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The USD was supported against its major counterparts by expectations of further monetary tightening by the Fed. The greenback also gained due to the interest rate differentials of the Fed with other central banks, according to analysts. After the midterms, analysts also point out that, the next upcoming issues could be Brexit and the Italian Budget. We could see the US Dollar making gains also in its role as a safe haven, as the Chinese economy seems to slow down and the US-Sino trade frictions continue to affect the market.

EUR/USD dropped breaking the 1.1345 (R1) support level, now turned to resistance. We see the case for the pair to continue to trade in a bearish market today should the USD continue to strengthen. If the bears continue to dictate the pair’s direction, we could see the pair breaking the 1.1305 (S1) support line and aim for the 1.1250 (S2) support barrier. Should the bulls take over, we could see the pair breaking the 1.1345(R1) resistance line and aim for the 1.1385(R2) resistance hurdle.

Weak pound due to Brexit uncertainty

The pound weakened against a number of other currencies on Friday and opened with a negative gap on Monday against the USD. Main reason for the weakness seems to be a continuous Brexit uncertainty, as attention seems to be shifting towards the inner UK political scene. While the EU and the UK have yet to announce a deal about the Irish border issue, the two sides seem to be near an agreement about Brexit. On the other hand, the risk factor on this issue, seems to be whether UK’s PM will be able to pass any deal agreed with the EU, through UK’s parliament. As uncertainty rises for Brexit, volatility for GBP pairs seems to rise with it.

Cable dropped further on Friday, clearly breaking the 1.3015 (R1) support line (now turned to resistance). We see the case for the market to continue to favour the pair’s short positions, especially if the pound weakens on new negative Brexit headlines. Should the pair continue to be under the market’s selling interest we could see it breaking the 1.2920 (S1) support line and aiming if not breaking the 1.2850 (S2) support area. Should the market start favouring the pair’s long positions, we could see the pair aiming if not breaking the 1.3015 (R1) resistance line.

In today’s other economic highlights:

In a rather slow Monday, in the European session we get Turkey’s current account balance for September, while in the American session San Francisco Fed president Mary Daly speaks.

As for the rest of the week:

On Tuesday, we get UK’s employment data for September and Germany’s ZEW economic sentiment indicator for November. On Wednesday, Japan’s GDP preliminary growth rate for Q3 is due out along with China’s industrial Output growth rate for October. In the European session we get Germany’s and Eurozone’s preliminary GDP growth rates for Q3, UK and US inflation data for October. On Thursday, Australia’s employment data for October are to be released, UK’s retail sales growth rate for October is due out and in the American session we get the US Philadelphia Fed Business index for November and the US retail sales growth rate for October. On Friday, we get Eurozone’s CPI rate for October and the US industrial production growth rate for October.

EUR/USD H4

Support: 1.1305 (S1), 1.1250 (S2), 1.1200 (S3)

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

GBP/USD 4H

Support: 1.2920 (S1), 1.2850 (S2), 1.2780 (S3)

Resistance: 1.3015 (R1), 1.3075 (R2), 1.3160 (R3)

OPEC panic

Oil is rallying marginally as Saudi Arabia expressed interest to cut supply in December. Despite the USA sanctions on Iran that started on 5th November, crude oil prices have fallen. Output was expected to tighten, but supply actually increased from the US, Saudi Arabia and Russia, and the US surprisingly approved provisional waivers to eight buyers of Iranian oil. The result was a net increase of crude. The drop in prices and glut in output has some OPEC member panicking, not waiting for 6-7 December meeting in Vienna.

Europe dithers

Euro area industrial production contracted in the last quarters. The German auto sector led the weakness, as Euro area purchasing-manager-indices moved sharply lower. Italy’s growth seems to have stalled: an indirect effect of Rome’s anti-establishment government fiscal disagreement with Brussels has been a restriction of credit in Italy. EUR/USD failed to break the midterm downtrend and is now heading toward 1.1143 support. We little strength in European equities due to the weaker Euro. In the UK, the resignation of former transport minister Jo Johnson has highlighted the obstacles faced by Prime Minister May. A Brexit agreement that Brussels, her government and the House of Commons is becoming increasingly difficult to visualize. GBP/USD dropped after failing to clear 1.3140 (16 month low): shorts are eyeing minor support at 1.2785.

