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Key Highlights

• The British Pound is moving higher and is currently trading above the 1.3420 support against the US Dollar.
• There is a crucial bullish trend line forming with support at 1.3430 on the 4-hours chart of GBP/USD.
• The US Factory Orders declined by 0.1% in Oct 2017, less than the forecast of -0.4%.
• Today, the UK Services PMI for Nov 2017 will be released, which is forecasted to decline from 55.6 to 55.0.

GBPUSD Technical Analysis

The British Pound is gaining bullish momentum above 1.3450 against the US Dollar. The GBP/USD pair might soon break 1.3550 for a move towards 1.3600 in the near term.

After a downside spike, the pair found support at 1.3220 and started an upside move. It traded higher and broke the 1.3400 and 1.3500 resistance levels. A high was formed at 1.3549 from where the pair corrected lower.

It tested the 38.2% Fib retracement level of the last wave from the 1.3220 low to 1.3549 high. On the downside, there is a crucial bullish trend line forming with support at 1.3430 on the 4-hours chart.

The trend line and support area near 1.3420 are important. As long as the pair stays above 1.3420, it could continue higher towards 1.3600 and it might even break it for further gains.

US Factory Orders

Recently in the US, the Factory Orders report for Oct 2017 was released by the US Census Bureau. The market was looking for a decline of around 0.4% in orders compared with the previous month.

The actual result was better as the decline in orders was only 0.1% in Oct 2017. However, the outcome was disappointing when compared with the last increase of 1.7% (revised up from +1.4%).

The GBP/USD pair was neutral after the release, but remained elevated above the 1.3420 support.

Economic Releases to Watch Today

Germany's Services PMI for Nov 2017 – Forecast 54.9, versus 54.9 previous.

France Services PMI Nov 2017 – Forecast 60.2, versus 60.2 previous.

Spanish Services PMI for Nov 2017 – Forecast 55.2, versus 54.6 previous.

Euro Zone Services PMI for Nov 2017 – Forecast 56.2, versus 56.2 previous.

UK Services PMI for Nov 2017 – Forecast 55.0, versus 55.6 previous.

US Services PMI for Nov 2017 – Forecast 55.4, versus 54.7 previous.

• AUD Lifted By Retail Sales Data and RBA Statement;
• China Gets PMI Releases Off to a Positive Start;
• Irish Border Issues Preventing Progress in Brexit Negotiations;
• Tax Reform Remains Key For US Investors.

European equity markets are expected to open a little lower on Tuesday following a softer session in Asia, which came as US equity markets took a negative turn after posting fresh record highs at the open.

AUD Lifted By Retail Sales Data and RBA Statement

There was plenty of movement in the Australian dollar overnight as stronger retail sales data for October followed by a slightly more hawkish tone from the Reserve Bank of Australia lifted the currency around 0.7% against the greenback. The growth in consumer spending is the highest we’ve seen since May and comfortably exceeded expectations, while the September reading was also revised higher.

While the data was largely responsible for the Aussie move overnight, the RBAs reference to a tighter labour market did appear to push the currency a little further. That said, while we are seeing progress, the probability of a rate hike any time soon appears slim and the post announcement move was probably largely aided by the momentum gathered in the aftermath of the retail sales release. The RBA left rates unchanged at today’s meeting.

China Gets PMI Releases Off to a Positive Start

The Caixin services PMI rose more than expected overnight, which follows a similar bounce in the official reading last week. As has been expected, we are seeing a dip in the surveys in the latter part of the year and yet they are showing some resilience despite the fact that stimulus efforts have been reined in. Improvements in the global economic environment will be going some way to filling this gap and should continue to aid the transition in China for the foreseeable future.

There’s plenty more services PMI surveys being released across Europe this morning, although many of these will be revised readings and may therefore have little impact. The UK reading is expected to ease off a little from October but remain elevated at 55.

Irish Border Issues Preventing Progress in Brexit Negotiations

This comes as negotiations between the UK and the EU appear to finally be making some progress. The two sides still have a little further to go before they can proceed onto the next stage and discuss future trade but there appears to be a more optimistic feeling that this can be achieved before the deadline in just over a week. The pound has already rallied in anticipation of a deal on the financial settlement and citizens’ rights although as ever complications, this time around the Irish border, are preventing these being wrapped up just yet.

Tax Reform Remains Key For US Investors

The passage of tax reform through Congress will likely be the key focus for US investors between now and year-end, with a rate hike this month almost entirely priced in. While these discussions take place though there is plenty of data to keep an eye on including of course this Friday’s jobs report. Today it’s the ISM non-manufacturing PMI that will steal the focus, as well as the services PMI reading, both for November.

