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ECB Governing Council member Klaas Knot said today that "it's quite pertinent that Italy actually complies with the rules" of EU on budget. Or, he warned that "if it doesn't, the result is that spread will go up."

For now, Knot saw limited contagion from rising Italian yields. He added "we're not seeing an overall deterioration in credit conditions, we're not seeing an overall deterioration in financial conditions". And, "those would have to be the kind of things that we would first have to see before could contemplate changing our course of action."

Italian 10 year yield hit as high as 3.547 earlier today and it's now at 3.494, up 0.047.

Notes/Observations

• Germany Q3 GDP comes in below expectations; registers its 1st contraction in over 4 years; soft data blamed on auto industry emission woes
• Sweden Oct CPI comes in below expectations but remained over Riksbank target. Debate lingers whether 1st rate hike to come in Dec or Feb
• UK Oct CPI registers a small miss but stays above BOE target
• UK PM May faces crunch cabinet meeting later (09:00 ET) where she'll try and win ministers' support for her draft Brexit agreement; 5 senior ministers to back the Brexit idea (Raab, Hunt, Javid, Gove and Fox) while Northern Ireland DUP has voiced concerns
• IEA Monthly Report saw global implied oil inventory buildup of 2M bpd in H1 2019; rumors circulated of 1.4M OPEC+ production cut looming

Asia:

• Japan Q3 Preliminary GDP Q/Q: -0.3% v -0.3%e; GDP Annualized Q/Q: -1.2% v -1.0%e; GDP Nominal Q/Q: -0.3% v -0.3%e
• China Oct Retail Sales Y/Y: 8.6% v 9.2%e - China Oct Industrial Production Y/Y: 5.9% v 5.8%e
• China Oct Surveyed Jobless Rate: 4.9% v 4.9% prior

Europe:

• Italy publishes letter to the EU: Asks EU for flexibility for extraordinary events, cited spending for floods and infrastructure after Genoa; Confident to reach growth targets. Reiterated won't surpass 2.4% budget deficit in 2019. Planned €1B for infrastructure maintenance in 2019 and targeted 2021 debt-to-GDP ratio of 126%
• Italy 5 Star League Official: Italian Government agrees on 2.4% budget deficit for 2019 and maintain 2019 GDP growth target of 1.5%
• EU & UK negotiators said to have agreed on a text that deals with the Irish border. Backstop woukld come in the form of a temporary UK-wide customs arrangement, with specific provisions for Northern Ireland, which go deeper on the issue of customs and alignment on the rules of the single market than for the rest of the UK. Not correct to say the negotiations had concluded, only to suggest text had been set to London
• UK Tory Whip Julian Smith: Confident that PM May would get Brexit deal through Parliament
• Brexiteer MP Rees-Mogg (Conservative Party): PM May's Brexit deal failed to meet promises of conservative manifesto; if leaked deal was accurate, it would be hard to trust PM May
• Northern Ireland DUP's Wilson (part of coalition) stated that it seemed all promises from PM May have been broken
• EU leaders summit on Brexit could be convened on Nov 25th, date is still fluid
• PM May said to have set Dec 1st deadline for the civil service to trigger 'no-deal' contingency plans as she faces a fight in her govt to seal the Brexit deal
• ECB's De Guindos (Spain) stated that waiting to see whether a deal will be struck in the coming days, or whether we should prepare for a hard Brexit in March 2019

