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In result of the previous trading session the rate has broken through support line of a long ascending channel, thus ending the consolidation phase. Even though the pair has already crossed the 200-hour SMA and there are signs of a forming descending channel, a bunch of technical indicators suggest that an area around the 1.3500 mark represents strong support level, which is likely to lead to a rebound. In that case, the cable might jump back to 1.3550. However, without additional impulse, for instance, from some fundamental event the further surge is unlikely because of combination of the 55- and 100-hour SMAs. Nevertheless, from daily perspective it seems that deprecation of the Pound will continue at least until the rate will reach the 50% Fibonacci retracement level at 1.3485.

In accordance with expectations, the Dollar continued to lose value against the Yen. However, the downfall appeared to be stronger than expected, as the currency rate managed to break through the lower trend-line of a six-week long symmetrical triangle. Accordingly, the closest support barrier that might turnaround the pair is located near the 112.05 mark, which has successfully managed to stop the rate from falling during the previous three attempts. In case this barrier is broken, the pair will have an empty area up until the 200-day SMA at 111.72 and the 23.6% Fibonacci retracement level at 111.65. Generally, there is a need to take into account that majority of pending orders in 100-pip range are set to buy plus the aggregate market sentiment remains almost 53% bullish.

Contrary to expectations, gold traders decided not to wait this week's American fundamental data releases and pushed the pair from symmetrical triangle pattern. Despite combined support level formed by the lower trend-line of an ascending channel and the 200-hour SMA near the 1,310.00 mark, the exchange rate is projected to continue moving downwards. Such assumption is based on picture seen on daily chart, where the pair has recently made a rebound from the upper edge of a four-month long descending channel. Such scenario is partially confirmed by allocation of pending orders, which are set to sell. In that case the fully-fledged might happen only when the pair will reach the 50% Fibonacci retracement level located at 1,297.200.

The Euro recieved a hopeful sign to get back a stronger position against the US Dollar, but continued to decline after the better-than-anticipated economic report on Germany.

German industrial output and the country's exports grew more than anticipated in November, suggesting lingering expansion in the Europe's biggest economy in this year, ignoring political deadlock, when new coalition government was not formed. Industrial production gained 3.4% in November, the strongest gain since late 2009, the Federal Statistics Office reported. Meanwhile, exports increased at a seasonaaly adjusted 4.1% pace, while imports added 2.3% in the same month. Both readings pushed the trade surplus to €22.3B from €19.9B registered in October.

Currency pair USD/JPY

The USD/JPY broke below support again (dotted blue) and has invalidated the bullish pattern and outlook. A larger bearish correction is now most likely and price could test the bottom of wave W (pink) at 111 or even break the bottom and move towards the round levels of 110.50 and 110

The USD/JPY bearish momentum looks strong and price could continue lower after price builds and breaks a chart pattern.

Currency pair EUR/USD

The EUR/USD bearish breakout fell towards the Fibonacci levels of wave 4 vs 3 (blue) and has arrived at the 50-61.8% support zone. A break below the support trend line (blue) and 61.8% Fib of wave 4 makes a bearish scenario more likely. In that case, the alternative outlook is that price is not completing a 123 (pink) but a larger ABC correction.

The EUR/USD broke the support trend line and continued with the bearish price movement. A break above the resistance trend line (red) could be a first sign that wave C is over whereas a break below support could see price fall further. A push below the 61.8% Fib makes this wave 4 unlikely.

Currency pair GBP/USD

The GBP/USD broke the support (dotted blue) of the corrective pattern. A break above the resistance trend lines (orange/red) could see price move towards the Fibonacci targets whereas a break below support (blue) could see price make a larger bearish reversal.

The GBP/USD broke multiple trend lines which could be part of ABC corrective pattern as long as price stays above the 50-61.8% Fib zone of wave 4.

Market movers today

It is time for inflation in Norway and Denmark for December. We look for Norwegian core CPI to increase from 1.0% y/y to 1.2% y/y (in line with consensus). Danish inflation is expected to be flat at 1.3% y/y.

