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Swiss National Bank Governing Board member Andrea Maechler said in newspaper Le Matin Dimanche interview that current monetary policy remains appropriate. She noted the fragility in the financial markets, with risks surrounding Brexit, Italy and trade war. Also, the exchange rate of the Swiss Franc remained high.

Therefore, Maechler said, "In the current context, the negative interest rate remains indispensable for Switzerland. It enables us to restore, at least partially, a difference between Swiss interest rates and those abroad, thus reducing the franc's attractiveness."

Also, "our monetary policy based on the negative interest rate and our capacity to intervene on the currency market if needed is appropriate."

UK Prime Minister Theresa May warned yesterday that "a change of leadership at this point isn't going to make the negotiations any easier ". Instead she added "what it will do is mean that there is a risk that actually we delay the negotiations and that is a risk that Brexit gets delayed or frustrated." May also emphasized that "these next seven days are going to be critical, they are about the future of this country". And she pledged not to be "distracted from the important job."

May is also expected to reiterate the same message in a speech to the CBI's annual conference today. According to advance extracts, May would say "We now have an intense week of negotiations ahead of us in the run-up to the special European Council on Sunday (Nov 25)." And, "during that time I expect us to hammer out the full and final details of the framework that will underpin our future relationship and I am confident that we can strike a deal at the council that I can take back to the House of Commons."

As confirmed by Graham Brady, chair of the 1922 Committee, the number of requests for no-confidence vote on Prime Minister Theresa May haven't met the threshold of 48 yet. He added, "if a threshold were to be reached I would have to consult with the leader of the party the Prime Minister." And he expected the "whole thing" to be an "expeditious process", if it happens.

Also, Brady predicted even if there is a leadership challenge, May is going to win it. He said "it would be a simple majority, it would be very likely that the Prime Minister would win such a vote and if she did then there would be a 12-month period where this could not happen again, which would be a huge relief for me because people would have to stop asking me questions about numbers of letters for at least 12 months."

However, Brady is also dissatisfied with the May's Brexit deal and branded it as "tricky". He predicted that "it certainly doesn't look like the current agreement will get through [the Commons] unless either the agreement changes or the statement of the political declaration, the future relationship, gives considerably stronger grounds for optimism a bout the nature of the final deal."

As suggested in the CFTC Commitments of Traders report in the week ended November 13, NET LENGTH in USD Index persisted despite little volume. All other major currencies stayed in NET SHORT positions. This came in line with the FX movement that the greenback strengthened against major currencies with the exception of New Zealand dollar. Speculative longs on USD index added +153 contracts while shorts slipped +78, sending the NET LENGTH higher, by +231 contracts, to 40 513 contracts.

NET SHORTS for both European currencies increased. For EUR futures, speculative long positions rose +12 887 contracts while shorts gained +3 063 contracts, reducing NET SHORT to 37 019 for the week. NET SHORT for GBP futures decreased -9 692 contracts to 47 107. The outlook for sterling remained volatile as a number of officials, including Brexit secretary Dominic Raab, quit amidst dissatisfaction over PM Theresa May's draft Brexit deal.

On safe-haven currencies, Net SHORT for CHF futures slid -1 346 contracts to 18 602 while that for JPY futures soared +13 172 contracts, to 102 294 during the week. Bets on the latter gained on both sides.

On commodity currencies . NET SHORT for AUD futures dropped -6 665 contracts to 59 781, while that for NZD futures decreased -4 858 contracts to 20 868. NET SHORT for CAD futures added +159 contracts to 2 791.

According to the CFTC Commitments of Traders report for the week ended November 13,  NET LENGTH for crude oil, heating oil and gasoline futures all declined sharply. Selloff in oil prices exacerbated during the reporting week, with the front-month WTI crude oil contract slumping -10.48% while the Brent contract plummeted -9.23%. Speculative long positions of crude oil futures gained +6 883 contracts, while shorts jumped +29 468 contracts, resulting in a fall in NET LENGTH, by -22 585 contracts, to 381 198 contracts. For refined oil products, Net LENGTH for heating oil futures dived plunged -11 753 contracts to 17 213, while that for gasoline was down -6 746 contracts to 79 564. During the reporting week, decline in refined oil products was significant. The front-month RBOB gasoline contract declined -5.75% while the heating oil contract was down -8.93%.  NET LENGTH for natural gas futures rose +16 926 contracts, to 22 346 contracts for the week. The front-month Nymex contract soared +15.36% for the week.