Market movers today

The talks about a US tax deal continue to be the main topic in markets. Also, the market will monitor comments on Brexit negotiations after the talk yesterday between the UK's Theresa May and the EU's Jean-Claude Juncker did not result in a deal.

There is no tier-1 data today on the global front but a number of tier-2 data is due to be released: PMI services are released for the euro area and the UK and US will release the ISM non-manufacturing index. The latter is the most interesting as it reached the highest level in more than a decade in the past two months. Although growth is robust in the US, it seems a bit overdone and we could be in for a small decline for November.

Euro retail sales are set to show a decline in October (consensus is -0.7% m/m) after a big increase in September. Overall, the euro consumer is in good shape as signalled by record high consumer confidence.

In Sweden, it is time for industrial orders/production. Also, the Swedish Financial Stability Council will host a press conference at 13:30 CET and the Riksbank Governor Stefan Ingves will give a speech on the risk of a new banking crisis (15:00). In Norway, the Norwegian Regional Network Report and house prices will give more input on the state of the Norwegian economy. (for more on Scandies, see page 2).

Selected market news

China's Caixin service PMI showed a large increase to 51.9 in November from 51.2 in October, which brought the composite PMI to 51.6 from 51.0. The higher activity in the service thus mitigated the slightly slower activity in the manufacturing sector reported last week. In Japan, the service PMI dropped to 51.2 from 53.4 sending the composite PMI down to 52.2 from 53.4.

Brexit negotiations between the UK's Theresa May and EU's Jean-Claude Juncker yesterday did not end with a deal. However, negotiations will continue this week with the aim of reaching a deal before the EU summit next week and potentially already before the end of this week. EUR/GBP rose on the news as the market had priced in a chance of a breakthrough yesterday.

Oil prices dropped yesterday with the price on Brent falling to USD62/bbl. Overnight, it was reported that Saudi Arabia has conducted an airstrike on Yemen – news which is likely to have helped halt the slide in prices. It could further put geopolitical risks back in the spotlight of the oil market this week. According to a Bloomberg survey, OPEC's crude output dropped in November before the group's second bi-annual meeting. Coincidently, that brought OPEC's output down to the lowest level since May when the group first bi-annual meeting to place.

The US Supreme Court yesterday announced that US President Trump's proposed travel ban could take full effect, restricting people from six Muslim countries from entering the US.

Thomas Barkin was announced yesterday to take over as President at the Federal Reserve Bank of Richmond from Jeffrey Lacker. It means there is one seat less to be filled on the FOMC (there are still four vacant seats on the Board of Governors and no replacement has been announced for New York Fed President Dudley, who will step down next summer).

Currency pair USD/JPY

The USD/JPY is in an uptrend channel which could be part of a larger bullish wave 3 pattern. This is invalidated if price breaks below the support trend line (green) of the uptrend channel. A bullish breakout above the channel resistance would confirm the bullish breakout.

The USD/JPY will need to break above the resistance (red/orange) now or later to confirm the wave 3 pattern (purple). For the moment, the Fibonacci levels and the support trend line could stop price from falling.

Currency pair GBP/USD

The GBP/USD is probably in a wave 1-2 (green) unless price breaks below the 100% Fibonacci level of wave 2 vs 1. The current bearish channel could also be a bear flag pattern if price manages to break above it.

The GBP/USD is also showing a triangle pattern. A break below or above the triangle could indicate a potential breakout.

Currency pair EUR/USD

The EUR/USD could be in a wave C (purple) of a larger bearish ABC retracement. An impulsive wave C could develop if price is able to break below the support trend line (blue). A bearish breakout could see price fall and challenge the Fibonacci levels of wave 2 vs 1 (pink) whereas a bullish breakout will face other layers of potential resistance.

The EUR/USD break above the resistance trend line (red) could be part of a larger wave 1 (pink), although new resistance levels are nearby (red lines). A break below the support trend line (blue) could see price fall towards the Fibonacci levels of wave C and 2.