In Sweden, Riksbank minutes are due as well as industrial data on both orders and production for November (for more on Scandi see next page).

On the global front, UK industrial production and US import prices are not likely to move the markets. The Fed's Evans (non -voter, dovish) is due to speak this afternoon at 15:00 CET on the economic and policy outlook (includes Q&A).

After the large drop in US crude stocks seen in the API inventory report yesterday, the oil market will focus on the EIA's inventory report today.

Selected market news

In China, CPI inflation rose to 1.8% y/y in December from 1.7% y/y in November, while PPI inflation slowed to 4.9% y/y in December from 5.8% y/y in November , according to data released overnight . Hence, inflationary pressures remain subdued in China.

Minneapolis Fed's Kashkari reiterated his views on monetary policy yesterday, advocating for an easier monetary policy stance to push inflation and wage growth higher, stressing that lower rates are likely to have a structural cause, that inflation is low everywhere, which signals that it is not due solely to mismeasurement and that the Fed should take its cue from the yield curve.

In Italy, comments from Five Star PM candidate Luigi Di Maio suggests that its stance towards the euro is becoming more moderate as he said that it is no longer time for Italy to leave the euro as the French-German alliance is not as strong as in the past . There was limited reaction in EUR/USD to the comments.

Oil prices rallied sharply with the price on Brent crude moving past the USD69/bbl mark. Part of the reason for the rise was the American Petroleum Institute reporting an 11mb drop in crude inventories last week. We stress that in our view the extreme cold winter weather in the US this season can explain most of this decline.

Headlines/Economic Data

General Trend: Asian equities trade mixed amid rise in global interest rates

Asian yield curves track steepening seen in the US

Japan 10-yr JGB yield hits highest since Oct 2017

Korea 10-year yield hits highest intraday level in 3-years

China sells 1 and 10-year bonds at lower than expected yields

Australia REIT sector underperforms amid rise in interest rates

Samsung Electronics extends losses seen post Q4 guidance

China 2017 CPI misses target as food prices decline for first time since 2003

Japan

Nikkei 225 opened -0.1%; closed -0.3%

Chip related companies decline following guidance from Samsung: Tokyo Electron -1.9%, SUMCO -1.5%

Fast Retailing -0.8%: Expected to report Q1 results on tomorrow’s session

Automakers outperform: Honda +2%, Toyota +1.7%

Mega banks track gains in the US financial sector: Sumitomo Mitsui +2.2%, Mitsubishi UFJ +1.7%, Mizuho +1%

JGB (JP) Japan MoF sells ¥2.24T v ¥2.3T indicated in 0.1% (prior 0.1%) 10-yr JGB; avg yield 0.078% v 0.059% prior; bid to cover 3.74x

(JP) Japan Financial Services Agency (FSA) said to be preparing scenarios for the ailing regional banks, including the possibility of injecting public funds and overseeing the integration of management between institutions - Nikkei

Korea

Kospi opened +0.2%, later trades lower

Continued weakness in chip sector: Samsung Electronics -2.8% (follow-through declines after Q4 guidance), Hynix -5%

Hyundai Heavy (010140.KR ) +7.5%: Said to plan to cut 2,500 jobs - South Korean Press

Financials gain amid steeper yield curve: KB Financial +1%, Woori Bank +1.7%

042660.KR May report Q4 Net loss due to cost increases and KRW - Korean press

(KR) South Korea President Moon: An increase in minimum wage is meaningful reform to economy

(KR) Moody’s comments on recent inter-Korea talks: Says the talks don’t lower the probability of a conflict for now

China/Hong Kong

Hang Seng and Shanghai Composite opened flat

Hang Seng Energy Index +1.5% (On Tuesday oil prices rose by over 2.5%), Financials +0.7%, Property/Construction +0.6%

Chow Tai Fook Jewellery +2.7%: Q3 China SSS +5% y/y

Parkson Retail Group +10% (no relevant news seen)

Great Wall Motor: -4.5%: Dec sales -16.6% y/y

(CN) PBOC may resume open market operations (OMO) soon - China Securities Journal

