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The latest testimonies of both the incoming and outgoing Fed chairs suggest that the FOMC's approach would be more the less the same after February next year. At his confirmation hearing before the Senate, Jerome Powell affirmed that future monetary policy would remain data-dependent. He also added that the case for 'raising interest rates at our next meeting is coming together', as economic conditions warrant, but future rate hikes can 'go more slowly' if inflation has stayed low. On balance sheet normalization, Powell noted that the balance sheet is expected to be trimmed to a range between US$ 2.5-3 trillion over the next few years. It is believed that Powell would continue with Janet Yellen's legacy. Meanwhile, Yellen told the Congress Joint Economic Committee, that 'the economic expansion is increasingly broad based across sectors as well as across much of the global economy'. She added that 'with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen somewhat further, supporting faster growth in wages and incomes'. Indeed, both Powell and Yellen are believed to be in the centre-dovish camp, although Powell had been classified as a hawk as he had urged the then chair Ben Bernanke to unwind the QE program.

We notice that rate hike speculations have increased slightly in March 2018. Meanwhile, the market has raised speculations that the Fed would raise the policy rate by more than +25 bps (though the overwhelming majority remains +25 bps). We believe the hawkishness has been driven by the clearing of one more hurdle by the Senate, coupling with the Beige Book report suggesting strengthening in inflationary pressure.

Beige Book

Let's take a look at the latter first. The Beige Book prepared by the St Louis Fed described the economic activity as continuing 'to increase at a modest to moderate pace in October and mid-November'. The report suggested that 'all Districts reported that manufacturing activity expanded, with most describing growth as moderate'. For the job market, employment increased tightness in the labour market were 'widespread', with 'most' Districts reporting difficulty in finding qualified workers across various skill levels, and 'several' Districts reporting an inability to find workers with the required skills. Yet, wage growth remained 'modest or moderate' in most Districts. On inflation, the Beige Book indicated that 'price pressures have strengthened since the last report. Most Districts reported modest to moderate growth in selling prices and moderate increases in non-labor input costs'.

US Tax Reform Plan Update

The Senate Budget Committee approved (voted 12-11) the Republican tax plan Tuesday, paving the way for the Senate floor vote later this week. Despite criticism of the plan and proposal to include a provision in the bill that would trigger tax hikes in case of large revenue shortfalls, Republican Senators Johnson of Wisconsin and Corker of Tennessee eventually did not objected the bill. President Donald Trump noted that he has anticipated a lot of adjustments of the final plan. Yet, he remained confident that 'the end result will be very, very massive'. He also suggested that his openness to the proposal by Senator Corker. However, Senator Kennedy of Louisiana has expressed opposition to that.

Pay attention to how it goes after the Senate floor vote later in the week! While not an easy task with Republicans only having a slim 2-seat majority, passage of the bill would be another step forward. By then, the House might decide whether to take Senate's proposal or to seek reconciliation of the two versions, which would lengthen the final approval.

The dollar extends strong recovery against yen, rallying for the third straight day and broke above pivotal barrier at 112.32 (Fibo 38.2% of 114.73/110.83 downleg).

Bulls eye strong barriers at 112.69 (converged 20/55SMA'a, attempting to form bear-cross) and 112.82 (daily cloud to, reinforced by Kijun-sen) where strong offers lay.

Sustained break here would generate strong bullish signal for recovery continuation and expose next pivot at 113.24 (Fibo 61.8% of 114.73/110.83).

Hesitation at 112.69/82 barriers could be expected and consolidation ahead of break higher expected to offer buying opportunities while 10SMA (111.80) holds dips.

Res: 112.69, 112.82, 113.02, 113.24
Sup: 112.32, 111.80, 111.68, 111.35

USD/CHF –  0.9863

 
Despite falling to 0.9778 initially this week, as dollar found support there and has rebounded, suggesting consolidation with initial upside bias would be seen and recovery to 0.9900 cannot be ruled out, however, as long as resistance at 0.9947 holds, downside risk remains for the retreat from 1.0039 top to bring retracement of recent rise to support at 0.9737 which is likely to hold on first testing. Only a drop below this level would signal top has been formed instead, bring test of key support at 0.9705 which is likely to hold from here.

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.


On the upside, whilst recovery to 0.9900 cannot be ruled out, reckon upside would be limited and price should falter below said resistance at 0.9947, bring another corrective decline later. Above said resistance at 0.9947 would signal low is formed and suggest the retreat from 1.0039 has ended, bring further gain to 1.0000, then test of said resistance at 1.0039. Only above this level would confirm early upmove from 0.9421low has resumed for headway to previous resistance at 1.0100.
 
Recommendation: Stand aside for this week.

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

Vienna readies for OPEC decision day as markets see a final shuffling of the positioning chairs before today’s fireworks.