China flexes

Despite growth deceleration and trade tensions with the USA, China’s domestic activity remains strong: Alibaba's Singles Day sales hit a new record of over $30 billion. China’s export growth in USD was higher than expected in October, with imports also surprising to the upside. From the $200 billion of US-imposed China tariffs employed in September, approximately $70 billion are on consumer goods, but it will take time for the supply chain to pass these on to consumers. The stronger greenback provides wiggle room for exporters to absorb price increases from higher tariffs

EURUSD had a bearish start on Monday, with the price breaking a crucial support at 1.1300 to drop towards 1.1267, the lowest since June 2017. The pair has also increased distance below its negatively sloped moving average lines and the Ichimoku cloud, indicating that the recent downtrend might hold for longer.

Momentum signals are bearish as well as the red Tenkan-sen line, which is below the blue kijun-sen line, looks to be heading south, while the RSI has reversed lower after failing to break above its 50 neutral mark last week. Yet the latter is ready to enter the oversold territory below 30, signalling that the downfall might come to an end soon.

Should the price extend declines, the 1.1200 round-level could be of psychological significance and therefore act a barrier to downside movements. Below that, the focus could shift straight to 1.1118 where the price posted a strong rebound on June 2017. If the latter permits for further weakness, the next stop could be around 1.1050, a previous support and resistance area.

On the other hand, a recovery could retest the 1.1300 key mark before attention turns to 1.1365, the high on August 2016. Moving higher, the 1.1450-1.1550 area should attract attention as the price paused several times in this zone in the past, while a significant rally above that region could last until 1.1621, the peak on October 16.

Turning to the medium-term picture, the bearish outlook came back into play after the bridge of the 1.1300 bottom. A jump above that point would restore the neutral mode. For a bull market though traders need to wait for a clear close above 1.1814, taken from the top on September 24.

Overall, EURUSD holds a bearish profile both in the short and the medium-term.

Gold dived to a fresh one-month low of 1203.83 today after recording six negative days in a row. The price seems to hold far away from the 20- and 40-simple moving averages (SMAs) in the 4-hour chart, which are sloping to the downside, endorsing the negative view. The Relative Strength Index declined to the oversold zone, indicating bearish sentiment, while the MACD oscillator is falling with strong momentum below the trigger and zero lines.

The significant leg below the 1206.58 support level, could stop around the 50.0% Fibonacci retracement level of the upleg from 1160 to 1243.30, around 1201.68, which holds near the medium-term ascending trend line. The next support level is coming from the 61.8% Fibonacci mark, which coincides with the 1192 support barrier, taken from the high on October 9.

On the other side, a move higher and above the 38.2% Fibonacci level, which stands near the 1212 resistance would likely retest the 1222.80 barrier but first needs to surpass the 20-SMA of 1220.24.

Overall, the yellow metal looks negative in the very short-term as it has been developing sharply lower over the last few days, while in the bigger picture, it remains above the rising trend line, which has been holding since August 16.

Here are the latest developments in global markets:

FOREX: The dollar soared to fresh 16-month highs against a basket of six major currencies on Monday, building on its gains from Friday, even without any fresh catalyst or news out of the US. Instead, the greenback seems to be taking advantage of softness in the pound and euro, amid Brexit and Italian uncertainties respectively. Elsewhere, the commodity-linked currencies retreated, with the loonie feeling the brunt of the pain as oil prices continued to struggle in the big picture, despite a sizable rebound on Monday.

STOCKS: The Dow Jones, S&P 500 and Nasdaq Composite finished Friday’s trading lower by 0.77%, 0.92%, and 1.65% correspondingly. Some of the big tech names that recorded notable losses, leading the tech-heavy Nasdaq to underperform were Apple, Amazon, Google-parent Alphabet, Microsoft and Facebook. In Asian markets, the Japanese Nikkei 225 and Topix indices, and Hong Kong’s Hang Seng were little changed on Monday. Of note, the Shanghai Composite added 1.2%. At 0736 GMT, futures markets were pointing to a higher open for major European benchmarks, even for the Italian FTSE MIB, despite worries over Italy’s spending plans. Contracts on the Dow, S&P and Nasdaq 100 were up by 0.2%, 0.3% and 0.6% respectively.

