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Daily Pivots: (S1) 112.14; (P) 112.61; (R1) 112.86; More...

Intraday bias in USD/JPY remains neutral for consolidation below 113.08 temporary top. On the upside, above 113.08 will extend the rebound from 110.83 to retest 114.73 key resistance. Decisive break there will extend the rally from 107.31 to retest 118.65 high. On the downside, break of 110.83 will resume the decline from 114.73 instead. But in that case, we'll look for bottoming again below 61.8% retracement of 107.31 to 114.73 at 110.14.

In the bigger picture, we're holding on to the view that correction from 118.65 is completed a 107.31. And medium term rise from 98.97 (2016 low) is resuming. Sustained break of 114.73 should affirm our view and send USD/JPY through 118.65. However, break of 107.31 will dampen this will and extend the medium term fall back to 98.97 low.

Daily Pivots: (S1) 1.2643; (P) 1.2685; (R1) 1.2714; More....

USD/CAD drops further to as low as 1.2623 so far as consolidation from 1.2916 continues. At this point, we'd still expect downside to be supported by 1.2598 resistance turned support to bring rise resumption. Above 1.2726 minor resistance will turn intraday bias back to the upside for 1.2916. Break of 1.2916 will resume the rally from 1.2061 and target 1.3065 medium term fibonacci level next. However, sustained break of 1.2598 will argue that rebound from 1.2061 has completed after hitting 55 week EMA (now at 1.2880). Near term outlook will be turned bearish in this case.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Rise from 1.2061 medium term bottom should now target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Firm break there will target 1.3793 key resistance next (61.8% retracement at 1.3685). We'll now hold on to this bullish view as long as 1.2450 support holds.

Sterling remains the weakest major currency today as traders are awaiting progress in Brexit negotiation. It probably takes a few more days for UK Prime Minister Theresa May to sort things out before she goes back to Brussels. Dollar regains some ground against Europeans and Yen. But commodity currencies are the ones who're shining today. In particular USD/CAD drops through 1.2665 support and is heading to 1.2598 key near term support level.

Released in US session, US trade deficit widened to USD -48.7b in October. Canada trade deficit narrowed to CAD -1.5b in October. The Senate Banking Committee will vote today on nomination of Jerome Powell as the next Fed chair. The confirmation should be smooth and it's generally expected that full Senate approval will be completed by early February.

UK PMI services disappointed in November

UK PMI services dropped to 53.8 in November, down from 55.6 and below expectation of 55.0. Markit chief business economist Chris Williamson pointed to the surge in prices in November that hurt services industry. He noted that "rising oil prices were again to blame in November, with firms also reporting the need to pass higher costs of a wide variety of other inputs on to customers as a result of the weak pound having driven up import prices." Also, "as such, the survey data suggest that inflationary pressures have yet to peak."

Nonetheless, "slower service sector growth comes as a disappointment after the improved performances of both manufacturing and construction in November. However, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter. The survey data are so far consistent with the economy growing at a quarterly rate of 0.45 per cent in the closing months of 2017."

UK PM Theresa May to brief Cabinet on Brexit

UK Prime Minister Theresa May will meet with her cabinet to brief the situation regarding Brexit negotiation with EU. Then May will try to persuade DUP leader Arlene Foster on the issue of Irish border, before going back to Brussels by the end of the week. Foster intervened the meeting between May and European Commission President Jean Claude Juncker, expressing her objection to the Irish border arrangement, which then caused the collapse of the talk. The pro-Brexit DUP was deeply concerned that the deal would make Northern Ireland leaving EU on different terms then other part of the UK.

European Commission chief spokesperson Margaritis Schinas said today that "there are some topics still open, which will need further consultation and negotiation, notably in London. The show is now in London. We stand ready here in the Commission to resume talks with the United Kingdom at any moment in time when we get the sign that London is ready."

ECB to pause asset purchase during Christmas holidays

ECB will pause bond buying from December 21 to December 29 as market liquidity will drop sharply during Christmas holidays. And, ECB also said that purchases in December will be somewhat frontloaded to take advantage of the relatively better market conditions expected during the earlier part of the month. Purchases will resume on January 2 2018. From Eurozone, retail sales dropped -1.1% mom in October, worse than expectation of -0.7% mom. Eurozone services PMI was finalized at 56.2 in November, unchanged. German services PMI was revised down by 0.6 to 54.3. France services PMI was revised up by 0.2 to 60.4. Italy services PMI rose to 54.7 in November, above expectation of 53.2.

RBA stands pate, weary of soft inflation and wage growth

RBA left the cash rate unchanged at 1.5% today, following the last reduction in August 2016. The accompanying statement contained little surprise. While staying confident over the employment situation, policymakers remained weary of the persistently soft inflation and wage growth. The RBA stance is largely unchanged from the previous meeting. We retain the view that the policy rate would stay unchanged for the entire 2018. More in RBA Remains Cautious As Wage Growth Subdued.