Crude oil had a very choppy session overnight as the street chased its tail back and forth on rumours and headlines ahead of today’s official OPEC meeting in Vienna. Both Brent and WTI traded in 2.50% ranges, but as the dust settled both contracts closed only slightly down on the day. Both were falling 30 cents to 63.05 and 57.25 respectively.

Asia has unsurprisingly, taken a look at the overnight ranges and concluded that things are best left well alone until where hear from OPEC and Non-OPEC later today. Both contracts trading uncaged in the early part of the session.

The technical outlook paints a somewhat darker picture though. Brent broke its short-term trendline on Monday and never recaptured it. It has now formed a formidable series of double tops above building strong resistance. WTI held its two-month trendline support overnight, barely staying above it this morning. The takeaway from this is that a nine-month extension of the production cut deal is priced in and anything less from Vienna today could see some uncontrolled spills in prices as long positioning runs for the exit door.

Brent

Brent Crude has double tops at 64.00, 64.45 and 64.85 to overcome now forming a serious zone of resistance to further rallies. Support is at 62.00, followed by the two-month trendline at 61.45 and then the crucial multiple daily lows 61.25 level.

WTI

WTI has resistance at yesterday’s high at 58.25 followed by its double top at 58.85. Much more importantly, it lies just above its two-month trendline support at 56.80. Yesterday’s low at 56.60 is just behind to offer interim support, but after that, the charts open up with no technical support until 54.80.

10K was a critical level for bitcoin
NASDAQ announced it would list Bitcoin futures
14K Bitcoin by mid 2018?

Is it a bubble doomed to pop or it is still not too late to invest? The reality is that Bitcoin has cracked the symbolic mark of $10,000. This was a critical level for the crypto king which is attracting millions of investors. The value of the currency has risen more than 800% since the start of the year. Only this month, it is nearly 71.25%% up, while from its November low it is nearly 94.53% up. Numbers like these put the monthly performance of S&P and NASDAQ to shame (1.22% and 1.07% respectively). Talking about market capitalisation, Bitcoin’s market easily exceeds that of Disney, IBM, McDonald or GE.

Given the huge demand the currency has, it could touch the level of $14,000 by the end of next year if not by mid-year. Does that sound ridiculous? Well not really when you are talking in terms of percentage points. From the 10K mark, if we project the price to $14,000, it is only 40% and Bitcoin has the proven ability to move more than 50% in one month (as mentioned above, if you look at the low and the high of the month, the increase is an astonishing 76% in November). The chart below shows the monthly percentage performance of bitcoin for the past years.

Its acceptance by the mainstream financial system could be coming sooner rather than later as South Korea’s biggest bank by assets is in preparation to adopt the cryptocurrency. Shinhan Bank would still have to wait for the regulator’s approval, but it is selecting a firm to test bitcoin vault and wallet. Remember that the CME Group Inc and Chicago Board Options Exchange are already exploring the option to launch bitcoin futures. Moreover, countries like Iran have also said that they welcome bitcoin with caution. Iranians are already using bitcoin as a form of payment.

Of course, the question everyone is asking is if and when there will be a pullback. The 10K mark does have the potential where we see some investors choosing to cash in some of their profit for the year. We are looking at nearly over 1,220% annual percentage gain, so thoughts of cashing in some profit would be very natural. Setting investors aside, gains and moves like these keep central bankers awake, as bitcoin poses a clear threat for central banks who control and regulate currencies. The function of the central bank is to maintain price stability and keep inflation in check. Without central banks, price stability and inflation does become an issue and this would be something which needs to addressed.

EUR/JPY - 133.13

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Despite falling to 131.72 earlier this week, as euro found good support there and has staged another strong rebound, mild upside bias is seen for gain to 133.50, however, as broad outlook remains consolidative, reckon upside would be limited to 133.89 (last week’s high) and bring further choppy trading. In the event euro breaks above said resistance at 133.89, this would revive bullishness and signal entire correction from 134.50 has ended, bring retest of this level first.

In view of this, would not chase this rise here and would be prudent to stand aside for now. below 132.65-70 would bring pullback to 132.35-40 but break of latter level is needed to signal top is formed, bring weakness to 132.00-05, however, said support at 131.72 (this week’s low) should remain intact, bring rebound later. As near term outlook is mixed, would be prudent to stand aside for now.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7568

Original strategy:

Exit short entered at 0.7620

Position: - Short at 0.7620
Target:  -
Stop:-

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

As aussie has remained under pressure after retreating from 0.7645, near term downside risk remains and consolidation with mild downside bias is seen for weakness towards 0.7532 (last week’s low), however, break there is needed to revive bearishness and signal recent decline from 0.8125 top has resumed for further weakness to 0.7500, then 0.7470.

