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Daily Pivots: (S1) 1.0042; (P) 1.0061; (R1) 1.0085; More...

Intraday bias in USD/CHF remains neutral as consolidation from 1.0128 is in progress. As long as 0.9952 support holds, near term outlook remains bullish for another rise. On the upside, break of 1.0128 would resume larger rise from 0.9186 and target 1.0342 key resistance. However, firm break of 0.9952 will indicate short term topping and bring deeper fall back to 0.9848 support first.

In the bigger picture, the pullback from 1.0067 has completed at 0.9541 already. And rise from 0.9186 is likely resuming. Firm break of 1.0067 will pave the way to retest 1.0342 key resistance. We'd be cautious on strong resistance from there to limit upside to bring another medium term fall to extend long term range trading. However, firm break of 0.9848 near term support will dampen this view and bring deeper decline back to 0.9541 support and possibly below.

Daily Pivots: (S1) 113.24; (P) 113.48; (R1) 113.88; More..

Intraday bias in USD/JPY remains neutral with focus on 112.94 minor support. Break there will confirm completion of rebound from 111.37. And, in that case, consolidation from 114.54 would start the third leg. Intraday bias will be turned back to the downside for 111.37 support. On the upside, in case of another rally, due to loss of upside momentum, in case of another rise, upside should be limited by 114.54/73 zone to bring reversal.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Yen and Sterling are the two strongest ones today, but what they're doing are very different. Yen is extending this week's rebound. But Sterling is paring back Brexit triggered losses. Meanwhile, commodity currencies turned generally weaker as they're paring some of recent gains. Overall, after a rather volatile week, traders are readjusting their positions. Trade could be rather subdued before weekly close, barring any more surprises.

Technically, most pairs and crosses are staying in familiar range without any change in outlook. Even GBP/USD is holding above 1.2692 minor support, not to mention 1.2661 low. EUR/USD, USD/CHF, USD/CAD and AUD/USD are staying in consolidations. The main question is whether USD/JPY would finally take out 112.94 support to confirm near term reversal.

In other markets, major indices are trading in red at the time of writing. FTSE is down -0.62%, DAX down -0.39% and CAC down -0.55%. German 10 year yield is up 0.007 at 0.369. Italian 10 year yield is down -0.033 at 3.416. But German-Italian spread is still above 300. Earlier in Asia, Nikkei stayed decoupled with other major Asian markets and dropped -0.57%. Hong Kong HSI closed up 0.31%, Shanghai SSE up 0.41%, Singapore Strait Times up 0.95%.

UK PM May could face no-confidence vote as soon as next Tuesday

UK Prime Minister Theresa May's spokesman said today that there is "strong support from the business community in recent days" for her highly criticized Brexit draft agreement. Meanwhile, May is expected to appoint another Brexit minister, rather than getting rid of the department. But at the same time, it's also reported that May will face a no-confidence vote as soon as next Tuesday as Conservatives gather 48 written requests.

So far, 19 Conservative MPS have made public their requests. ERG leader Jacob Rees-Mogg led the way. Others include Henry Smith, Sheryll Murray, Anne Marie-Morris, Lee Rowley, Steve Baker, Simon Clarke, James Duddridge, Andrea Henkyns, Andrew Bridgen, Philip Davies, Peter Bone, Nadine Dorries, Martin Vickers, Adam Holloway, John Whittingdale, Laruence Robertson, Mark Francois and Maria Caulfield. And of course, there are those tho haven't made the request public.

Former Brexit Minister David Davis, the one before resigned Dominic Raab, criticizes that PM Theresa May's Brexit agreement is a "dreadful deal" that is ""very, very favourable" to the EU. And, "It really does not fly by any measure, it doesn't meet the requirements of the people, it's not what they voted for, it doesn't meet the requirements of the Conservative manifesto."

And he predicts that the agreement will be rejected by the House of Commons. Then, the government will have to come up with an alternative. And, May "will have to go back to renegotiate".

EU Dombrovskis: Italy openly challenges EU rule, opening a procedure justified

European Commission Vice-President Valdis Dombrovskis said in an interview with Il Sole 24 Ore that Italy's 2019 draft budget plan "significantly" deviates from the country's commitment to the EU. The resubmitted plan kept the highly criticized budget deficit target at 2.4% of GDP and growth forecasts unchanged at 1.5%. Dombrovskis said that is "openly" challenging the budget rules agreed by all Eurozone countries. Also, he said the plan is "counterproductive" as it triggers investor concerns and would push bond yields higher. Dombrovskis also warned that if Italy no longer comply with the Stability Pact, opening a procedure of penalty "would be justified".