Macro

• (DE) Germany - Q3 GDP contracted -0.2% q/q with Destatis reporting that the main drag came from the external side. Exports contracted, while import growth accelerated. This could not be balanced by stronger domestic demand, as private consumption declined. The weakness was due to special factors related to new global emission testing standards, which the sector didn't prepare for sufficiently. The narrative though remains of uncertainties surrounding Brexit and global trade.
• (US) United States - US reportedly to hold off on car tariffs for now according to US financial press reports citing two people familiar with the matter. The report said Trump met with his top trade advisers yesterday to discuss a draft report on a Commerce Department investigation into the impact of car imports and sources suggest the administration wasn't ready to act on tariffs and that the report would be subject to further changes.
• (UK) United Kingdom - PM May's Brexit deal is facing stiff domestic opposition and doesn't have a majority in parliament as the DUP refuses to back the deal. The decision to hold a snap election last year is coming back to haunt May, who has relied on support from Northern Ireland's DUP ever since.
• (EU) Europe - The ECB's Weidmann urged policy normalisation. The majority view at the ECB remains that there is ongoing need for policy support, but that this will continue to be provided even after the end of net asset purchases, through still negative interest rates and the ongoing re-investment of redemptions, with the ECB keeping the stock of purchases steady for a while to come.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.6% at 362.2, FTSE -0.5% at 7018, DAX -0.6% at 11402, CAC-40 -0.7% at 5066, IBEX-35 -0.6% at 9095, FTSE MIB -1.2% at 19000, SMI -0.6% at 8960, S&P 500 Futures -0.3%]
• Market Focal Points/Key Themes: European Indices trade lower across the board continuing the volatility seen in recent weeks tracking lower Asian markets and weaker US futures this morning. Oil prices have rebounded slightly on talk OPEC and partners considering a possible output cut to stem the move lower in Oil prices. Earnings continue to dominate on the corporate front with E.ON, SSE, RWE, Illiad and Merck among the notable names trading higher after results and outlook bucking the overall market. Meanwhile shares of Wirecard trades sharply lower despite rasing their outlook. Elsewhere Bechtle, Assa Abloy, Salzgitter and Leoni are other names trading lower following earnings. Italian Banking name Banca Carige rebounds after the FCA announce a short selling ban; Oil names trade higher following a rebound in Oil. Looking ahead notable earners include Macy's, Meritor and Canada Goose.

Equities

• Consumer discretionary: Bechtle [BC8.DE] -6.5% (earnings), Smiths Group [SMIN.UK] +4% (trading update; to separate Smiths Medical), Flybe Group PLC [FLYB.UK] +6.5% (earnings; confirms in talks to be acquired), Zooplus AG [ZO1.DE] +6.5% (earnings)
• Telecom: Iliad SA [ELD.FR] 5.5% (earnings; following analyst actions), Mediaset S.p.A. [MS.IT] -7% (earnings)
• Financials: Prudential [PRU.UK] -0.5% (trading update), Banca Carige [CRGI.IT] +21% (FCA temporarily prohibits short-selling of company's stock)
• Healthcare: Merck KGaA [MRK.DE] +1% (earnings; adjust outlook)
• Industrials: RWE AG [RWE.DE] -1.5% (earnings; affirms outlook), Electricite de France [EDF.FR] -0.5% (earnings), Maersk [MAERSKB.DK] +0.5% (earnings; affirms outlook), Alstom [ALO.FR] +3%, Siemens AG [SIE.DE] -1.5% (Alstom's earnings; reportedly Brussels potentially reached a preliminary conclusion that Alstom-Siemens merger is incompatible with the internal market), Assa Abloy AB-B [ASSAB.SE] -2% (capital markets day)
• Technology: Wirecard [WDI.DE] -6% (earnings; raises outlook), Fugro [FUR.NL] +1.5% (presents medium-term targets on CMD)
• Utilities: SSE PLC [SSE.UK] +1% (earnings; intention to create SSE Renewables), E.ON AG [EOAN.DE] +1% (earnings; raises outlook)