Australia dollar was lifted earlier today by stronger than expected retail sales, which grew 0.5% mom, versus consensus of 0.3% mom. Also from Australia, current account deficit narrowed slightly to AUD -9.1b in Q3. Elsewhere, China Caixin PMI services rose to 51.9 in November, up from 51.2, above expectation of 51.5.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2643; (P) 1.2685; (R1) 1.2714; More....

USD/CAD drops further to as low as 1.2623 so far as consolidation from 1.2916 continues. At this point, we'd still expect downside to be supported by 1.2598 resistance turned support to bring rise resumption. Above 1.2726 minor resistance will turn intraday bias back to the upside for 1.2916. Break of 1.2916 will resume the rally from 1.2061 and target 1.3065 medium term fibonacci level next. However, sustained break of 1.2598 will argue that rebound from 1.2061 has completed after hitting 55 week EMA (now at 1.2880). Near term outlook will be turned bearish in this case.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Rise from 1.2061 medium term bottom should now target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Firm break there will target 1.3793 key resistance next (61.8% retracement at 1.3685). We'll now hold on to this bullish view as long as 1.2450 support holds.

Economic Indicators Update

The Canadian dollar continues to move higher on Tuesday, after starting the week with slight gains. Currently, USD/CAD is trading at 1.2644, down 0.24% on the day. On the release front, both Canada and the US release Trade Balance, and the US will also publish ISM Non-Manufacturing PMI. On Wednesday, the Bank of Canada will set the benchmark rate and the US releases ADP Nonfarm Employment Change.

The Bank of Canada is expected to maintain interest rates at 1.00% on Wednesday, but may have to consider another rate hike early in 2018, if Friday's sparkling numbers Friday continue. Canadian employment change soared to 79.5 thousand, crushing the estimate of 10.2 thousand. This marked 12 straight months of job gains and helped drive the unemployment rate down to 5.9%. As well, September GDP rebounded with a gain of 0.2%, edging above the estimate of 0.1%. The impressive numbers boosted the Canadian dollar by some 1.6% on Friday, its strongest 1-day gain in 2017. If the BoC rate statement sounds optimistic about the Canadian economy, the Canadian dollar could continue to rally.

The US Senate passed a tax reform bill on the weekend, but the vote was a razor thin 51-49. The vote went along party lines, with one Republican voting against the bill. Now that that the House and the Senate have passed tax bills, a conference committee will try and hammer out a uniform bill which can be sent to President Trump and signed into law. There are some differences in the two bills, notably individual tax rates, the alternative minimum tax, mortgage interest deductions and the estate tax. The Senate and House will have to work out their differences quickly, as the new "merged" bill will have to pass through in both houses. If the bill does become law, it will mark the first major tax reform in the US in 30 years, and could boost the US dollar against the euro and other major currencies.

The European technology sector is mimicking what happened over on Wall Street
UK and EU walked away yesterday without having any deal
Spanish industrial number painted more cheerful painting

US futures are mainly focused on any new development on the US reform. Markets have priced in the impact of the US tax reform to a large extent, despite the fact that these changes are yet to be signed by President Trump and become a law. The fact is that the road for these changes to become a law isn't that smooth yet and any bumps could bring some shocks for investors. The European technology sector is mimicking what happened over on Wall Street. A major sector rotation is taking place. Money is coming out of technology sector and moving in those sectors which are going to be the beneficiary of the US tax overhaul. Hence the performance of the US financial and energy sector has anchored during the past few days.

After yesterday's breakdown in the Brexit negotiations, we aren't experiencing much enthusiasm for the risk on trade over in Europe. Both sides walked away yesterday without having any deal. Investors were optimistic that both sides will able to sign a deal for the U.K. leaving the European block.

The uncertainty around the first phase of Brexit negotiations has brought more than usual volatility for Sterling. Fairly recently, the heavy sell off in sterling has come off from its peak, triggered by the fear that the deadlock in Brexit negotiations isn't going anywhere and the optimism around it was over inflated. The UK services data is also having an influence on sterling today as it confirmed that the services sector is picking up some chill and inflation has further accelerated- a combination which is fatal for the UK's economy.

Over in Europe, the Spanish industrial number painted more cheerful painting for the Spanish economy. The economy is gaining more momentum, thanks to the broad rebound in the eurozone economy. Countries like Greece have also started to perform much better. The most encouraging element is that the strife in Catalonia hasn't left any catastrophic impact on the region. We also had the European retail sales data which showed that shoppers were not generous towards their shopping habit in eurozone during October. However, we only have a modest drop of 0.5 percent.

Here are the latest developments in global markets:

Forex: The Australian dollar continued to trade around three-week highs at $0.7645 (+0.63%) following upbeat data on retail sales and the RBA’s decision to keep rates steady at record low levels. In the Eurozone though, retail sales disappointed markets with the measure diving unexpectedly to a three-week low as food prices fell sharply. Euro/dollar retreated in the wake of the data but erased its losses afterwards, trading flat at $1.1872. Sterling dipped to a five-day low of 1.3369 before it bounced back above the 1.34 key level (-0.50%) after the British service PMI missed forecasts. However, stalled Brexit talks were the main drag on the market. Euro/pound approached a one-week high at 0.8866 (+0.56%). Dollar/yen was moving sideways around 112.40.