ECB Draghi: Medium term uncertainties increased, better placed for full assessment with December projections

ECB President Mario Draghi said recent slowdown has raised questions on the strength of Eurozone growth outlook, and whether the the ongoing convergence of inflation towards target will be sustained. Back in October, Draghi said policymakers have "confirmed our confidence" in the outlook. And, inflation convergence could be maintained even after "gradual" winding-down of net asset purchase.

However, the Governing Council also noted "uncertainties surrounding the medium-term outlook have increased." The council will be "better placed to make a full assessment of the risks to growth and inflation" with the upcoming projections in December meeting.

EU Malmstrom urged China to work on WTO reform, after winning a lot from it

EU Trade Commissioner Cecilia Malmstrom urged China to cooperate on WTO reform in a press conference in Paris today. She said "China has won a lot from the WTO system". And the EU calls on China to "show leadership and to engage with us to reform and to update the system, to create a level playing field." She warned that "otherwise the U.S. will create a level playing field outside the system".

Malmstrom also noted that the WTO's disputes system was on a slippery slope and "one false step here could quickly lead to collapse of the whole rules-based system." She added "Without it, it would be anarchy, there would be no order, and we would all be losers. And the poorest countries would be the biggest losers. And we would lose a system that has been used to ensure stability for generations."

US still planning to raise tariffs on Chinese goods on Jan despite planned Trump-Xi meeting

US Commerce Secretary Wilbur Ross said in an interview that all the exchanges with China right now are just "preparatory". And the "big-event" is the meeting between Trump and Xi at the G-20 in Argentina on Nov 30/Dec 1. He added both leaders will certainly not get into "intimate details". And, it's going to be "big picture". If things go well, the meeting will "set the framework for going forward".

However, Ross also noted that the US is still planning, on Jan 1, to raise tariffs on USD 200B in Chinese imports from 10% to 25%. And "We certainly won't have a full formal deal by January. Impossible."

Separately, it's reported that the document China sent to the US this week included 142 items regarding US requests on trade. The items are divided into three categories: issues for further negotiation, issues China is already working on, and issues that are non-negotiable. It's believed that some items on the non-negotiable lists were unacceptable to Trump, while the US is skeptical on others due to China's history of failing promises.

BusinessNZ PMI improved, not large but important to broader economic narrative

New Zealand BusinessNZ Performance of Manufacturing Index rose 1.6 to 53.3 in October, indicating faster expansion rate. That's also the highest level since May. BusinessNZ noted "the October result was a welcome change from where the survey has sat for the previous four months." And, while "the improvement in the PMI is not large, but we see it as important to the broader economic narrative".

Looking at the details, the key sub-indicators of production (52.8) and new orders (56.7) both improved with their highest results since May and April respectively. Also, after dipping into contraction during various times in 2018, employment (52.4) improved for a second consecutive month. The proportion of positive comments (58.3%) also increased, with demand for products from offshore customers noted throughout.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.24; (P) 113.48; (R1) 113.88; More..

Intraday bias in USD/JPY remains neutral with focus on 112.94 minor support. Break there will confirm completion of rebound from 111.37. And, in that case, consolidation from 114.54 would start the third leg. Intraday bias will be turned back to the downside for 111.37 support. On the upside, in case of another rally, due to loss of upside momentum, in case of another rise, upside should be limited by 114.54/73 zone to bring reversal.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Economic Indicators Update

Here are the latest developments in global markets:

• FOREX: The dollar was slightly up versus a basket of currencies, with the closely watched British currency being broadly higher. Still, the pound mostly consolidated Thursday’s sharp losses on the back of the Brexit drama that unfolded, and still appears to have room to run. One exception was the yen, which came on the receiving end of safe-haven flows and thus the pound was unable to advance against it – pound/yen was flat –, while dollar/yen was down by 0.3%. Elsewhere, euro/dollar was unchanged on the day, giving back earlier gains that saw it rise to a one-week high of 1.1368. Somewhat dovish comments by ECB chief Draghi were seen as the catalyst behind the retracing of advances. Meanwhile, final eurozone inflation figures for October were in line with their preliminary estimates.
• STOCKS: Sentiment turned sour as UK media reports suggested that lawmakers are pushing forward with efforts to trigger a no-confidence vote in PM Theresa May, leading major European benchmarks to either completely wipe out previous gains or give up on a significant portion of advances from earlier in the day. The pan-European Stoxx 600 was little changed and the blue-chip Euro Stoxx 50 was down by 0.1% at 1211 GMT. Meanwhile, the UK’s FTSE 100 was down by 0.3%, the German DAX up by 0.1%, and the French CAC 40 lower by 0.1%. Futures on the Dow, S&P 500 and Nasdaq 100 were projecting a lower open on Wall Street, with contracts on the latter being deeper in losses, specifically trading lower by 1.2%.
• COMMODITIES: WTI traded higher by a sizeable 1.5%, at $57.30 per barrel. It was being helped by rising speculation that supply cuts will be agreed at OPEC’s meeting in early December. Still, the gains look insignificant relative to the selloff that took place from early October onwards, which even threw the precious liquid in negative territory for the year. Brent crude was also notably up, trading higher by 1.55%, at $67.65/barrel. In precious metals, gold was higher by 0.25% and not far below the one-week high of $1,218.33 an ounce hit earlier on Friday. Should May’s government collapse, then gold could come on the receiving end of safe-haven flows. The likely stronger dollar from such an outcome though, would probably place a lid on any resulting gains for the yellow metal.

Day ahead: Brexit and updates on Sino-US trade overshadow economic releases

The remainder of the day is light in terms of data, with developments on other fronts such as Brexit either way stealing the thunder from any releases.

Sterling is expected to remain volatile to Brexit news, as the situation appears fluid at the moment, to say the least. The prospect of further cabinet departures is well on the table, as well as that of a leadership challenge that could topple PM May from her position.

Meanwhile, attention is also falling on Sino-US trade relations. China is proceeding with concessions to the US that may on the one hand fall short of the Trump administration’s demands, but on the other they could pave the way for a meaningful de-escalation of tensions. Such an outcome will likely bolster risk-on currencies such as the Aussie, as well as equities.

Elsewhere, any news on the EU-Italy budget standoff have the potential to move the euro. Signals that Italian PM Conte is looking to work with the EU over his government’s 2019 budget are definitely euro-positive, given they deviate from the previous confrontational rhetoric. It remains to be seen though whether the positive momentum will be maintained, or whether the differences between the two sides would sooner or later lead to a clash.

On the data front, Canadian manufacturing sales for September are due at 1330 GMT, with US industrial and manufacturing output data following at 1415 GMT. Monthly growth in industrial production is projected to ease to 0.2% from September’s pace of 0.3%, though this would still mark the print’s fifth straight month of increases. Figures on October’s US capacity utilization are also due at 1415 GMT.

Bundesbank President and ECB policymaker Weidmann will be speaking at Frankfurt’s banking conference at 1300 GMT, while non-voting FOMC member in 2018 Evans will be participating in a Q&A session at 1430 GMT.

In energy markets, Baker Hughes data on active oil rigs in the US are slated for release at 1800 GMT.

GBPJPY retains bearish pressure towards 144.25 support following its Thursday sell off. On the downside, support comes in at the 144.50 level where a violation will aim at the 144.00 level. A break below here will target the 143.50 level followed by the 143.00 level. Its daily RSI is bearish and pointing lower suggesting further weakness. Conversely, resistance is seen at the 145.50 level followed by the 146.00 level. A cut through that level will set the stage for a move further higher towards the 146.50 level. Further out, resistance resides at the 147.00 level. All in all, GBPJPY faces further downside pressure.

WTI oil price holds in green for a third straight day and extends recovery after 12-day uninterrupted fall.

Hopes that OPEC may cut production and stabilize oil price which held in steep descend for six consecutive weeks, marking over 20% fall, so far offset negative signals from another strong rise in US oil inventories (API 8.79 and EIA 10.27 mln bls build).

Profit-taking after strong fall and reviving daily indicators, deeply in oversold territory, could help recovery.

Initial bullish signal could be expected on Friday’s close above cracked weekly cloud base, after strong downside rejection just under key Fibo support at $55.35 (61.8% of $42.04/$76.88).

North-turning daily indicators show a plenty of space at the upside for extension towards pivotal barrier at $59.11 (falling 10SMA), break of which would firm near-term bulls for further recovery.