Speakers

• ECB's Weidman (Germany): ECB normalization should not be unnecessarily long. Should not take lightly the side effects of ultra loose monetary policy. German growth was intact despite contraction in Q3. Economic momentum is increasing mature due to capacity constraints
• ECB's Knot (Netherlands) reiterated Council view that impact of economic slowdown was not enough to change outlook at this time; resilience of region is much higher. Stated that was not seeing much of contagion from Italy at this time
• Sweden Central Bank (Riksbank) Jansson: If inflation followed forecast then it will be time soon to raise rates. Reiterated that Riksbank did not have an exchange target; looking for a gradual tightening of the SEK currency (Krona)
• German Bundesbank: Real estate prices might be 15-30% overvalued, some loan collateral values could be overestimated. Downside risks to economy had increased substantially
• EU Commission confirmed receipt of Italy letter on 2019 budget. Italy Fin Min Tria in letter stated that fiscal expansion is strictly necessary. Italy forecasted 2019 GDP growth at 1.5% and budget deficit to GDP ratio of 2.4% (unchanged from initial budget). Italy lowered forecasts debt to GDP ratio from 130.9% to 129.2% and set privatization target to 1% of GDP (to be used to pay down debt)
• German Econ Min Altmaier: GDP impacted by problems in the auto sector (emissions probe)
• Northern Ireland DUP Leader Foster (part of May coalition) stated that would be looking at PM May's text agreemen. DUP could not agree to a deal that left Northern Ireland adrift from the rest of the UK
• Northern Ireland DUP party official Donaldson (part of May coalition): Northern Ireland backstop was rolled into a UK backstop; deal could lead to break up of UK. Northern Ireland could be treated differently under deal and did not believe this was the best deal for Northern Ireland as could see trade barriers in the UK. Reiterated stance that DUP party did not fear a general election
• Sweden Parliament rejected Moderate leader Kristersson as PM (as speculated). (**Note: 2nd of 4 attempts to form a govt or call new elections)
• Sweden Parliamentary Speaker Norlen: Could propose another PM candidate on Thursday, Nov 15th - EU trade commissioner Malsmstroem reiterated stance that if US imposes tariffs on cars, EU will hit back. Able to set up counter measure very quickly which could include cars, agricultural products, machinery
• Russia Central Bank Zabotkin (Monetary Policy Chief): Did not rule out buying FX (**Reminder: Russia halted its FX purchases back on Aug 23rd)
• Thailand Central Bank Policy Statement noted that the vote was not unanimous to keep policy steady (4-3). The need for accommodative policy should be gradually reduced. Economy continued to gain traction with inflation seen rising slowly. THB currency (Baht) moving in-line with regional peers but price action to remain volatile
• UAE Energy Min (OPEC president) Mazrouei: OPEC+ to do what was needed to keep oil market stable
• Russia Energy Min Novak stated Russia had been cutting oil production during month of November by approx 20K bpd to date. Not right for market participants to react to any one-off fluctuations in oil prices. USD rate and economic slump in Venezuela should be taken into consideration. Many uncertainties over Iranian sanctions
• IEA Monthly Report maintained its 2018 global oil demand growth forecast at 1.3M bpd and 2019 global oil demand growth forecast at 1.4M bpd. It raised 2018 Non-Opec supply from 2.2M bpd to 2.4M and 2019 Non-Opec supply from 1.8M bpd to 1.9M. Global oil supply seen outpacing demand with global implied oil inventory buildup of 2M bpd in H1 2019
• OPEC and partners said to be discussing production cut of up to 1.4M bpd (**Note: previous expectations was for 1M cut by OPEC+)

Currencies/Fixed Income

• Focus was on the upcoming Cabinet meeting in the UK with PM May so the Brexit process could move to fruition. Analysts saw rooms for further GBP currency (sterling) appreciation if the Cabinet signed off on the deal, because this would open the possibility for the agreement to be considered at an extraordinary EU summit in late November. UK Parliament could then vote on it before the Christmas recess. Otherwise a rejection by the UK cabinet of the text deal would prolonged uncertainty regarding the terms of the UK's exit from the EU. GBP/USD relatively steady at 1.2960 area
• EUR/USD was slightly lower after Germany's Q3 GDP missed expectations and contracted for the 1st time in over 4 years. German officials reiterated that slowdown was temporary and largely related to the emission situation in the auto sector. Euro still facing some headwinds as Italy stuck to deficit target in its response to the EU of its 2019 budget plans.
• SEK currency was softer after Sweden Oct CPI came in below expectations. Some of the weakness was due to reposition of bets for the 1st potential Riksbank hike being pushed back to the Feb timeframe. EUR/SEK higher by 0.5% at 10.28 mid-session.
• Safe-haven flows helped push UK and German 10-year yields