(CN) China PBoC OMO: Injects CNY120B combined in 7, 14-day reverse repos v skips prior; Net drains CNY0B v CNY130B prior

USD/CNY (CN) China PBoC sets yuan reference rate at 6.5207 v 6.4968 prior

(CN) CHINA DEC CPI M/M: 0.3% V 0.3%E; Y/Y: 1.8% V 1.9%E; PPI Y/Y: 4.9% V 4.8%E

China bond market remains weak in the early parts of 2018, volatility has ebbed since the beginning of November and the trend may begin to reverse - CSJ

China said to suspend 'counter-cyclical' factor in yuan (CNY) fix - US financial press

China Finance Ministry sells 1 and 10-year bonds at lower than expected yields

Australia/New Zealand

ASX 200 opened +0.1%, has since pared gains; closed -0.6%

ASX 200 REIT Index -1.3%, Telecom Services -1.1%, Energy -0.9%, Utilities -0.7%, Resources -0.5%, Financials -0.2%

(AU) Australia Nov 3-month Job Vacancies: 2.7% v 6.0% prior

(AU) China demand for Australian property is expected to moderate this year amid the impact of new state and federal taxes - Australian

Looking Ahead: Australia Nov Retail Sales due for release on Thursday

Other Asia

(PH) Philippines Budget Sec Diokno: Q4 GDP growth can be around 7% or higher (vs 6.9% in Q3)

(PH) Philippines Nov Trade Balance: -$3.8B (multi-year high for the deficit) v -$2.7Be

Taiwan Semi, 2330.TW Reports Dec Rev NT$89.9B v NT$93.2B m/m v NT$78.1B y/y, 2017 Rev NT977.5B, +3.1% y/y

North America

US equity markets ended mostly higher: Dow +0.4%, S&P500 +0.1%, Nasdaq +0.1%, Russell 2000 -0.1%

S&P500 Health Care Sector +1.2%, Financials +0.8%; Real Estate -1.1%, Utilities -1%

(US) Fed's Kashkari (dove, non-voter): inflation that's too low is a bigger concern than inflation that's too high; Economic recovery has been frustratingly slow; believes slow pace of recovery is due to psychological scarring from the financial crisis

(US) Trump Administration said it will not permit drilling off of the coast of Florida – US press

(US) Weekly API Oil Inventories: Crude: -11.2M v -5M prior

Looking Ahead: US weekly DOE Crude Oil Inventories due for release

Europe

(UK) Prime Min May reportedly has scrapped plan to create cabinet post for a no-deal Brexit situation - UK press

(UK) EU Chief Brexit Negotiator Barnier: the integrity of the single market is crucial in Brexit; risk of a disorderly Brexit has decreased; Future trade relationship with UK will not be frictionless

(UK) UK Brexit Ministry: proposes three-month window after Brexit to begin court cases under general principles of EU law

(UK) According to the EU companies in the UK may not have automatic access if there is no Brexit deal - financial press

(UK) UK Chancellor of the Exchequer Hammond and Brexit Sec Davis wrote a joint article in the German Press suggesting close cooperation between the EU and UK regulators following Brexit, as part of an expansive trade agreement that covers goods and financial services (Note: Both Davis and Hammond are expected to be in Germany on Wed)

(UK) Germany is said to show opposition to Brexit trade deal plan proposed by the UK - UK Press

(UK) British Chambers of Commerce (BCC): Survey shows UK services and manufacturing companies less confident about 2018 revenues

(IT) Five Star Party says its no longer time for Italy to leave the euro zone - Italian press

(CN) EU Ambassador to China Schweisgut: EU hopes for full China market access with reciprocity

World Bank raises global economic growth outlook at +3.1% (prior +2.9% forecasted)

Continental [CON.DE]: Reports Prelim FY17 Rev €44B v €43.9Be; Guides initial FY18 Rev ~€47B, +6.8% y/y, adj EBIT margin 10.5%