The recovery would strongly depend of improvement of very negative short-term sentiment and may stall if major oil producers do not proceed with freshly announced plans for output cut.

Res: 57.86; 59.11; 60.00; 61.27
Sup: 56.61; 55.57; 55.35; 54.74

UK Prime Minister Theresa May's spokesman said today that there is "strong support from the business community in recent days" for her highly criticized Brexit draft agreement. Meanwhile, May is expected to appoint another Brexit minister, rather than getting rid of the department. But at the same time, it's also reported that May will face a no-confidence vote as soon as next Tuesday as Conservatives gather 48 written requests.

So far, 19 Conservative MPS have made public their requests. ERG leader Jacob Rees-Mogg led the way. Others include Henry Smith, Sheryll Murray, Anne Marie-Morris, Lee Rowley, Steve Baker, Simon Clarke, James Duddridge, Andrea Henkyns, Andrew Bridgen, Philip Davies, Peter Bone, Nadine Dorries, Martin Vickers, Adam Holloway, John Whittingdale, Laruence Robertson, Mark Francois and Maria Caulfield. And of course, there are those tho haven't made the request public.

EU Trade Commissioner Cecilia Malmstrom urged China to cooperate on WTO reform in a press conference in Paris today. She said "China has won a lot from the WTO system". And the EU calls on China to "show leadership and to engage with us to reform and to update the system, to create a level playing field." She warned that "otherwise the U.S. will create a level playing field outside the system".

Malmstrom also noted that the WTO's disputes system was on a slippery slope and "one false step here could quickly lead to collapse of the whole rules-based system." She added "Without it, it would be anarchy, there would be no order, and we would all be losers. And the poorest countries would be the biggest losers. And we would lose a system that has been used to ensure stability for generations."

Friday November 16: Five things the markets are talking about

Earlier this week U.K PM Theresa May agreed a draft Brexit withdrawal agreement with Brussels. Her cabinet backed it on Wednesday – but there have since been resignations.

Six government ministers, including Brexit Secretary Dominic Raab, one of the architects of the deal, quit yesterday, raising the possibility that she could face an open challenge to her leadership.

The next few days will be critical for May’s Brexit deal and her leadership, as she tries to suppress a rebellion that has been brewing for some time – some party members are openly plotting to try to trigger a no-confidence vote in an effort to force the PM to negotiate a different deal with Brussels.

A leadership challenge can be triggered if 48 Tory lawmakers submit letters of no confidence to the 1922 committee. Even if, such a challenge does occur, its not expected that a majority of Tories would then vote in favour of ousting her from office.

However, 48 lawmakers would mean the PM would not have the party support to get a Brexit deal voted through Parliament and a clear signal that PM May would have to go back to the negotiating table.

Stocks in Europe have found some early support following a mixed session in Asia as investors evaluate whether China and the U.S can de-escalate their trade spat before the G-20 summit later this month. The ‘big’ dollar has eased a tad, while U.S Treasuries trade steady.

1. Stocks mixed results

Stock markets remain volatile as the slowing Chinese economy and uncertain outlook for corporate earnings overlap with investors adjusting to the effects of a tightening U.S monetary policy.

In Japan, the Nikkei fell -0.6% overnight, as a drop in semiconductor-related stocks weighed on the index along with gaming stocks. The broader Topix also dropped -0.6%. The index fell -2.6% this week, hit mostly by a drop in oil prices and weakness in Apple suppliers and other tech shares.

Down-under, Aussie stocks ended slightly lower on Friday with commodity names trumped by a number of negative factors including a tech sell-off and Brexit turmoil. The S&P/ASX 200 index eased -0.09% at the close, bringing the weekly losses to a sizable -3.23%, largely hurt by global growth worries. In S. Korea, the stock index closed marginally higher on Friday, trimming the session’s early gains, amid uncertainty over Brexit. The Kospi index closed up +0.21%. On a weekly basis, the main index climbed +0.2%.

In China, stocks rallied overnight, helped by banks and by securities companies on the back of a broad recovery in the equity market. The Shanghai Composite index ended +0.4% higher, gaining +3.1% for the week. The blue-chip CSI300 index was up +0.5%, posting a weekly gain of +2.8%.