COMMODITIES: WTI traded higher by 1.5%, at $61.10 per barrel, looking set to record gains after a multi-day selloff that saw it touch a near eight-month low of $59.26 on Friday. The catalyst for the move up was OPEC and its allies paving the way for more supply cuts in 2019. Specifically, Saudi Arabia, the precious liquid’s top exporter announced a cut even earlier than that (December), with others possibly following in its footsteps later on. Brent crude was up by 2.0%, at $71.58/barrel. In precious metals, gold traded lower by 0.25% at $1,206.16 an ounce. There is uncertainty in the markets – Brexit, Italy, Sino-US trade spat – though the stronger greenback seems to be the dominant force pushing dollar-denominated gold lower at the moment; the metal also touched a one-month low of $1,203.36 earlier on Monday.

Major movers: Dollar bulls put the pedal to the metal; pound crumbles under Brexit pressure

It was an eventful session in FX markets, with the dollar index cruising to 16-month highs earlier on Monday, even in the absence of any substantial news out of the US – mostly capitalizing on weakness in the pound and euro. The surge in the greenback amid the volatile market conditions lately underscores the role it has assumed in recent months as an “all-weather currency”. Namely, it can outperform both in a risk-off setting like the one on Friday given its defensive status as the world’s reserve currency, and amid a risk-on environment as well, considering its carry appeal relative to all other G10 currencies. Put differently, the dollar seems to be enjoying a spell of “there is no viable alternative” at the moment.

And with good cause, considering that downbeat headlines continue to haunt both the pound and the euro. In the UK, sterling/dollar opened with a negative gap and is now more than 100 pips from its close on Friday, after UK press reported that several ministers in PM May’s government are ready to quit over Brexit. The takeaway is that if May cannot agree on a way forward with her own ministers, then pushing any Brexit deal she brokers through Parliament may be a herculean task, as half of her own party members and most of the opposition Labour party may vote it down. Hence, price action in sterling is likely to remain hostage to incoming headlines and choppy overall, with the prospect of a near-term breakthrough in the talks looking increasingly more remote.

In euro land, the Italian budget saga continued to dampen sentiment, with the EU giving Rome until Tuesday to present a revised budget with more “realistic” growth estimates. While Deputy PM Salvini said the EU wouldn’t be happy with Italy’s reply, Italian press over the weekend reported his government is aiming to reach a deal. In case Italy does revise its budget plans in a more diplomatic direction tomorrow, then the battered euro – which touched a 16-month low versus the dollar today – could see some relief.

Day ahead: Brexit and Italian politics eyed in empty calendar day

Monday’s calendar is practically empty of important releases, with Brexit and other political developments, namely the Italian-EU budget standoff, being eyed by traders.

Sterling is trading roughly 300 pips below last week’s high of $1.3174, as previous optimism over a Brexit deal was replaced with uncertainty and potentially even more minister departures from PM May’s government, according to reports by the Sunday Times. The British currency is again expected to remain “hostage” to any headlines on the matter, ahead of key UK data as the week unfolds.

Euro pairs are likely to prove sensitive to news having to do with Italy’s budget plans ahead of tomorrow’s deadline for the country to submit revised spending plans that would align with EU fiscal rules. The Italian government has so far been pushing forward its own arguments, unwilling to give in to EU demands. A clash between the two sides is expected to prove euro-negative, at least in the near term.

ECB Vice President de Guindos is scheduled to give a speech at the opening conference of the 21st Euro Finance Week in Frankfurt at 1000 GMT. Elsewhere, San Francisco Fed President Daly, a voting FOMC member in 2018, will be talking on the US economy’s outlook at 1930 GMT.

It is of note that US bond markets will be closed on Monday due to the Veterans’ Day holiday.

Technical Analysis: EURUSD short-term bearish at near 1½-year low; RSI oversold

EURUSD is trading in proximity to its lowest since June 2017 of 1.1256 hit moments ago. The Tenkan- and Kijun-sen lines are negatively aligned, supporting the view for a negative bias in the short-term. The RSI, which is declining, is also acting as a testament to the bearish momentum in place. Notice though that the indicator is below the 30 oversold level, suggesting that the selloff may be overstretched.

More worries over an Italian-EU standoff are likely to push the pair even lower. Support to declines may come around the 1.12 round figure, with the 1.11 handle being eyed in case of steeper losses.

On the upside and in case of a constructive dialogue between the two sides that eases investor angst, resistance could occur around 1.13; the zone around this mark encapsulates a previous bottom at 1.1301, as well as the Tenkan-sen at 1.1313. Higher still, the 1.1352 low would be eyed, before the attention turns to the area around the current level of the 50-period moving average line at 1.1386; the region around this point captures the Kijun-sen (1.1376), the Ichimoku cloud bottom (1.1378) and top (1.1383), and the 100-period MA (1.1403).