On the precious metal complex, both gold and silver futures recorded NET SHORT. Speculative long positions for the former slipped -725 contracts, while shorts jumped +27 548, resulting in a NET SHORT of 9 247 contracts. The benchmark Comex contract climbed +0.5% during the week in concern. For the latter, speculative long positions added +1 501 contracts while shorts rose +16 176, raising  NET SHORT, by -14 675 contracts, to 17 145 contracts. For PGMs, NET LENGTH of Nymex platinum futures dropped -1 933 contracts to 21 991 while that for palladium added +131 contracts to 13 380.

Key Highlights

• The Euro recovered recently and traded above the 1.1350 resistance against the US Dollar.
• There is a key connecting bearish trend line in place with resistance at 1.1460 on the 4-hours chart of EUR/USD.
• The US Industrial Production in Oct 2018 increased 0.1%, less than the +0.2% forecast.
• Today in the US, the NAHB Housing Market Index for Nov 2018 will be released, which is forecasted to remain at 68.

EURUSD Technical Analysis

The Euro declined towards the 1.1220 support area where buyers appeared against the US Dollar. The EUR/USD pair recovered and traded above the 1.1300 and 1.1320 resistance levels.

Looking at the 4-hours chart, the pair gained traction above the 1.1320 resistance and the 50% Fib retracement level of the last decline from the 1.1500 swing high to 1.1215 low.

More importantly, the pair settled above the 1.1350 resistance and the 100 simple moving average (red, 4-hours). However, the pair is now approaching a solid resistance near the 1.1460 level, which was a support earlier and now it could stop the current upward move.

Moreover, there is a key connecting bearish trend line in place with resistance at 1.1460 on the same chart. The same trend line is positioned along with the 200 simple moving average (green, 4-hours).

Finally, the 76.4% Fib retracement level of the last decline from the 1.1500 swing high to 1.1215 low is around the 1.1440 level. Therefore, the 1.1460 resistance zone is very crucial. A successful break above the trend line, 200 SMA, and the 1.1460 resistance will most likely clear the path for more gains in the near term.

Alternatively, if the pair fails to settle above the 1.1460 resistance, it could start a fresh decline. An initial support is near the 1.1350 level and the 100 SMA. Besides, there is a major bullish trend line in place with support at 1.1350.

Below the trend line and 1.1350, the pair could drop heavily towards the 1.1300 and 1.1280 levels.

Economic Releases to Watch Today

• Euro Zone Construction Output Sep 2018 (YoY) – Forecast +2.4%, versus +2.5% previous.
• Euro Zone Construction Output Sep 2018 (MoM) – Forecast +0.1%, versus -0.5% previous.
• US NAHB Housing Market Index Nov 2018 – Forecast 68, versus 68 previous.

The Feds telegraph hesitancy, OPEC supply cut and a cacophony of deafening US-China alarm bells

UK political drama will continue to rock and roil markets while the emergence of a distinctly dovish tone from the Fed knocked the USD off its pedestal going into weeks end. The week ahead will be cut short by the Thanksgiving holiday in the US. And while this adds up to less trading days, those fewer hours will be chock-full of political drama while a drop in liquidity density will add to the chop. For no other reason than year-end self-preservation, the markets risk profile will continue to drop as political risk continues to permeate virtually every pocket of the globe. As such, traders will be in risk reduction mode suggesting a high level of indifference will creep into the playing field as year-end musings leak into the equation. And without question, traders and Fed watchers will take a keener interest in upcoming financial reports to flesh out any indications of a US economic reversal.

A pause in US interest rates could offer a reprieve to equity investors. However, when the Federal Reserve shift course it should send out early warning signals that something is amiss with their economic projections. A Fed pause during a hiking cycle is a very strong “canary in a coal mine” type of signal and could eventually lead a more profound correction lower in US equity markets if the US economy does sputter.

Market banter around US President Trump & Chinese Premier Xi’s G20 meeting will ratchet up several decibels this week. Frankly, my sceptical radar is flashing red, as we’re unlikely to see concrete progress from the one-on-one talk. Presidents Trumps pep talk on Friday “I think will have a great relationship with China.” Furthermore, China would like to make a deal and have sent a list of things its willing to do on trade. While the list is “pretty complete,” but four or five things have been left off. Still, the US “may not have to impose further tariffs on China ” which firmed the G-10 commodity block of currencies and the EM gamut.

