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Rates: How long will risk rebound last?

Traded volumes are thinned by US Thanksgiving. Italian BTP's are set to extend their short term relief rally as Italian media suggest that 5SM leader Di Maio is also open to make some budgetary modifications in parliament. This could extend yesterday's risk rebound and weigh on the Bund.

Currencies: Dollar stabilizes as markets ponder future Fed rate hike path

Global equity markets and EUR/USD entered calmer waters yesterday. Investors still question how much interest rate support the dollar will maintain next year while Italy and Brexit remain sources of uncertainty for the euro. More technical USD trading might be on the cards today with US markets closed for Thanksgiving

The Sunrise Headlines

• US equities rebounded yesterday after the selloff of recent days. Technology shares outperformed (Nasdaq +0.92%). US markets are closed today (Thanksgiving). Asian stock markets opened mixed with China underperforming.
• UK PM May told Spain's PM Sanchez she wants a Brexit deal for the whole UK, incl. Gibraltar. Spain warned it could veto the deal. May returns to Brussels on Saturday, a day before EU leaders hold a special summit to sign off on the deal.
• Canada is offering tax breaks worth $10.5 billion over six years, the biggest support for businesses since PM Trudeau took power. The changes are aimed to support competitiveness after it was affected by Trump's tax reforms.
• The Greek central bank will shift tax credits for five of its biggest lenders to a special purpose vehicle to issue bonds and use the proceeds to acquire €42bn of bad debt in an attempt to restore confidence in the Greek banking system.
• Luigi Di Maio, Italy's Deputy PM, reiterates Matteo Salvini's comments of yesterday that small “modificiation” to the 2019 Italian budget proposal are possible. The euro gained little ground on the news.
• Japan's consumer inflation remains stable in October. Headline inflation printed at 1.4%. The BoJ's key inflation gauge that excludes fresh food prices but not energy prices, remained stable at 1.0%, half of the BOJ target of 2%.
• Today's economic calendar is empty in the US due to Thanksgiving day. In the EMU, consumer confidence for November is printed. An avalanche of ECB members speak today, including Weidmann, Knot and Visco.

Currencies: Dollar Stabilizes As Markets Ponder Future Fed Rate Hike Path

USD stabilizes as risk-off correction slows

Markets entered calmer waters yesterday after Tuesday's risk-off move. EUR/USD developed an intraday bottoming pattern. Italy stays a source of uncertainty for the euro as the EC took first steps toward an Excessive Debt Procedure (EDP) against the country. However, markets saw signs that the EU and Italy were still on speaking terms (Italian-German spread narrowed). US durable orders disappointed, but with little impact on trading. US/core yields hardly moved despite the risk rebound. In the end, this also hampered a clear directional intraday trend in the US dollar. EUR/USD closed at 1.1384 (from 1.1370). USD/JPY finished at 113.06 (from 112.77). Overnight, Asian equities are trading mixed with China underperforming. Japan outperforms. Japan October inflation (ex fresh food) printed unchanged at 1.0%, as expected. USD/JPY is holding a tight range near the 113 mark. EUR/USD is gaining a few ticks, nearing the 1.14 level. Today, the calendar is light. Trading conditions will be thin with US markets closed for Thanksgiving. In EMU, EC consumer confidence is expected to ease from -2.7 to -3.0. The Minutes of the ECB October meeting are a wildcard and so are speeches from ECB members. Headlines on Italy are always possible. The EU and the UK are addressing some ‘last issues', necessary for a Brexit deal to be signed at a summit on Sunday. In absence of the US, technical trading in EUR/USD is likely unless something unexpected happens regarding Italy or in the Brexit process. We had a neutral bias on EUR/USD. The USD lost momentum as investors ponder whether recent volatility might cause the Fed to slow policy normalisation next year. Still, we think it's too early for a sustained market repositioning away from the USD. The news from Europe is mixed at best. We see this week's price action confirming our working hypothesis that EUR/USD 1.15/1.1621 resistance won't give away that easily.