In Hong Kong, stocks rose marginally as China and the U.S were seen as drawing closer to formal trade negotiations. The Hang Seng index was up +0.3% overnight, and up +2.3% for the week. The Hang Seng China Enterprises index rose +0.3%, and was up +1.5% for the week.

In Europe, regional bourses trade slightly higher across the board following a mixed session in Asia and a positive session in the U.S.

U.S stocks are set to open in the ‘red’ (-0.4%).

Indices: Stoxx600 +0.4% at 359.7, FTSE +0.2% at 7048, DAX +0.5% at 11411, CAC-40 +0.3% at 5048, IBEX-35 +0.3% at 9099, FTSE MIB +0.7% at 19032, SMI +0.6% at 8920, S&P 500 Futures -0.4%

2. Oil rises on expected OPEC cuts, gold little changed

Oil prices have rallied overnight amid expectations of supply cuts from OPEC, although record U.S production continues to cap rallies.

Brent crude oil futures are at +$67.49 per barrel, up +87c, or +1.3% from Thursday’s close. U.S West Texas Intermediate (WTI) crude oil futures are at +$56.96 per barrel, up +50c, or +0.9%.

OPEC warned earlier this week that a supply glut could emerge in 2019 as the world economy slows and rivals increase production more quickly than expected.

Of late, prices have mainly been supported by expectations that OPEC would start withholding supply soon, fearing a renewed rout.

Saudi Arabia wants the cartel to cut output by about -1.4M bpd – that’s around +1.5% of global supply.

In its monthly report Wednesday, IEA left its forecast for global demand growth for 2018 and 2019 unchanged from last month at +1.3M and +1.4M bpd, respectively, but cut its forecast for non-OECD demand growth. For H1 2019, based on its outlook for non-OPEC production and global demand, and assuming flat OPEC production, the IEA said the “implied stock build is +2M bpd.”

Ahead of the U.S open, gold prices have rallied a tad overnight, as investors sought safe haven assets amid fears of a chaotic departure for Britain from the E.U. Spot gold is up +0.2% at +$1,214.77 per ounce, while U.S gold futures are +0.1% to +$1,215.6 per ounce.

3. Euro zone bond yields back up, Brexit limits rise

Euro sovereign yields are a tad higher this morning as some stability returned to British markets following the pervious day’s Brexit-driven turmoil.

Nevertheless, 10-year Bund borrowing costs are set for their biggest weekly fall in three-weeks in a sign that uncertainty in Britain and Italy continued to support demand for safe-haven assets.

Germany’s 10-year Bund yield is up about +1 bps at +0.37% – above more than the two-week lows at around +0.35% hit yesterday as Brexit turmoil triggered a slide in sterling and the biggest one-day fall in 10-year gilt yields since just after the 2016 Brexit vote.

Elsewhere, the yield on 10-year Treasuries sank -1 bps to +3.10%, hitting the lowest in more than two weeks with its sixth straight decline. In the U.K, Britain’s 10-year yield climbed less than -1 bps to +1.374%.

4. Sterling holds onto gains

The pound (£1.2829, +0.24%) is holding on to its early Friday morning gains, on the back of U.K PM May’s radio interview in which she said her deal was the best Brexit compromise the U.K could achieve.

However, there is speculation that Conservative ministers may have enough votes – 48 are needed – for a letter of “no confidence” that would force a vote in Parliament.

Elsewhere, the EUR has rallied +0.2% to €1.1347, the strongest in more than a week, while the British pound has gained +0.2% to £1.2798. The Japanese yen has increased +0.3% to ¥113.29.

5. New Zealand’s manufacturing activity picks up

Data overnight showed that manufacturing activity in New Zealand recorded its highest level in four-months in October.

The Bank of New Zealand-Business NZ’s seasonally adjusted Performance of Manufacturing Index (PMI) rose to 53.5 from 51.7 the previous month.

This was 1.6 points higher than September, and the highest level of activity in seven months.

The US dollar continues to drift lower against the Japanese yen currency following negative reports surrounding Sino-US trade talks. Indicators are still turning lower, with the intraday sentiment surrounding the USDJPY pair bearish while price trades below the 113.37 level. A sustained breach of the 112.94 support level is likely to accelerate technical selling in the USDJPY pair.

The USDJPY pair is intraday bearish while trading below the 113.37 level, key technical support is now found at the 112.94 and 112.50 levels.

If the USDJPY pair trades above the 113.37 level, buyers may test the 113.70 and 114.19 resistance levels.