Headlines/Economic Data

General Themes: Asian tech stocks weaker after declines seen in NY session; Taiwan Semi -2%

Markets generally pare opening losses

Japanese and South Korean steelmakers outperform; track earlier gains in US Steel

China Caixin Nov services PMI rises, in line with official data released on Nov 30th

Japan

Nikkei 225 opened -0.5%; closed -0.4%

Tech and Chip-related shares track weakness in US companies: SUMCO -3.5%, Tokyo Electron -2%, Softbank -0.9%; Olympus Corp -1.6% (priced secondary offering)

TOPIX Iron & Steel Index +1.5%; Nippon Steel said to reduce orders accepted for steel pipes by 20-30% as production cannot keep up with the increase in demand from large-scale projects ahead of the 2020 Tokyo Olympics (press)

TOPIX Securities Index +1%

Japan Nov PMI Services: 51.2 v 53.4 prior, PMI Composite: 52.2 v 53.4 prior

(JP) Bank of Japan (BOJ) Gov Kuroda: No discussions about second term as Gov - speaking after lunch with Abe; No comment on whether willing to continue as BOJ Gov (**Note: current 5-year term due to end April 2018)

Bank of Japan (BOJ) Gov Kuroda recent references to the "reversal rate" may signal a shift to a more hawkish policy bias, even though there are no expectations of a near term policy change – FT (**Note: The reversal rate is the level where rate cuts by BOJ could hurt economy)

Japan Fin Min Aso: Wants income tax changes to be revenue neutral and consider ‘work style’ changes

China and Japan officials to hold 8th round of discussions regarding maritime affairs during Dec 5-6th period - financial press

(JP) Japan's four biggest oil companies are expected to beat FY forecasts – Nikkei

(JP) Bank of Japan (BOJ) Gov Kuroda: BOJ bought ¥105T in JGBs in year through Oct

Japan MoF sells ¥2.3T v ¥2.3T indicated in 0.1% 10-yr JGBS; avg yield 0.059%; bid-to-cover 3.70x

9983.JP Reports Nov Domestic SSS +8.9%; Uniqlo sales +8.9% y/y; +3%

Korea

Kospi opened -0.4%

Samsung Electronics -0.7%

Posco Steel +2%

Korean Won (KRW) +0.3%

(KR) South Korea President Moon: Trade faces difficulties including 'strong' Won (KRW); S. Korea should create more jobs through exports

(KR) South Korea Nov Foreign Reserves: $387.3B (record high) v $384.5B prior

(KR) South Korea Oct Current Account Balance: $5.7B v $12.3B prior; Balance of Goods (BOP): $8.6B v $15.0B prior

China/Hong Kong

Markets open lower: Hang Seng -0.8%; Shanghai Composite -0.2%

Hang Seng Information Technology Index -1.2% (Tencent -2%)

China defense names stronger on report that China has encouraged asset injections – press

(CN) China reportedly will keep exempting 10% purchase tax on electric vehicles to 2020 - press

(CN) China Nov Caixin PMI Services: 51.9 v 51.2 prior, PMI Composite: 51.6 v 51.0 prior

(HK) Hong Kong Nov PMI: 50.7 v 50.3 prior

PBoC skips open market operation for 3rd straight session, reiterates liquidity at ‘high level’; net drain CBY170B v CNY90B prior

(CN) PBoC sets yuan reference rate at 6.6113 v 6.6105 prior

(CN) Chinese Think Tank (State Info Center): Recommends China 2018 GDP target be set around 6.5%

(CN) China should cut real interest rate – China Securities Journal

(CN) Former PBoC Adviser Yu Yongding: Investment growth to slowdown in 2018 amid further slowdown in property investment; monetary policy should stay appropriate and 'not too tight’; Urges China to introduce property tax

(CN) PBOC Financial Research Institute Head Sun Guofeng: New monetary policy framework is taking shape; monetary policy targets should consider financial cycles; Central banks need to influence long-term interest rates.

(CN) China Vice Fin Min Zhu Guangyao: Sees worldwide economy recovery momentum in 2017; Attention needed to impact of Fed balance sheet reduction; Whether the ECB is to quit QE is yet to see

(CN) China should ‘brace’ for fallout from US tax cuts as they could challenge domestic manufacturing sector; China should take steps to cut enterprise costs – China Press

(CN) China Premier Li: China and Canada agree to uphold trade liberalization; to continue talk on bilateral free trade agreement (FTA)

Australia/New Zealand

ASX 200 opened -0.1%; Closed:

ASX 200 Financials Index -0.3%; Utilities Index +0.9%

Rio Tinto [RIO.AU] -1.6% (gained 1.2% during prior session)

Qantas [QAN.AU] -1.6%

AWE Ltd [AWE.AU] -11% (China Energy Reserve withdrew takeover offer yesterday)

Aussie rises amid better than expected Oct retail sales; Q3 data (Current Account, Net Exports of GDP) below ests

