Sample Category Title

Daily Pivots: (S1) 0.8765; (P) 0.8785; (R1) 0.8802; More...

Intraday bias in EUR/GBP remains on the downside with 0.8804 minor resistance intact. Further fall should be seen to 0.8722 first. Break there will resume whole decline from 0.9097 and target 0.8620 support next. On the upside, above 0.8864 minor resistance will turn intraday bias neutral first. But another fall is in favor as long as 0.8804 minor resistance holds.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). On the downside, break of 0.8722 will extend the falling leg through 0.8620 support. On the upside, break of 0.9097 will target 0.9304 resistance instead.

Daily Pivots: (S1) 1.5756; (P) 1.5806; (R1) 1.5870; More....

Intraday bias in EUR/AUD remains neutral for the moment. Prior break of 1.5984 support is taken as an early sign of medium term trend reversal. Further decline is, thus, in favor as long as this 1.5984 holds. On the downside, below 1.5742 will target 1.5601 support. Break there will pave the way to 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 1.6357 is needed to confirm up trend resumption. Otherwise, risk will now stay on the downside even in case of strong rebound.

Key points

• All three candidates to succeed Merkel are more conservative
• There is a risk Merkel will step down as Chancellor prematurely
• Snap elections are not a given, but remain a possibility in either 2019 or 2020
• Should Merkel step down, an important 'stability anchor' and experienced mediator on the European political scene would be gone

Political uncertainty returned to Germany on 29 October when Chancellor Angela Merkel announced that she will not stand for re-election as CDU party leader, following major regional election defeats in Hesse and Bavaria. Speculations about her eventual departure as Chancellor and the power vacuum this would create in Europe weighed additionally on current fragile market sentiment. Although Merkel's stated intention is to fulfil her term until 2021, this will crucially depend on her successor, to be chosen at a CDU party conference 6-8 December. So far three candidates are in the race, all with more socially conservative views than Merkel:

Annegret Kramp-Karrenbauer (56). The former state premier of Saarland and the CDU's current secretary-general is a close Merkel ally and well connected and popular within the party. We expect a high degree of policy continuity under her leadership.

Jens Spahn (38). The current health minister is a rising star of the CDU's conservative wing and has been a vocal critic of Merkel's migration policies. Under his leadership the CDU would be likely to adopt a more conservative stance on domestic policies and potentially also be less vocal on furthering EU integration.

Friedrich Merz (62). The most conservative among the three candidates and one of Merkel's old rivals, which could spell trouble for any future cooperation. A successful corporate lawyer, Merz has strong business ties (currently heading the board of BlackRock) and low-tax/pro-market views, while also being a fiscal conservative.

Should either Merz or Spahn become CDU head, we expect the party to drift more towards the political right and see an increased risk that Merkel will step down as chancellor before her term ends. The timing remains uncertain, but in light of Brexit negotiations entering the hot phase, European Parliament elections coming up in May 2019 and the current polling of the governing parties, we think such a move more likely from H2 19 onwards. Much will also depend on the SPD coalition partner, which is also under pressure from dire election results and opposition to the grand coalition again rising within its ranks.

Should Merkel resign as chancellor prematurely, new elections for the Bundestag are not necessarily the next step. We could also imagine a scenario where renewed talks between CDU/CSU, FDP and the Greens lead to a so-called 'Jamaica' coalition, with the new CDU leader taking over as chancellor. That said, a more conservative CDU leadership under either Merz or Spahn could make finding such an agreement more difficult, especially with the centre-left Greens who are currently riding high in national polls.

Merkel's departure would very likely also put an end to the current consensus style politics and positions between the political left and right might become more confrontational, both on domestic issues (i.e. immigration) but also foreign policy topics (i.e. eurozone reforms). Furthermore, an important 'stability anchor' from a market perspective and experienced mediator on the European political scene would be gone during a time when Eurosceptic parties are gaining more prominence and a rocky road still lies ahead with respect to Brexit and Italy.

Daily Pivots: (S1) 1.1403; (P) 1.1429; (R1) 1.1453; More...

Intraday bias in EUR/CHF remains neutral at this point. On the upside, break of 1.1501 will revive the case of bullish reversal. Intraday bias will be turned back to the upside for 1.1713 resistance next. On the downside, break of 1.1343 will turn bias back to the downside for 1.1154/98 key support zone.

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.

Market movers today

Focus remains on politics. Tomorrow, the US mid-term elections take place, where the most likely outcome seems to be a divided Congress. We do not expect the midterms to have big implications for growth and financial markets.

In Germany, focus is on who is going to succeed Angela Merkel as CDU leader, see German Politics Monitor, 5 November. In Italy, we have the ongoing budget clash with the EU. The trade war is back in the spotlight, as Trump seems slightly more willing to negotiate with China.

US ISM nonmanufacturing will give us more information about current growth momentum. In September, the index printed the second-highest value since the series began in 1997.

UK PMI service index is expected to fall slightly to 53.3. The Lloyds Business Barometer suggests a sharp fall is on the cards and the DG ECFIN service confidence indicator says it probably remained unchanged.