The pair stands at the front foot on Monday and probed above last week’s double-top at 114.08, but so far without clear break.

Near-term action is holding above broken Fibo barrier at 113.80 (76.4% of 114.54/111.37) which also contained Friday’s trading and keeping bullish bias intact.

Lat Thursday’s long green daily candle continues to underpin, with strong bullish momentum and daily MA’s in bullish setup, keeping focus at key 114.54 barrier (03/04 Oct highs).

Bulls may hold in extended consolidation before final push higher, as slow stochastic is moving sideways in overbought zone, with extended corrective dips to offer fresh buying opportunities and to be contained above rising 10SMA (113.37).

Widening interest rate divergence between the US and Japan, supports scenario.

Res: 114.20, 114.54, 114.73, 115.50
Sup: 113.80, 113.63, 113.37, 112.94

EUR/USD

Current level - 1.1256

The break through 1.1300 clearly signals, that the prolonged consolidation is over and the general downtrend is renewed, towards 1.1100, en route to 1.0860. Initial resistance  lies at 1.1300 and crucial on the upside is 1.1360.

USD/JPY

Current level - 114.14

The bias is positive, for a break through 114.50, towards 116.20 area. Crucial on the downside is 112.90 low.

GBP/USD

Current level - 1.2857

The downtrend is intact, heading towards 1.2780, en route to 1.2660 lows. Initial resistance lies at 1.2910 and crucial on the upside is 1.2950 area.

Cable opened with gap-lower on Monday and accelerated lower, extending steep fall into third straight day.

Sterling stays under increased pressure as dollar strengthens across the board on hawkish Fed and signs of rate hike in December, while uncertainty about Brexit rises.

Tensions within Theresa May’s government on fears that they will be unable to produce an orderly play for the exit from the EU, just five months before the deadline, and signals that some ministers may resign from the cabinet, add to negative pound’s environment.

Fresh bears took out strong Fibo support at 1.2878 (61.8% of 1.2695/1.3174 rally), generating fresh bearish signal for extension towards 1.2808 (Fibo 76.4%) and 1.2764 (01 Nov low).

Bearish momentum is building on daily chart and the price returned below a cluster of MA’s, increasing risk of retest of 30 Oct low at 1.2695.

Meanwhile, final push towards 1.2695 target could be delayed on consolidative corrective action as daily slow stochastic is breaking into oversold zone.

Broken Fibo 61.8% marks initial resistance at 1.2878, while stronger upticks should be capped at under converged 10/20SMA’s at 1.2958, which guard pivotal barrier at 1.2980 (daily cloud base).

Res: 1.2878, 1.2946, 1.2958, 1.2980
Sup: 1.2808, 1.2764, 1.2695, 1.2661

The Euro hit the lowest levels since late June in early Monday’s trading, as strong bearish acceleration at the beginning of the week broke below key supports at 1.1311/00 (200WMA / 15 Aug / 31 Oct lows).

Stepp fall after strong upside rejection at 1.1500 zone last week extends into fourth straight day, as the greenback maintains strong bullish bias and the single currency was also hit by rising concerns over Italy’s budget, which was rejected by the EU last month and Rome needs to present revised version of the budget by tomorrow.

Adding to negative tone was EU’s cut of forecasts for Italian growth last week.

Increased pace of decline and break below key 1.1300 zone supports, sees risk of extension towards next pivotal support at 1.1186 (Fibo 61.8% of 1.0340/1.2555 ascend), violation of which would expose higher base at 1.1118/09 (20 Jun / 30 May 2017).

Daily techs are in full bearish setup and support further weakness, with oversold slow stochastic/RSI, suggesting that bears could be interrupted, but so far without firmer signals.

Broken supports at 1.1300/11 now mark strong barriers which are expected to ideally cap upticks.

Res: 1.1300, 1.1311, 1.1330, 1.1366
Sup: 1.1240, 1.1226, 1.1186, 1.1109

The USD/JPY has formed a confluence at 4/8 MM and W H3 camarilla pivots. If the 4h candle closes above 114.00 we should see a continuation to the upside.

Rejections from 114.00 zone should provide a new bullish impulse towards next confluence targets. In that case, the bounce should target 114.45 – 5/8 – W H4 and 114.90 – 6/8 – W H5. If the price drops below 113.65 we could see a deeper retracement and the pair will be put to neutral mode again.