Economic data

• (IN) India Oct Wholesale Prices (WPI) Y/Y: 5.3% v 4.9%e
• (DE) Germany Q3 Preliminary GDP Q/Q: -0.2% v -0.1%e; GDP NSA Y/Y: 1.1% v 1.2%e; GDP WDA Y/Y: 1.1% v 1.3%e (1st contraction since Q2 2014)
• (RO) Romania Q3 Advance GDP Q/Q: 1.9% v 1.1%e; Y/Y: 4.3% v 3.0%e
• (DK) Denmark Q3 GDP Indicator Q/Q: 0.7% v 0.3% prior
• (FI) Finland Oct CPI M/M: 0.2% v 0.2% prior; Y/Y: 1.5% v 1.3% prior
• (FI) Finland Sept GDP Indicator WDA Y/Y: 3.2% v 2.6% prior
• (TH) Thailand Central Bank (BoT) left the Benchmark Interest Rate unchanged at 1.50% (as expected)
• (FR) France Oct Final CPI M/M: 0.1% v 0.1%e; Y/Y: 2.2% v 2.2%e
• (FR) France Oct Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 2.5% v 2.5%e; CPI Ex-Tobacco Index: 103.37 v 103.36e
• (ES) Spain Oct Final CPI M/M: 0.9% v 0.9%e; Y/Y: 2.3% v 2.3%e
• (ES) Spain Oct Final CPI EU Harmonized M/M: 0.7% v 0.7%e; Y/Y: 2.3% v 2.3%e
• (ES) Spain Oct CPI Core M/M: 0.8% v 0.7%e; Y/Y: 1.0% v 1.1%e
• (CZ) Czech Q3 Advance GDP Q/Q: 0.4% v 0.6%e; Y/Y: 2.3% v 2.6%e
• (HU) Hungary Q3 Preliminary GDP Q/Q: 1.2% v 0.7%e; Y/Y: 4.8% v 4.4%e
• (SE) Sweden Oct CPI M/M: -0.1% v 0.0%e; Y/Y: 2.3% v 2.4%e
• (SE) Sweden Oct CPIF M/M: -0.1% v 0.0%e; Y/Y: 2.4% v 2.6%e; CPI Level: 330.72 v 331.14e
• (SE) Sweden Q3 Industry Capacity: 91.0% v 90.9% prior
• (NL) Netherlands Q3 Preliminary GDP Q/Q: 0.2% v 0.6%e; Y/Y: 2.6% v 2.8%e
• (NL) Netherlands Sept Trade Balance: €5.0B v €3.9B prior
• (PL) Poland Oct Final CPI M/M: 0.4% v 0.4% prelim; Y/Y: 1.8% v 1.7% prelim
• (PL) Poland Q3 Preliminary GDP Q/Q: 1.7% v 0.9%e; Y/Y: 5.1% v 4.6%e
• (UK) Oct CPI M/M: 0.1% v 0.2%e; Y/Y: 2.4% v 2.5%e; CPI Core Y/Y: 1.9% v 1.9%e; CPIH Y/Y: 2.2%% v 2.3%e
• (UK) Oct RPI M/M: 0.1% v 0.2%e; Y/Y: 3.3% v 3.4%e; RPI-X (Ex Mortgage Interest Payments) Y/Y: 3.2% v 3.3%e; Retail Price Index: 284.5 v 284.5e
• (UK) Oct PPI Input M/M: 0.8% v 0.6%e; Y/Y: 10.0% v 9.6%e
• (UK) Oct PPI Output M/M: 0.3% v 0.2%e; Y/Y: 3.3% v 3.1%e
• (UK) Oct PPI Output Core M/M: 0.3% v 0.2%e; Y/Y: 2.4% v 2.4%e
• (UK) Sept ONS House Price Index Y/Y: 3.5% v 3.2%e
• (PT) Portugal Q3 Preliminary GDP Q/Q: 0.3% v 0.6% prior; Y/Y: 2.1% v 2.4% prior
• (EU) Euro Zone Q3 Preliminary GDP (2nd reading) Q/Q: 0.2% v 0.2%e; Y/Y: 1.7% v 1.7%e
• (EU) Euro Zone Q3 Preliminary Employment Q/Q: 0.2% v 0.4% prior; Y/Y: 1.3% v 1.5% prior
• (EU) Euro Zone Sept Industrial Production M/M: -0.3% v -0.4%e; Y/Y: 0.9% v 0.3%e
• (CY) Cyprus Q3 Preliminary GDP Q/Q: 0.7% v 0.8% prior; Y/Y: 3.6% v 3.9% prior
• (BR) Brazil Nov FGV Inflation IGP-10 M/M: -0.2% v -0.2%e