Sterling lost a few ticks against the euro and the dollar yesterday. EUR/GBP settled slightly north of 0.89. Markets await the next steps in the Brexit sage. The EU and UK are finalizing a Brexit deal that is scheduled to be approved this weekend. We don't expect meaningful sterling gains ahead of the weekend. A last-minute failure is always possible and markets will closely look at the political scene in London. The approval of a deal in the UK Parliament still looks an almost insurmountable hurdle. We stay cautious on sterling as long as uncertainty on final vote persists.

USD (trade-weighted) stabilizes as market ponders Fed rate hike intentions

CADJPY short-term Elliott wave view suggests that a bounce to 87 on 11/08/2018 high ended intermediate wave (X). Down from there, the decline unfolded as double three structure where Minute wave ((w)) ended at 85.44 low as zigzag structure. A bounce to 86.35 ended Minute wave ((x)). Then a decline to 84.61 low ended Minute wave ((y)) & completed the Minor wave W lower. Also, with this push lower pair made a new low below 10/26/2018 low (84.83). Which made the sequence from 10/02/2018 peak incomplete to the downside favoring more downside against 11/08/2018 peak (87).

Up from 84.61 low, pair is correcting the cycle from 11/08/2018 peak in wave X bounce in 3, 7 or 11 swings before decline resume once again. Near-term focus remains towards 85.52-85.92 100%-161.8% Fibonacci extension area to end Minor wave X bounce. Afterwards, the pair is expected to resume the downside provided the pivot at 11/08/2018 peak (87) stays intact or should produce a 3 wave reaction lower at least. We expect sellers to appear in 3, 7 or 11 swings against 87 high.

CADJPY 1 Hour Elliott Wave Chart

General Trend:

• Asian equity markets pare opening gains
• Shanghai property index declines, HK property sector lower after HK housing Min said there were no plans to ease curbs
• South Korean automakers decline amid speculation related to US probe
• Tech and bank declines weigh on the Nikkei
• Big Nikkei components decline (Softbank, Fast Retailing)
• Japanese market supported by gains in automakers’ shares ahead of Nissan’s upcoming board meeting
• Australian equities outperform as Resources, Bank and Energy shares gain
• Australia lithium names (KDR, PLS, GXY, AJM, NMT) higher on news that Mineral Resources (MIN) signed JV with Albermarle
• Australia export retail names (A2M, BKL, BAL) higher after China Premier Li confirmed to continue improving cross-border e-commerce retail import policy
• Standard Chartered gains on buyback speculation
• China’s Angang Steel declines, plays down M&A speculation
• Commodity currencies decline after Wednesday’s gains, AU and NZ yields also move lower
• Trading activity expected to be limited by the US Thanksgiving holiday
• Singapore has slowest rate of growth since 2016, in line with Q3 data seen in other Asian countries (including China)
• Tesla to cut prices in China
• BoJ Gov Kuroda expected to address parliament following the equity close
• Looking ahead: Reminder US markets are closed 11/22 for holiday; Japanese markets closed for holiday on Friday

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.4%
• (JP) Japan govt reportedly considering at least ¥2T for steps to mitigate impact on economy from sales tax raise next year - Nikkei
• (JP) Japan said to be considering 5% rebate 9-months after sales tax hike - Japan press
• 8306.JP US prosecutors are investigating for money laundering – press
• (JP) JAPAN OCT NATIONAL CPI Y/Y: 1.4% V 1.4%E; CPI EX FRESH FOOD (CORE): 1.0% V 1.0%E
• (JP) Japan Investors Weekly Net Buying of Foreign Bonds: -¥145.2B v +¥1.62T prior; Foreign Buying of Japan Stocks: -¥179.2B v +¥360.9B prior
• 7201.JP There is speculation that the company's shares may be at risk of TSE supervision amid recent Chairman scandal - FT

