JPY profited from the risk rally closing 113.58 (from 112.96). In the end, the USD held up well in a risk-on context. Overnight, US president Trump indicated that a trade deal with China remains difficult and that higher import tariffs are likely to be imposed. The reaction in Asia is modest. Japan outperforms on a weak yen (USD/JPY holding in the mid 113 area). China underperforms, but losses are modest. EUR/USD shows no clear trend (1.1335 area). There are no data in EMU today. In the US, house prices and consumer confidence will be published. Consumer confidence is expected to come off cycle peak levels reached last month. However, the focus of (FX) markets will probably be on Fed speakers including Vice Chair Clarida. We expect him to hold a balanced tone. If he elaborates on recent developments, markets might focus on the dovish elements. Overall, the USD data and the Fed speak might be a tentative USD negative, but the reaction might be guarded ahead of Powell’s speech tomorrow. Recently we had a neutral bias on EUR/USD. The pair is holding a sideways range between 1.1216 and 1.1621. ST, a further EUR/USD decline/rise of the dollar might be less evident. A better risk sentiment in theory is euro supportive. Fed comments might be slightly less USD supportive. So, the EUR/USD might become better protected. Admittedly, yesterday’s price action was slightly disappointing for euro bulls.

Sterling show no clear trend yesterday. On Sunday, UK PM May overcame a symbolic hurdle formally reaching a Brexit deal with the EU. However, the approval in the UK remains a binary risk. EUR/GBP closed the session marginally lower at 0.8842. Today, the CBI retail data will be published, but markets remain focused on PM May’s campaign to promote her Brexit deal. EUR/GBP will probably remain in a some kind of erratic trading patter near current levels as long as uncertainty on the approval remains as high as it is right now

EUR/USD: euro fails to maintain gains even as sentiment on risk improves