Fixed Income Issuance

(IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

(NO) Norway sold NOK 3.0B vs. NOK3.0B indicated in 2% May 2023 bonds; Avg Yield: 1.57% v 1.66% prior; Bid-to-cover: 3.03x v 2.70x prior

(SE) Sweden sold total SEK1.5B vs. SEK1.5B indicated in 2026 and 2032 bonds

(CH) Switzerland sold CHF111.2M in 0.5% Jun 2032 Bonds; Avg Yield: 0.238% v 0.215% prior

Looking Ahead

• (NG) Nigeria Oct CPI Y/Y: No est v 11.3% prior
• (UR) Ukraine Q3 Preliminary GDP Q/Q: No est v 1.0% prior; Y/Y: 3.1%e v 3.8% prior
• (SE) Sweden Central Bank (Riksbank) Jansson in Linkoping
• (EU) EU Trade Min Malmstrom to meet USTR Lighthizer in Washington DC
• 05:30 (DE) Germany to sell €1.5B in 1.25% Aug 2048 Bunds
• 05:30 (PT) Portugal Debt Agency (ICGP) to sell €1.0-1.25B in 2023 and 2028 OT bonds
• 06:00 (BR) Brazil Sept IBGE Services Sector Volume Y/Y: 1.8%e v 1.6% prior
• 06:00 (IE) Ireland Sept Property Prices M/M: no est v 0.3% prior; Y/Y: No est v 8.6% prior
• 06:00 (PT) Portugal Q3 Labour Costs Y/Y: No est v 1.4% prior
• 06:00 (ZA) South Africa Sept Retail Sales M/M: 0.0%e v 0.6% prior; Y/Y: 1.9%e v 2.5% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e Nov 9th: No est v -4.0% prior
• 07:00 (UK) Weekly PM question time in House of Commons
• 07:00 (RU) Russia to sell combined RUB10B in 2021 and 2022 OFZ bonds
• 08:30 (US) Oct CPI M/M: 0.3%e v 0.1% prior; Y/Y: 2.5%e v 2.3% prior
• 08:30 (US) Oct CPI (Ex Food/Energy) M/M: 0.2%e v 0.1% prior ; Y/Y: 2.2%e v 2.2% prior
• 08:30 (US) Oct CPI Index NSA: 252.828e v 252.439 prior; CPI Core Index: 258.947e v 258.441 prior
• 08:30 (US) Oct Real Avg Weekly Earnings Y/Y: No est v 1.1% prior; Hourly Earning Y/Y: No est v 0.5% prior
• 09:00 (UK) PM May holds special Cabinet meeting on Brexit
• 10:00 (CO) Colombia Sept Industrial Production Y/Y: 3.5%e v 3.9% prior
• 10:00 (CO) Colombia Sept Trade Balance: -$0.5Be v -$0.8B prior; Total Imports: $4.1Be v $4.6B prior
• 10:00 (CO) Colombia Sept Retail Sales Y/Y: 5.2%e v 5.5% prior
• 10:00 (US) Fed's Quarles (hawk, FOMC voter) to appear before House Financial Services Panel
• 12:00 (CA) Canada to sell 5-year notes
• 16:30 (US) Weekly API Oil Inventories
• 18:00 (US) Fed Chair Powell in Dallas