Korea

• Kospi opened +0.1%
• (KR) South Korea Fin Min nominee Hong: Govt will ceaselessly seek deregulation and provide support for startups, which are key to innovation-led growth - Korean press
• (KR) Analysts note that South Korea President Moon employment policy has precipitated the weakening of the Korean economy’s ability to create new jobs - Korean press

China/Hong Kong

• Hang Seng opened +0.7%, Shanghai Composite +0.2%
• (CN) US White House trade adviser Navarro being excluded from dinner between China President Xi and President Trump at G20; seen as a positive towards reaching an agreement on trade - SCMP
• (CN) China Premier Li Keqiang: Will continue and improve the cross-border e-commerce retail import policy - comments from meeting yesterday
• (HK) Hong Kong's cryptocurrency exchange OKEx forced early settlement of bitcoin cash futures contracts on its platform, which is thought to have triggered the recent sell off in BitCoin – SCMP
• (HK) Hong Kong Housing Min Frank Chan: No plan to ease property curbs at this time – press
• (CN) China PBoC Open Market Operation (OMO): v skipped prior (20th straight skip)
• (CN) China PBoC sets yuan reference rate: 6.9391 v 6.9449 prior
• (CN) Shanghai Stock Exchange to only allow listed companies that are planning asset restructuring through share issuance to halt share trades for not more than 10 trading days - financial press
• 2888.HK Said to be preparing stock buy back - FT

Australia/New Zealand

• ASX 200 opened +0.2%
• MIN.AU [+26%] Signs exclusivity agreement with Albermarle for 50/50 fully integrated lithium JV in Western Australia; The purchase price for Albemarle's 50% interest in the JV would be US$1.15 billion, which Albemarle expects to fund with available cash and new credit facilities. It is expected that the transaction will be accretive to Albemarle's earnings.
• RCR.AU Unable to secure additional funding; names McGrathNicol administrator
• (NZ) New Zealand sells NZ$150M v NZ$150M indicated in 2.75% April 15 2025 bonds, bid to cover 3.38x

Other Asia

• (ID) Indonesia to cancel the remaining bond auctions for 2018
• (SG) Singapore Q3 Final GDP q/q: 3.0% v 4.0%e; y/y: 2.2% v 2.4%e; Narrows 2018 GDP outlook to 3.0-3.5% (prior 2.5-3.5%); Sees 2019 GDP at 1.5-3.5%
• (SG) Singapore may announce the successor to PM Lee on Friday - Local Press
• (TH) Thailand Central Bank Gov Veerathai: There is less need for very low interest rates; Prolonged period of low interest rates can create 'fragilities'; If there is any tightening the domestic policy rate will still be 'low'

North America

• US equity markets ended generally higher, pared gains in the afternoon: Dow flat, S&P500 +0.3%, Nasdaq +0.9%, Russell 2000 +1.3%
• (G20) Draft communique will reportedly offer no explicit commitment to fight protectionism - press
• (US) DOE CRUDE: +4.9M V +2ME
• (US) Reports circulating that FED could pause in the current tightening cycle as early as spring - financial press (from Nov 21st)

Europe

• (UK) Foreign Min Hunt reportedly warned PM May of possibility that Brexit deal may be voted down in parliament - UK's Telegraph
• (DE) German Oct Tax Rev +9.2% y/y; YTD +6.6% y/y; German growth to continue but less strongly - German Finance Ministry
• (UK) PM May: have made progress in talks with Juncker and given direction to Brexit negotiators who can now resolve the remaining Brexit issues; PM May will return to Brussels on Saturday
• (UK) PM May: Had good talks between UK, Spain and Gibraltar on MOU

Levels as of 12:50ET

• Hang Seng -0.0%; Shanghai Composite -0.4%; Kospi -0.4%; Nikkei225 +0.7%; ASX 200 +0.9%
• Equity Futures: S&P500 +0.0%; Nasdaq100 +0.0%, Dax +0.1%; FTSE100 +0.2%
• EUR 1.1364-1.1425; JPY 112.96-113.23 ; AUD 0.7245-0.7268;NZD 0.6802-0.6836
• Dec Gold 0.0% at $1,228/oz; Jan Crude Oil 0.00% at $54.37/brl; Dec Copper +0.2% at $2.79/lb

The USD/JPY is expected to bounce and then break below the support trend line (blue) if indeed a wave C (pink) pattern is taking place.