Stocks: European stocks were on the backfoot as sell-off in tech and healthcare shares gained momentum. The pan-European STOXX 600 declined by 0.53%, the German DAX 30 fell by 0.66% while the French CAC 40 retreated by 0.70%. The British FTSE was steady, finding support on a weaker pound.

Commodities: Oil prices remained weak, with the WTI crude falling by 0.63% to $57.11 per barrel amid concerns over rising US supply output. Brent declined by 0.35% to $62.23. Gold stood flat at $1,276.40 per ounce.

Day ahead: US & Canada release trade figures; US ISM non-manufacturing PMI also in spotlight

Trade data out of the US and Canada will be closely watched in the coming session, while US PMI figures and the global dairy price index will be also in focus.

At 1330GMT, US trade data are likely to show a wider trade deficit in October, with the amount climbing by $4 billion m/m to $47.50 – a six-month high – whereas in Canada, the trade deficit will likely narrow by C$0.48bn to C$2.70bn in the aforementioned period, reaching the lowest level in five months.

Later in the day, US non-manufacturing PMI readings published by the Institute of Supply Management are expected to pull back to 59.0 in November after touching a more than a two-year high of 60.1 in October.

In energy markets, investors will look forward to the API weekly report due at 2130GMT which tracks the level of the US crude, gasoline and distillates stocks as concerns over rising US output linger in the market.

In other commodities, global milk auctions will be also eyed probably, bringing some volatility to the kiwi as New Zealand is a major dairy exporter. However, the release is tentative.

In the political front, the UK Prime Minister, Theresa May will meet with cabinet members later today before she begins talks with the DUP on Wednesday in order to persuade Ireland to drop its veto on the Irish border issue which is crucial for Brexit negotiations to move to the second stage of trade talks.

The euro is starting to recover early week trading losses against the U.S dollar, with price-action moving back towards the 1.1876 resistance level. The EURUSD pair earlier slipped back towards the 1.1845 level, after disappointing EU Retail Sales data, with the monthly Retail Sales figures turning negative. The euro is now moving higher, supported by a softer U.S dollar, and traders moving away from British pounds and into euros. The single currency is increasingly technical, with the 1.1890 level the next big upside hurdle for the pair above the 1.1876 level.

The EURUSD pair will turn intraday bullish while trading above the 1.1876 technical level. Further upside towards the 1.1900 and 1.1940 resistance levels appears likely.

Should the pair again be rejected from the 1.1876 technical resistance level, it may lead to a EURUSD price-correction back towards the 1.1850 and 1.1808 technical support levels.

The U.S dollar struggled to break above the 112.70 technical level against the Japanese Yen, pressuring the pair lower during the European trading session. The USDJPY has now slipped back towards the 112.40 support level, as buying interest dried up before the 112.70 resistance level, pushing price lower. The U.S dollar index is currently losing bullish momentum and moving well below the key 93.20 level. Traders now await the release of the U.S Manufacturing PMI and the ISM Non-Manufacturing survey for the month of November.

The USDJPY pair remains intraday bearish while trading below the 112.70 level. Further downside towards the 112.20 level appears likely, with the USDJPY 200-day MA offering further strong support at the 111.58 level.

Should price action move above the 112.70 level, intraday buyers will look to push the USDJPY pair back towards the weekly price-high, found at the 113.10 level.

AUDJPY made a sharp rally recently, which we see it as a sharp corrective wave 4. Notice that price reached some significant resistance zones, which can offer turning points lower. First we see former swing high of wave iv), that usually acts as resistance for current wave four. Then we have Fibonacci ratios of 38.2 and 50.0, both turning point triggers. However, let's be patient and aware, that price is also close to the invalidation level- 86.65 and if breached the count would be invalidated. That said, a breach below the 85.36 level would confirm more weakness.

AUDJPY, 4H

Copper was sharply down on Tuesday and moved into negative territory, hitting two-month low at $3.0170.

Strong bearish acceleration was triggered profit-taking actions which also offset positive impact from better than expected China’s PMI data in November.

Fresh bearish acceleration broke below base at $3.0305/15 zone and in extension cracked next support at $3.0232, provided by ascending 100SMA.

Negative signal of bearish continuation of the downleg from $3.2580 high (the highest since July 2014), with close below $3.0324 (Fibo 61.8% of $2.8930/$3.2580) and $3.0305 base, needed to confirm.

Fresh bears would extend towards $2.9889 (bear-channel) and $2.9577 (Fibo 38.2% of $2.4720/$3.2580 rally) in extension.

Res: 3.0315, 3.0505, 3.0755, 3.1175
Sup: 3.0110, 3.0000, 2.9889, 2.9577