At the APEC summit on Papua New Guinea, the US and China were back swapping brickbat. Taking a direct shot at China’s global expansion ambitions, Vice President Pence said: ” we do not offer constricting belt or one road” referring to China’s belt and road initiative. While directly criticising China for offering up loans to countries that can not possibly service the debt. This view seemed to be echoed by both Australia and Japan who will join the US in partnering to help struggling countries build infrastructure. If weeks talks are a preamble of where we’re heading for the Trump -Xi meeting, things could turn sideways quickly as the US is taking a multi-prong approach to Chain with is not only focusing on Trade but are now warning countries about China’s global expansionary ambitions. But the coup de gras from Pence was “America will not change course until China changes its ways” Indeed a cacophony of deafening alarm bells suggests these two distinctly differing ideologies remain miles apart.

On the US domestic front, USMCA deal or Mueller investigation will likely add a bit of spice to the mix. Trump is not agitated about the Special Counsel. He says he’s finished writing his answers to Mueller but hasn’t submitted them yet. And look for White House revolving door to starting spinning again as the President is happy with ” almost all” of the White House cabinet.

Oil in focus

Oil traders remain intently focused on support levels into the month end and OPEC headlines.

Oil prices rose on Friday on hope OPEC and partners, will act to reverse bearish sentiment, but from a technical set up, bear mode remains intact with downside WTI target falling between the $52-54 levels. HEDGE FUNDS’ ratio of long to short positions in the six major petroleum contracts fell to 3.09:1 on Nov 13, the lowest since July 2017, and down from a recent high of 12.44 on Sep 25.( Reuters) However,on the back of OPEC indicating that they are considering even more substantial production cuts to counteract fading global demand. And coupled with WTI spreads trying to spring back to life the Prompt price curves have remain relatively flat and, there’s a growing sense that the markets are shifting back into a more neutral tack. Indeed prices may have dropped sufficiently enough and while allowing of global growth could weigh on global demand and dent bullish sentiment. Still, the International Energy Agency suggest global demand will continue to grow at 1.4 million bpd in 2019 (compared to 1.3 million bpd in 2018). However, ultimately, however, the markets bullish radar is still waiting for OPEC+ to deliver a sizeable cut number with a commencement time attached before aggressively jumping back into the fray. However, with the Khashoggi case creeping back into the spotlight after the CIA suggested the Saudi crown prince ordered the murder of the journalist, it’s difficult to gauge just how much Washington has Saudi Arabia over a barrel to coercing them to temper oil prices.

Oil, the week that was

The EIA showed crude stocks in the U.S. building by +10.27mm bbls (vs APIs +8.8mm), primarily led by stock increases at the Gulf Coast as runs in the region were lower by -267k bpd w/w. Lower imports could not thwart overall builds as exports were notably lower last week (by -355k bpd). Stocks at Cushing were higher by +1.17mm bbls as the pace of builds at the hub slowed with higher refinery demand helping to thwart increased inflows with Sunrise ramping up.

Gold Market

Spurred on by the weaker dollar, Gold continues to glitter as investors flock to safe-haven assets driven by the uncertainty in the UK and the ongoing US-China trade war. With the Fed taking a dovish u-turn, this shift could provide a strong underbelly of support for gold prices into year end.

Palladium Market

Palladium hit an all-time high this week as projected Chinese auto industry demand will outstrip supply in what Citigroup Inc. calls “extreme tightness” in supplies. Keep in mind this is all part and parcel to China green policy, and China’s new auto emissions standards are likely to boost demand. While this many sounds counterintuitive with both China and US car sales falling, however, talks of a 50 % tax cut on cars in China could revive the sagging markets. The big question is if we will see Palladium prices cross Gold or whether speculators jump on the wagon. So far this rally has been driven by industrial demand while speculators reluctant to jump back into the mix given the rise in electric cars which do not need catalytic converters which account for around 75 % of palladium demand.

Currency markets

The USD failed miserably this week, and it’s unlikely the market will be soft-hearted on the dollar bulls heading into year-end.

The de-escalation of trade war rhetoric on the back of China offering up trade concessions saw a swift reversal on USD haven hedges in EM Asia, particularly against the Yuan. But the DXY hit the skids falling from 96.90 towards 96.40 on a speech from Vice Chair Clarida, who in a coordinated fashion and following in the footsteps of Chair Powell’s cautious tone from Wednesday, also emphasised global growth concerns. Which, in the market’s opinion, effectively walked back one of the more hawkish elements of Fed policy. If the This is far too coordinated as the Fed is telegraphing hesitancy with Powell, Clarida, Evans and Kaplan raising concerns about 2019. If the Fed does raise interest rates in December, it could be a one and done for a while.