Selected market news

Optimism over a US-China trade deal quickly faded and risk markets have started off on a weak note after White House economic adviser Larry Kudlow downplayed the potential of a quick deal with China. We see a 60% probability of a ceasefire in the trade war, but any real deal will take time to reach and is unlikely to be done until some point in 2019.

On Friday, US equities ended the day lower following a strong US jobs report, showing that non-farm payrolls increased by 250K in October, while average hourly earnings increased 0.2% m/m, hinting that wage pressure is increasing but only gradually.

The US jobs report supports the case for further rate hikes from the Fed and yields on 10-year US treasuries increased 8bp to 3.22% on Friday. We expect the Fed to remain on autopilot and look for the next rate hike to arrive in December.

Brexit optimism has gained further after the Times reported that UK Prime Minister Theresa May has secured concessions from the EU that allow all of the UK to remain in a customs union with the EU and avoid a hard border in Northern Ireland. Brexit remains a key driver and source of volatility for GBP in the coming months ahead of a deal. May's Brexit cabinet is scheduled to meet tomorrow to discuss it.

Late on Friday, MNI reported that some ECB official sources are considering fresh TLTROs, which also suggested the discussion will take place at the December meeting. It is likely to be an ongoing focus for markets as the one-year regulatory deadline approaches (summer 2019). It was mentioned by two ECB members at the meeting and it remains our baseline that another round of TLTROs will be launched, however, not in December.

General Trend:

• Automakers trade generally lower in Asia: Hyundai and Kia Motors decline over 4%
• Singapore’s DBS declines, Q3 profits miss ests
• China Oct Services PMI declines to lowest since 2017 (Caixin)
• China President Xi does not comment directly on the US (keynote speech at China International Import Expo in Shanghai)
• China PBoC announces first medium-term lending facility (MLF) operation since Sept
• Softbank is expected to report earnings after the Nikkei close
• Reserve Bank of Australia (RBA) policy decision due for release on Tuesday

Headlines/Economic Data

Japan

• Nikkei 225 opened -1.1%
• (JP) Bank of Japan (BOJ) releases minutes from Sept 18-19 meeting: Appropriate to continue easing persistently
• (JP) Japan Oct PMI Services: 52.4 v 50.2 prior; Composite PMI: 52.5 v 50.7 prior
• (JP) Bank of Japan (BOJ) Gov Kuroda: Will check balance of effects and costs of its policy in mainitaining powerful monetary easing; risk of financial destabilization is not big but BOJ will continue to monitor developments - speaking in Nagoya

Korea

• Kospi opened -0.8%
• (KR) South Korea PM Lee: Further tax cuts should be offered to government designated industrial crisis zones in order to create an actual investment effect - Korean press
• (KR) Bank of Korea (BOK) sells KRW300B in 6-month monetary stabilization bonds; avg yield 1.800%
• (KR) South Korea sells KRW800B v KRW800B indicated in 5-year bonds; avg yield 2.095%
• (KR) South Korea and US resume military drills ahead of nuclear talks - SCMP
• (KR) South Korea Official: Granted exemption from the US related to oil imports from Iran

China/Hong Kong

• Hang Seng opened -1.7%, Shanghai Composite -0.4%
• (CN) China PBOC May cut RRR for some banks in Q1 2019 - China Securities Journal
• (CN) CHINA OCT CAIXIN PMI SERVICES: 50.8 V 52.8E (lowest level since Sept 2017); PMI COMPOSITE: 50.5 V 52.1 PRIOR; New business index 50.1 (lowest level since Nov 2008)
• (CN) CHINA PBOC CONDUCTS CNY403.5B IN 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) V CNY265B PRIOR AT 3.30% V 3.30% PRIOR
• (CN) China President Xi: pledges to open market to the world; need to build an open global economy; global recovery has not stabilized yet; China goods imports to exceed $30T in the next 15 years -speaking at Import Expo (CIIE); China services imports to exceed $10T in the next 15 years
• (US) Press speculates that any trade agreement reached between President Trump and China President Xi is more likely to be a temporary truce rather than a substantive step forward
• (CN) China President Xi affirms support for private businesses – Caixin
• 486.HK Reports Q3 adj Net $338M v $262M y/y; adj EBITDA $676M v $549M y/y; Rev $2.92B v $2.46B y/y
• (HK) Hong Kong Oct PMI: 48.6 v 47.9 prior
• (CN) China PBoC sets Yuan reference rate at: 6.8976 v 6.9371 prior
• (CN) China PBoC Open Market Operations (OMO): Skips OMO v skipped prior
• (CN) China PBOC implementing new regulations on financial sector, including required to strengthen capital reserves and avoid putting the same capital pool to multiple uses, thought to go into effect H1 2019