The USD/JPY is expected to be in awave4 (purple) at the moment. Price would confirm this wave pattern if it manages to break below the support trend lines. A break above the 61.8% Fibonacci level makes this wave pattern unlikely and could indicate a different wave pattern, such as a potential triangle chart pattern on the 4 hour chart.

U.S. stocks rebounded yesterday after heavy declines on Monday and Tuesday, thanks to a bounce in technology stocks and a slight recovery in oil prices after a steep selloff. Investors in Asia do not seem inspired by this shy rally. Equities are struggling to find direction this morning with mainland China indices turning negative after starting the day in green. The South Korean Kospi and Hong Kong's Hang Seng index are also slightly lower, while the Australian ASX rose more than 0.8%.

Investors should not read a lot through yesterday’s Wall Street recovery given that trading volumes were light due to the Thanksgiving holiday. U.S. Treasuries barely moved across the curve, and similarly the U.S. dollar remained stuck in a narrow trading range.

Throughout the decade-long bull market, investors have been following the buy the dip strategy whenever a correction occurs. Higher interest rates over the past two years were having little impact on risk assets as tax reforms more than compensated for the higher required return on equity. However, with the impact of U.S. fiscal stimulus diminishing, higher interest rates become a real threat to risk assets. The global economy has shown clear signals of slowing down, and it’s only about time for the U.S. to follow suit.

Yesterday’s U.S. durable goods data showed orders fell 4.4% in October, marking its biggest decline in 15 months. More importantly, business investment weakened for a third straight month. This may be evidence that a slowing global economy and U.S.-China trade tensions are havingbusinesses refrain from investing in Capex.

That’s what makes next week’s G20 summit a key event for global financial markets. Although Presidents Trump and Xi may not find solutions to existing trade tensions, a sign of a ceasefire may help to calm markets after the recent turmoil. The Federal Reserve might also need to moderate its stance on tightening policy, and next week will show whether the Fed will begin shifting towards a more dovish language.

Unless investors get assurancesthat growth will return, selling the rallies will continue to be the dominant theme.

For the 24 hours to 23:00 GMT, the EUR rose 0.14% against the USD and closed at 1.1386, amid renewed optimism for a negotiation over Italy's budget.

The Organisation for Economic Cooperation and Development (OECD), its latest Economic Outlook report, warned that persistent trade tensions and higher interest rates are slowing the global economic growth. As a result, the OECD cut its global growth forecast for 2019 to 3.5% from 3.7% projected in May. Moreover, the global economy was forecast to expand 3.5% in 2020, while outlook for the current year remained unchanged at 3.7%. Further, the OECD warned that slowdown in Chinese growth would damage global growth significantly. Additionally, the OECD slashed Euro-zone's growth forecasts for this year and next year to 1.9% and 1.8%, respectively, and is expected to ease further to 1.6% in 2020.

In the US, data showed that the US final Reuters/Michigan consumer sentiment index slid to a 3-month low level of 97.5 in November, overshooting market consensus for a drop to a level of 98.3. The index had recorded a level of 98.6 in the previous month, while preliminary figures had registered a fall to a level of 98.3. Moreover, preliminary durable goods orders retreated 4.4% on a monthly basis in October, compared to a revised fall of 0.1% in the previous month. Market participants had envisaged durable goods orders to decline by 2.6%. Also, the MBA mortgage applications declined 0.1% on a weekly basis in the week ended 16 November 2018. In the previous week, mortgage applications had recorded a decrease of 3.2%. Additionally, the nation's seasonally adjusted initial jobless claims unexpectedly advanced to a four-month high level of 224.0K in the week ended 17 November 2018, defying market expectations for a fall to a level of 215.0K. Initial jobless claims had recorded a revised reading of 221.0K in the prior week.