Crude oil is dropping like a rock, unfolding a bigger, bearish reaction which looks like an impulse in the making. An impulse is a five-wave price movement, where wave three is usually the strongest and firmest leg. That said, we see price now trading near the 53.80 zone, from where a new temporary bullish reaction may follow, labelled as wave 4). Wave 4) is a correction within a trend and represents a temporary pause, which can in this case look for resistance and a new bearish turn near the 59.3/61.2 level.

Crude oil, 4h

The Italian government overnight resubmitted its 2019 draft budgetary plan, but in line with our expectation any changes were ‘cosmetic’ rather than substantial, in a sign that the populist leaders of the government maintained the upper hand. Both growth and deficit targets were kept unchanged, but the privatisation revenue goal was raised to 1% of GDP for 2019 (up from 0.3% prior). That means, due to a lower stock-flow-adjustment the debtto- GDP ratio is now expected to fall to 126% by 2021 - a miniscule tweak from the previous projection of 126.7%).

As the government refrained from scaling back any of its spending items, the structural deficit is still expected to increase from -0.9% in 2018 to -1.7% in 2019. This means the ‘unprecedented deviation’ of 1.5pp of GDP that the Commission stressed in its negative opinion still persists. The ball is now back in the EC’s court and it might bring forward the publication of a report on Italy’s compliance with EU debt rules to 21 November that was originally planned for spring 2019. Although the EC is aware of walking a fine line of upholding EU fiscal rules while not being seen as dictating domestic policies, we expect it to start the process of launching an excessive deficit procedure (EDP) quite quickly and maybe as early as December. In Italy’s case it is not the 2.4% deficit figure for 2019 as such that would be put forward as an argument for an EDP, but an insufficient reduction of Italy’s 131% debt/GDP ratio.

Whether an eventual budget truce is reached in 2019 remains in our view dependent on the market reaction. The EDP will be a drawn out process (see below) and it could take until H2 19 for the Commission to impose any sanctions on the country for breaching EU rules. Hence we think Italy could fade slightly as a market theme over the next couple of months, also because rating agencies have already assumed that the government will not improve the budget and the risk of further rating action for the next three to six months should be small. We have seen close to a 10bp spread widening for 10Y BTPs versus Germany this morning, which seems fair. We do not expect to see a significant spread widening for the rest of 2018 and if the global risk appetite improves the spread might actually start slowly to tighten given the higher carry.

That said, the Italian bond market could come under renewed pressure if an EDP is formally launched, and we think Italian risks could flare up again in 2019, as long as the stand-off with the EU remains unresolved. Signs are growing that the Italian economy has already been weakened by the recent political uncertainty and tighter credit conditions. Although not our base case, there is a risk that the repercussions of the budget fight trigger a recession in Italy in 2019 with adverse consequences on the debt dynamics, credit ratings and market sentiment.

Further, internal tensions between the League and Five Star on policy priorities and ideological questions have intensified in recent weeks and culminated in a Senate confidence vote last week. For now, we see only a 10-15% probability of snap elections as the two parties have an incentive to present a united front ahead of European parliament elections in May 2019, but the coalition remains a fragile truce

Daily Pivots: (S1) 146.16; (P) 147.43; (R1) 148.87; More...

Intraday bias in GBP/JPY remains neutral for the moment. On the downside, break of 145.99 should confirm completion of rebound from 142.76. And in that case, deeper fall should be seen back to 142.76 and possibly below. On the upside, decisive break of 149.70 will resume whole rise from 139.88 and target 153.84/156.59 resistance zone.