Akzo Nobel [AKZA.NL]: Shortlist of bidders for chemical unit reportedly include Carlyle Group and Bain - press

Looking Ahead: UK Nov Industrial Production, Manufacturing Production and Trade data due for release

Levels as of 01:00ET
- Nikkei225 -0.3%, Hang Seng +0.3%; Shanghai Composite -0.3%; ASX200 -0.6%, Kospi -0.4%

Equity Futures: S&P500 -0.1%; Nasdaq100 -0.1%, Dax -0.0%; FTSE100 -0.1%

EUR 1.1949-1.1928; JPY 112.79-112.17; AUD 0.7831-0.7808;NZD 0.7173-0.7140

Feb Gold -0.2% at $1,310/oz; Feb Crude Oil +0.8% at $63.45/brl; Mar Copper +0.2% at $3.23/lb

BOJ offered to buy 190B yen of JGBs with maturity of 10- 25 years, down 10B yen from the purchase made on December 28. It also reduced the purchase of JGBs with maturity of 25- 40 by the same amount to 90B yen. The move has heightened speculations that the central bank is preparing to trim its stimulus measures. The market reactions match with the speculations with USDJPY slipping -0.42% while EURJPY down -0.65% on Tuesday. Japanese longer- dated 20- and 40-year bond yields rose to their highest in a month. Longer- term US Treasuries were also affected by BOJ’s move with 10-year yields gaining +6 points to 2.546%. Of course, the movement of US Treasuries was also affected by the auctions this year.

We do not view this as an abrupt shift from BOJ’s monetary stance. In December, the central bank, while turning more upbeat on the recovery outlook, kept the targets for short- and long-term interest rates unchanged at -0.1% and around 0%, respectively, and the guideline for JGB purchases at an annual pace of about 80 trillion yen. We have mentioned in our October report (https://www.actionforex.com/action-insight/central-bank-views/53808-boj-left-stimulus-unchanged-downgraded-inflation-forecasts) that BOJ’s monetary base has been shrinking with the monthly JGBs purchase steadily falling since February 2017. The annual increase in JGB buying has fallen to 50-ishh trillion yen in December last year, from about 79 trillion yen in the same period in 2016. This suggests that BOJ has gradually been moving away from targeting monetary base growth, to yield curve control (since its introduction in September 2016), as the key policy instrument.

Over the past year, most of the reduction in purchases was JGBs with 1-10 year maturity, compared with the long-dated ones on Tuesday. We believe the aim of BOJ is on a steepening of the back end of its yield curve so as to provide support for banks and real money investors. A steeper yield curve would help raise profitability of financial institutions, allowing them to ease lending standards and take risks on their balance sheets. With CPI staying far below the +2% target, it still remains a long way for the BOJ to begin considering policy normalization.

Daily Pivots: (S1) 151.77; (P) 152.66; (R1) 153.40; More...

No change in GBP/JPY's outlook. As long as 151.74 minor support holds, further rally is in favor. Current rise should target 61.8% projection of 139.29 to 152.82 from 146.96 at 155.32. However, firm break of 151.74 will turn focus back to 149.40 support instead.

In the bigger picture, it now looks like GBP/JPY has finally taken out 38.2% retracement of 195.86 to 122.36 at 150.43. Medium term rise from 122.36 should be targeting 61.8% retracement at 167.78. This will now be the favored case as long as 146.96 support remains intact.

Daily Pivots: (S1) 133.84; (P) 134.65; (R1) 135.27; More....

Intraday bias in EUR/JPY remains on the downside for 132.04 key support. Prior break of 134.39 resistance turned support is seen as early sign of trend reversal. But it's yet to be confirmed. On the upside, above 135.01 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 136.63 holds.

In the bigger picture, medium term rise from 109.03 (2016 low) is seen as at the same degree as the down trend from 149.76 (2014 high) to 109.03 (2016 low). It should now be targeting 141.04/149.76 resistance zone. On the downside, break of 132.04 support is needed to indicate medium term reversal. Otherwise, outlook will stay bullish in case of deep pull back.