Australia/New Zealand

• ASX 200 opened -0.2%
• WBC.AU Reports FY18 (A$) Cash Profit 8.07B v 8.06B y/y; Net Op income 22.1B v 21.8B y/y (-0.1%)
• (AU) Australia Oct Final CBA PMI Services: 51.7 v 50.8 prior; PMI Composite: 52.0 v 51.2 prior
• (AU) Australia sells A$500M in 2047 3.0% bonds, avg yield 3.233%, bid to cover 2.62x
• (NZ) New Zealand Oct ANZ Commodity Price m/m: -2.4% v -2.4% prior
• (AU) Australia Oct Melbourne Institute Inflation m/m: 0.1% v 0.3% prior; y/y: 1.9% v 2.1% prior
• GXL.AU Confirms entering into scheme of implementation agreement worth A$5.55/shr/A$481M from TPG (+18%)
• (NZ) New Zealand Treasury: Weak confidence is a risk to 2018-19 GDP growth forecast - Monthly Economic Indicators

Other Asia

• DBS.SG Reports Q3 (S$) Net 1.4B v 822M y/y; Net interest income 2.27B v 1.98B y/y
• (SG) Singapore Oct PMI: 52.6 v 49.6 prior

North America

• (US) Former Fed Vice Chairman Fischer said the Fed was afraid of negative interest rates – financial press
• (IA) US reimposes sanctions on Iran oil transactions (as expected)
• Looking ahead: US mid-term elections take place on Tuesday, will be closely watched to see if Republicans and Democrats flip control of the House and Senate

Europe

• (UK) Reportedly PM May has secured private concessions from Brussels that will keep the whole of Britain in a customs union, avoiding a hard border in Northern Ireland; also on track for a “future economic partnership” (FEP) agreement with EU - UK Sunday Times
• (UK) Over 70 business people are said to favor a public vote on the final terms of Brexit - UK press
• (UK) UK Brexit Min Raab said to have privately demanded the right to pull UK from EU's Ireland backstop after 3 months - Telegraph
• (RU) Russia First Deputy head of Russian Govt Office Prikhodko: Trade between Russia and China may exceed $100B in 2018 - Russian press

Levels as of 01:00ET

• Hang Seng -2.3%; Shanghai Composite -0.9%; Kospi -1.5%; Nikkei225 -1.6%; ASX 200 -0.5%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.1%, Dax -0.2%; FTSE100 -0.2%
• EUR 1.1383-1.1399; JPY 113.11-113.31 ; AUD 0.7183-0.7205;NZD 0.6633-0.6664
• Dec Gold 0.0% at $1,233/oz; Dec Crude Oil -0.6%at $62.74/brl; Dec Copper -1.3% at $2.78/lb

Daily Pivots: (S1) 0.7167; (P) 0.7213; (R1) 0.7244; More...

Intraday bias in AUD/USD is neutral for consolidation below 0.7258 temporary top. But with 0.7159 minor support intact, another rise is expected. Current development t argues that a medium term bottom might be in place at 0.7020. Firm break of 0.7314 resistance will confirm this bullish case and target 38.2% retracement of 0.8135 to 0.7020 at 0.7446 next. However, sustained break of 0.7159 will turn focus back to 0.7020 low instead.

In the bigger picture, as long as 0.7314 resistance holds, fall from 0.8135 is tentatively treated as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 will target 0.6008 key support next (2008 low). However, firm break of 0.7314 will suggest that whole decline from 0.8135 has completed. And, the corrective pattern from 0.6826 (2016 low) is extending with another rising leg towards 0.8135 before completion.

Daily Pivots: (S1) 1.3062; (P) 1.3090; (R1) 1.3132; More...

Intraday bias in USD/CAD remains neutral at this point. On the upside, break of 1.3170 target 1.3225 key near term resistance. Break will confirm completion of choppy fall from 1.3385 and target a retest on this high. Though, break of 1.3048 will turn focus to 1.2969 support. Firm break there will indicate completion of whole rebound from 1.2781. In that case, whole fall from 1.3385 might extend through 1.2781 support before completion.

In the bigger picture, current development revives the case that corrective fall from 1.3385 has completed at 1.2781 already. And whole up trend from 1.2061 (2016 low) is ready to resume. Break of 1.3385 will target 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685. This will now be the favored case as long as 1.2781 support holds.

Daily Pivots: (S1) 1.1354; (P) 1.1406; (R1) 1.1439; More....

Intraday bias in EUR/USD remains neutral at this point. On the upside, above 1.1455 reaffirm that consolidation pattern from 1.1300 has started the third, rising leg. Further rise should be seen to 1.1621 resistance and above. But upside should be limited by 1.1814 to bring down trend resumption eventually. On the downside, break of 1.300 will resume whole down trend from 1.2555 and target 1.1186 fibonacci level next.

In the bigger picture, price actions from 1.1300 is seen as a corrective pattern. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. In case the consolidation from 1.1300 extends, upside should be limited by 1.1814 and 38.2% retracement of 1.2555 to 1.1300 at 1.1779. to bring down trend resumption eventually.

Daily Pivots: (S1) 1.2932; (P) 1.2986; (R1) 1.3022; More...

Intraday bias in GBP/USD remains on the upside for the moment. Rebound from 1.2692 could target 1.3297 resistance zone. But as such rise is seen as the third leg of consolidation pattern from 1.2661, we'd expect strong resistance from 1.3316 fibonacci level to limit upside to bring down trend resumption eventually. On the downside, below 1.2908 minor support will turn bias back to the downside for 1.2692 instead.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.