In the bigger picture, as long as 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) holds, up trend from 122.36 (2016 low) would still extend beyond 156.69 high. However, decisive break of 139.29/47 will suggest that such up trend is completed and turn outlook bearish. In that case, next target is 61.8% retracement at 135.43.

Daily Pivots: (S1) 127.75; (P) 128.25; (R1) 129.00; More....

At this point, further decline is still in favor in EUR/JPY 126.63 support. Break there will resume whole fall from 133.12 and target 124.61/89 support zone. On the upside, break of 130.14 resistance is now needed to confirm rise resumption. Otherwise, near term outlook will stay cautiously bearish in case of recovery.

In the bigger picture, as long as 124.08 key resistance turn supported holds, larger up trend from 109.03 (2016 low) is still in progress. Firm break of 137.49 structural resistance will target 141.04/149.76 resistance zone next. However, decisive break of 124.08 will argue that such rise from 109.03 has completed and turn outlook bearish. In that case, deeper fall would be seen to 61.8% retracement of 109.03 to 137.49 at 119.90.

Daily Pivots: (S1) 0.8660; (P) 0.8702; (R1) 0.8748; More...

EUR/GBP dropped further to 0.8655 but recovered notably. Still, further decline is expected as long as 0.8773 minor resistance holds. Below 0.8665 will target 0.8620 support first. Break will target 100% projection of 0.9098 to 0.8722 from 0.8939 at 0.8563 next. However, break of 0.8773 minor resistance will turn focus back to 0.8939 resistance instead.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Medium term fall from 0.9305 is possibly in progress and could extend through 0.8620. On the upside, break of 0.8939 resistance is needed to indicate medium term reversal. Otherwise, outlook will remain cautiously bearish even in case of rebound.

Daily Pivots: (S1) 1.5586; (P) 1.5627; (R1) 1.5681; More....

EUR/AUD formed a temporary low at 1.5575 and recovered. Intraday bias is turned neutral first. Stronger recovery might be seen to 4 hour 55 EMA (now at 1.5741. But upside should be limited by 38.2% retracement of 1.6357 to 1.5575 at 1.5874) to bring fall resumption. On the downside, below 1.5575 will target 1.5271/5313 cluster support zone next.

In the bigger picture, current development argues that up trend from 1.3624 (2017 low) is possibly completed at 1.6357, ahead of 1.6587 (2015 high). This is supported by bearish divergence condition in weekly MACD. Deeper decline is now in favor to 1.5271 cluster support (38.2% retracement of 1.3624 to 1.6357 at 1.5313). Break will target 61.8% retracement at 1.4668. On the upside, break of 1.5984 support turned resistance is now needed to revive the prior medium term up trend. Otherwise, further decline will be in favor even in case of interim rebound.

Daily Pivots: (S1) 1.1342; (P) 1.1365; (R1) 1.1396; More...

EUR/CHF hit as low as 1.1334 but quickly recovered. Intraday bias is turned neutral first. Another fall is still in favor as long as 1.1470 minor resistance holds. On the downside below 1.1334 will resume the decline from 1.1501 and target 1.1154/98 key support zone again. On the upside, break of 1.1470 will turn focus back to 1.1501. Decisive break of 1.1501 will revive the case of bullish reversal.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. This cluster level is in proximity to long term channel support (now at 1.1243) too. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

The US dollar continues to trade in a narrow range against the Japanese yen currency, ahead of the release of Key Inflation Data from the American economy and a scheduled speech from Federal Reserve Chair Jerome Powell during the US session. The next large directional move in the USDJPY pair will likely occur when price breaks away from the well-defined rising wedge pattern on the four-hour time frame.

The USDJPY pair is intraday bullish while trading above the 113.89 level, key technical resistance is found at the 114.19 and 114.54 levels.

If the USDJPY pair trades below the 113.89 level, sellers may target the 113.51 and 112.94 support levels.