Fanning the dollar demise, both China and Japan, the two biggest foreign U.S. creditors, cut their U.S. Treasury holdings further in September. If US-China trade war continues to go sideways, its possible could more also reduce US Bond holdings. While I’m keeping a close eye on future developments, at this stage of the game, I suspect this is just prudent policy to effectively acquire USD as part of an intervention smoothing procedure to prevent the Yaun from weakening too quickly as the economy slows which will trigger capital outflow. Given that China foreign-exchange reserves have been declining, this makes sense to ensure reserves stay above the US 3 trillion mark

G-10

EURUSD rallied to 1.1420/10 on broader USD with the first sign of Fed hesitancy reducing the odds of a December rate hike, and as traders start to price in the reality of a Fed pause in 2019, we could see the EURO push much higher into years end on any tier one US economic wobble. In fact, I suspect the USD will be more reactive to weaker data that it will be strong data suggesting that skew is in play for the greenback given the markets propensity to unwind risk into years end.

USDJPY ends the week back below 113.00 on the more widespread USD sentiment in what could be the beginning of a protracted move to 110 overlaid with a lower trajectory for US interest rates and shaky equity markets.

AUDUSD ended the week above 0.7300 after bouncing off decent support at .7175. The strong Australian jobs report coupled with a rallying cry from President Trump on the trade war with China has not only triggered a reversal on China proxy trade but is garnering a lot of attention from A$ bulls as the AUD has been a direct beneficiary of greenback’s demise globally. Last weeks beat on the domestic jobs report has an excellent vibe about it and coupled with a resurgent commodity market, the outlook looks much rosier for the Australian Dollar but the omnipresent US-China spat has a tendency to rear its ugly head as it did at the APEC summit. So the AUDUSD to trading off last weeks closing highs but still trading above .7300 at the open.

GBPUSD ended the week on a slightly positive note as Brexit developments led to minor recovery for Sterling on Friday, but there is a considerable element of risk this week. The Pound hovered in a 1.2800/80 range over the NY session but remains tentatively bid no dips. But it’s unlikely that the markets long sterling position pain threshold will weather another deep dive into the low 1.2700’s. So it wouldn’t take much more of a spot decline to drive a deeper flush-out in positions and a move below the 52 week low of 1.2662. But in reality, is anyone’s guess where Cable settles with Brexiteers reportedly trying to re-write the deal all the while May’s future lies in the balance.

Asia FX

Trade war detente is picking building momentum but with high expectation come incredible disappointment as the risk-reward appears to be shaded towards a letdown.

However, trading activity in the local currency markets has been decidedly mixed with the North Asia underperforming South Asia where carry trades enjoyed a solid week on the back of lower oil prices and monetary policy tightening.

Yuan

Regardless of improving trade war sentiment current account depletion and policy divergence between the Fed and Pboc suggest USDCNH will continue to march higher in the months ahead. Suggesting that dips will keep being favoured even though Jay Powell walked back some of the more hawkish elements of Fed policy. I think the Feds are very much in the data-dependent camp and will raise in December but Feds early warning signals about an economic slowdown in 2019, does bring an element risk behind this view. However, unless there is a complete thawing in trade tension, a push higher to 7 USDCNH remains on the card.

Rupee

While the collapse in oil prices has benefited the INR, the long-term path of least resistance remains to skew higher, although near-term view remains exceptionally cautious due to falling oil prices

Ringgit

Malaysia has come out with a pair of weak Q3 figures: a below-potential GDP figure, and another dip in the current account surplus all of which supports a weaker glide path for the Ringgit in months ahead. Perhaps the only saving grace for the Ringgit could be a large-scale improvement on global risk sentiment which could support a local bond market rally and see an increase in foreign inflow.

EURUSD sets up to strengthen further higher as it closed higher the past week. Support lies at the 1.1300 where a violation will aim at the 1.1350 level. A break below here will aim at the 1.1300 level. Further down, support lies at the 1.1250. On the upside, resistance resides at 1.1450 level with a break through there opening the door for further upside towards the 1.1500 level. Further up, resistance comes in at the 1.1550 level where a violation will expose the 1.1600 level. All in all, EURUSD continues to face further upside pressure on recovery.

USDCHF remains weak and vulnerable on price sell off the past week. On the downside, support lies at the 0.9950 level. A turn below there will set the stage for more decline towards the 0.9900 level. And then the 0.9850 level. Its weekly RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance resides at the 1.0050 level where a breach will clear the way for more strength to develop towards the 1.0100 level. Above here, resistance comes in at the 1.0150 level followed by the 1.0200 level. All in all, USDCHF faces further price weakness on price correction.

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