On the contrary, the nation's existing home sales rebounded 1.4% on monthly basis, to a level of 5.22 million in October, more than market expectations for a rise to a level of 5.20 million. Existing home sales had recorded a reading of 5.15 million in the prior month. Meanwhile, the US leading indicator rose 0.1% on a monthly basis in October, in line with market expectations and following a revised rise of 0.6% in the preceding month.

In the Asian session, at GMT0400, the pair is trading at 1.1397, with the EUR trading 0.10% higher against the USD from yesterday's close.

The pair is expected to find support at 1.1368, and a fall through could take it to the next support level of 1.1340. The pair is expected to find its first resistance at 1.1425, and a rise through could take it to the next resistance level of 1.1454.

Moving forward, traders would keep an eye on the Euro-zone's consumer confidence index for November, set to release in a few hours.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.08% against the USD and closed at 1.2774.

Yesterday, the Paris-based think tank, OECD stated that Britain's economy would expand by 1.3% and 1.4% in 2019 and 2020 respectively. However, the country would experience a large economic loss in case of no-Brexit deal. Thus, the OECD suggested Britain to maintain “closest possible” relationship with EU to avoid a downfall.

Data indicated that, UK's public sector net borrowing posted a more than expected deficit of £7.96 billion in October, following a revised deficit of £1.98 billion in the previous month. Market participants had anticipated public sector net borrowing to record a deficit of £5.35 billion.

In the Asian session, at GMT0400, the pair is trading at 1.2781, with the GBP trading 0.05% higher against the USD from yesterday's close.

The pair is expected to find support at 1.2757, and a fall through could take it to the next support level of 1.2732. The pair is expected to find its first resistance at 1.2813, and a rise through could take it to the next resistance level of 1.2844.

In absence of key economic releases in the UK today, investor sentiment would be determined by global macroeconomic events.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.31% against the JPY and closed at 113.08.

In the Asian session, at GMT0400, the pair is trading at 112.98, with the USD trading 0.09% lower against the JPY from yesterday's close.

Overnight data showed that Japan's national consumer price index (CPI) climbed 1.4% on an annual basis in October, compared to an advance of 1.2% in the previous month. Market participants had envisaged the CPI to rise to 1.4%.

Meanwhile, the OECD downgraded its growth projections for Japan in 2018 from 1.2% to 0.9% and in 2019 from 1.2% to 1.0%. The organisation expects the economy to grow 0.7% in 2020.

The pair is expected to find support at 112.78, and a fall through could take it to the next support level of 112.58. The pair is expected to find its first resistance at 113.20, and a rise through could take it to the next resistance level of 113.42.

Going ahead, traders would await Japan's Nikkei PMI manufacturing for November, scheduled to release overnight.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.08% against the CHF and closed at 0.9943.

In the economic news, Switzerland’s M3 money supply advanced 2.5% on an annual basis in October. In the previous month, M3 money supply had recorded a gain of 2.3%.

In the Asian session, at GMT0400, the pair is trading at 0.9939, with the USD trading slightly lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9925, and a fall through could take it to the next support level of 0.9911. The pair is expected to find its first resistance at 0.9956, and a rise through could take it to the next resistance level of 0.9973.

Trading trend in the Swiss Franc today is expected to be determined by Switzerland’s 3Q industrial output data, set to release in a while.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.55% against the CAD and closed at 1.3235.

In the Asian session, at GMT0400, the pair is trading at 1.3222, with the USD trading 0.10% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.3191, and a fall through could take it to the next support level of 1.3161. The pair is expected to find its first resistance at 1.3281, and a rise through could take it to the next resistance level of 1.3341.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.