(AU) AUSTRALIA OCT RETAIL SALES M/M: 0.5% V 0.3%E

(AU) AUSTRALIA Q3 BOP CURRENT ACCOUNT (A$): -9.1B V –9.6B PRIOR; NET EXPORTS OF GDP: 0.00 V 0.30 PRIOR

Aussie adds to gains following RBA statement

(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED (16TH CONSECUTIVE HOLD IN CURRENT EASING CYCLE); The Australian dollar remains within the range that it has been in over the past two years; One continuing source of uncertainty is the outlook for household consumption

Kiwi rises following comments from RBNZ Gov Spencer

(NZ) RBNZ Gov: Persistently low inflation has prompted central bank to think about whether it needs to ‘tweak’ its approach to monetary policy; Should be cautious about making any recommendations for change in current framework

(NZ) NEW ZEALAND Q3 VOLUME OF ALL BUILDINGS Q/Q: 2.7% V 2.0%E

(NZ) New Zealand Government 4-Month budget balance (NZ$): -308M v -217Me

(NZ) New Zealand Nov ANZ Commodity Price: -0.9% v -0.3% prior

AWE.AU China Energy Reserve formally withdrew offer -15%

Looking Ahead: Australia Q3 GDP due to be released on Wednesday

North America

US equity markets pared gains and closed mixed amid passage of Senate tax bill: Nasdaq -1.1%, S&P 500 -0.1%, Dow Jones +0.2%, Russell 2000 -0.3%

S&P 500 Technology Sector -1.6%, Healthcare -1.2%

MasterCard raised quarterly dividend by 14% and announced new $4.0B buyback plan

M&A: 21st Century Fox: Reportedly favors Disney as prospective acquirer for its studio and media assets – press

Packaging company Bemis Co said to hire adviser to examine options – US Press

Tax Reform: (US) House votes for motion to go to conference with Senate on tax bill (as expected)

Government Funding: (US) US Republicans: Will pursue stop-gap government spending measure through Dec 30th – US financial press (**Note: According to prior speculation, a potential govt shutdown is looming on Dec 8th unless Congress can pass a new spending bill. Republicans are preparing a two week stop gap spending bill)

(US) Democratic Leaders Pelosi and Schumer to meet with Pres Trump and GOP leadership on Thurs – press

Looking Ahead: US Nov ISM Non-Manufacturing data to be released on Tuesday

Europe

(UK) EU's Juncker: it was not possible to make a complete Brexit deal today (comments from Monday); will need further talks to reach a complete deal; did make considerable progress - comments in Brussels; Will continue discussions with the UK this week; there are only two or three points still open; Has confidence we can make sufficient progress by time of leaders' summit (Dec 14-15)

(UK) Prime Min May: we had a constructive meeting with the EU; have been negotiating hard and want to move forward together; We need more consultations on some issues; positive that the two sides will conclude this positively

(UK) Nov BRC Sales LFL Y/Y: +0.6% v -1.0% prior

(EU) Eurogroup President-designate Centeno: deeper discussions are needed on a euro zone fiscal union; there is a long way to go

(EU) Portugal Fin Min Mario Centeno wins Eurogroup chairmanship race; term starts in Jan - press

(GR) ESM's Regling: it's a bit premature to be precise about the size of the Greece tranche; It's more likely that there's one more review left in the Greek program

Levels as of 01:00ET

Nikkei225 -0.2%, Hang Seng -0.5%; Shanghai Composite -0.2%; ASX200 -0.2%, Kospi +0.2%

Equity Futures: S&P500 +0.2%; Nasdaq100 +0.1%, Dax +0.3%; FTSE100 +0.4%

EUR 1.1877-1.1862; JPY 112.63-112.38; AUD 0.7654-0.7596;NZD 0.6908-0.6852

Feb Gold +0.1% at $1,278/oz; Jan Crude Oil +0.1% at $57.51/brl; Mar Copper +0.1% at $3.09/lb

For the 24 hours to 23:00 GMT, the AUD declined 0.07% against the USD and closed at 0.76.

LME Copper prices rose 1.1% or $73.0/MT to $6807.0/MT. Aluminium prices rose 0.3% or $6.0/MT to $2052.5/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7644, with the AUD trading 0.58% higher against the USD from yesterday's close, after Australia's retail sales rebounded in October, notching its highest level in five months.

Earlier today, the Reserve Bank of Australia (RBA), as widely expected, kept its key interest rate steady at 1.5%, citing soft wage growth and a lack of inflationary pressure. In a post meeting statement, Governor Philip Lowe, stated that the Australian economy likely grew at around its “trend rate” over the year to the third quarter and expressed optimism about future growth prospects. Further, the central bank stuck to its forecast for inflation to “pick up gradually as the economy strengthens”.

On the data front, Australia's AiG performance of services index climbed to a level of 51.7 in November, compared to a reading of 51.4 in the prior month. Moreover, the nation's seasonally adjusted retail sales rose more-than-expected by 0.5% on a monthly basis in October, easing concerns over a slowdown in consumer spending in recent months. In the prior month, retail sales had climbed by a revised 0.1%, while markets had anticipated for a gain of 0.3%.

Elsewhere, in China, Australia's largest trading partner, the Caixin services PMI climbed to a three-month high level of 51.9 in November, amid a pick-up in new business. In the previous month, the PMI index had registered a level of 51.2.

The pair is expected to find support at 0.7600, and a fall through could take it to the next support level of 0.7556. The pair is expected to find its first resistance at 0.7668, and a rise through could take it to the next resistance level of 0.7692.

Going ahead, investors would keep a close watch on Australia's 3Q GDP data, scheduled to release overnight.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR slightly declined against the USD and closed at 1.1870, after the Euro-zone's Sentix investor confidence index fell more-than-anticipated to a level of 31.1 in December. The index had recorded a 17-year high level of 34.0 in the prior month. Market participants had anticipated the index to fall to a level of 33.4.

On the macro front, in the US, data revealed that final durable goods orders dropped less than initially estimated by 0.8% MoM in October, compared to a revised rise of 2.2% in the previous month, while the preliminary figures had indicated a fall of 1.2%. Moreover, the nation's factory orders eased less-than-expected by 0.1% on a monthly basis in October, compared to market consensus for a drop of 0.4%. Factory orders had climbed by a revised 1.7% in the previous month.

In the Asian session, at GMT0400, the pair is trading at 1.1874, with the EUR trading a tad higher against the USD from yesterday's close.

The pair is expected to find support at 1.1842, and a fall through could take it to the next support level of 1.1811. The pair is expected to find its first resistance at 1.1892, and a rise through could take it to the next resistance level of 1.1911.

Ahead in the day, market participants would eye the release of final Markit services PMI for November across the Euro-zone along with the region's retail sales data for October. Later in the day, investors would focus on the US trade balance figures for October, followed by the ISM non-manufacturing and the final Markit services PMIs, both for November.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP slightly rose against the USD and closed at 1.3474. Yesterday, the European Commission President, Jean-Claude Juncker and the British Prime Minister, Theresa May failed to reach an agreement on an initial Brexit divorce package.

Macroeconomic data indicated that Britain’s Markit construction PMI rose to a level of 53.1 in November, expanding at its fastest pace in five months, thus highlighting that the sector has regained some steam in the final quarter of this year. The PMI had recorded a reading of 50.8 in the prior month, while markets had expected for an advance to a level of 51.0.

In the Asian session, at GMT0400, the pair is trading at 1.3468, with the GBP trading marginally lower against the USD from yesterday’s close.

The pair is expected to find support at 1.3408, and a fall through could take it to the next support level of 1.3349. The pair is expected to find its first resistance at 1.3533, and a rise through could take it to the next resistance level of 1.3599.

Trading trend in the Pound today is expected to be determined by the release of UK’s Markit services PMI for November, set to release in a few hours.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.23% against the JPY and closed at 112.48.

In the Asian session, at GMT0400, the pair is trading at 112.53, with the USD trading marginally higher against the JPY from yesterday's close.

Overnight data showed that Japan's Nikkei services PMI declined to a level of 51.2 in November, after recording a two-year high level of 53.4 in October.

The pair is expected to find support at 112.24, and a fall through could take it to the next support level of 111.94. The pair is expected to find its first resistance at 112.96, and a rise through could take it to the next resistance level of 113.38.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.25% against the CHF and closed at 0.9845.

In economic news, Switzerland’s total sight deposits rose to a level of CHF576.8 billion in the week ended 01 December, compared to a reading of CHF577.5 billion registered in the previous week.

In the Asian session, at GMT0400, the pair is trading at 0.9845, with the USD trading flat against the CHF from yesterday’s close.

The pair is expected to find support at 0.9821, and a fall through could take it to the next support level of 0.9797. The pair is expected to find its first resistance at 0.9868, and a rise through could take it to the next resistance level of 0.9891.

Amid a lack of macroeconomic releases in Switzerland today, investor sentiment would be determined by global macroeconomic news.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.