On the upside, expect recovery to be limited to 0.7595-00 and indicated resistance at 0.7645 should remain intact, bring retreat later. A break of said resistance at 0.7645 would extend the corrective bounce from 0.7532 (last week’s low) for retracement of recent decline to 0.7670, then towards resistance at 0.7701 which is likely to hold from here. As near term outlook is mixed, would be prudent to stand aside for now.

On the 4-hour chart, recent upmove from 0.7329 is unfolding as an impulsive rise with wave 3 as well as smaller degree wave (iii) extending, only minor wave v of (iii) has ended at 0.8125, hence bullishness remains for this move to extend headway to 0.8200, then towards 0.8300, however, reckon upside would be limited to 0.8400 and the final wave 5 should falter below 0.8500, bring correction later.

Cable extends strong bullish acceleration on Brexit optimism and probes above weekly cloud top (1.3473), eyeing psychological 1.3500 barrier. Bullish signal was generated after today's rally made firm break above important 1.3415 resistance (Fibo 61.8% of 1.3655/1.3026 descend). Sustained break above 1.35 barrier would open way towards 1.3655 (2017 high, posted on 20Sep) to mark full retracement of 1.3655/1.3026 corrective phase). Bullish studies support the advance, but corrective action could be anticipated as daily indicators are at the border of overbought territory. Corrective dips are expected to offer better levels to re-join the rally.

Res: 1.3506, 1.3570, 1.3600, 1.3655
Sup: 1.3415, 1.3404, 1.3337, 1.3315

The Euro is regaining traction with fresh upside pressuring pivotal barriers at 1.1872/77 (Fibo 38.2% of 1.1961/1.1817 downleg / daily cloud top) after pullback from 1.1961 peak was contained by cloud base.

Reversal pattern is forming on daily chart, following yesterday's long-legged Doji and fresh acceleration higher today.

Lift above daily cloud is needed to confirm reversal and expose target at 1.1906 (Fibo 61.8% of 1.1961/1.1817) which guards key near-term obstacles at 1.1961/65 (27 Nov peak / Fibo 76.4% of 1.2092/1.1553 descend).

The Euro kept positive near-term sentiment despite downbeat German retail sales data on Thursday and focuses on next releases: German jobs and Eurozone's inflation data.

Forecasts for German labor sector show no significant changes in November while EU's inflation is forecasted higher in November which could inflate the single currency.

Firmer signal of completion of corrective phase from 1.1961 would accelerate the pair for test of psychological 1.2000 barrier, with bullish setup of daily studies supporting the notion.

On the downside, broken daily Kijun-sen marks initial support at 1.1836, followed by pivots at 1.1826 (daily cloud base) and 1.1805 (Fibo 38.2% of 1.1553/1.1961 rally) loss of which would generate stronger bearish signal.

Res: 1.1877, 1.1920, 1.1965, 1.2000
Sup: 1.1836, 1.1826, 1.1805, 1.1757

Sunrise Market Commentary

• Rates: Core bonds under pressure despite tech correction
  Core bonds lost ground yesterday despite the tech correction. Today's eco data won't be of main importance, but the risk-sentiment as reflected by the fate of equities and oil (OPEC meeting) might play a bigger role. We stick to a sell-on upticks strategy for core bonds.
• Currencies: dollar faces mixed signals. Sterling extends Brexit rebound
  Yesterday, the dollar initially profited from progress on a US tax bill and positive comments from Yellen. However, the rebound ran into resistance as tech stocks were sold. Today, the dollar will probably faces conflicting drivers. A further risk-off correction might prevent further USD gains. Sterling continues to profit from a positive Brexit momentum

The Sunrise Headlines

• The Nasdaq ended the US session down 1.3% as major tech stocks that have outperformed this year retreated sharply. The S&P 500 technology stocks segment slid 2.6%, while financials rose 1.8%, leading to a flat close for the S&P. Asian equities trade fairly weak with only Japan remaining in the black
• The alliance between OPEC (Saudi-Arabia) and Russia faces its first big test, with Saudi Arabia still waiting on a commitment from Russia to back an extension of output cuts throughout 2018, as OPEC meets today. Brent stabilizes.
• China's manufacturing sector picked up unexpectedly in November as construction growth rose markedly. The official manufacturing PMI rose to 51.8 in November, easily besting consensus (51.4). Services PMI improved too.
• The pound strengthened to a two-month high on Thursday driven by hopes the UK had reached an agreement over a divorce payment to the EU and reports that a deal over the Northern Ireland border was close to a breakthrough
• Australia's big four banks fell after the government announced a public inquiry into the country's banking and financial system.
• The Bank of Korea has raised interest rates (25 bps to 1.5%) for the first time in more than six years, heralding the start of a tightening cycle. Decision wasn't unanimous and comments soft. The won lost ground and yields fell on profit taking after strong anticipation.
• Japan's industrial production returned to growth in October but grew at a slower pace than forecast. The 0.5% M/M increase fell short of the 1.9% M/M consensus. Y/Y, output was still up a strong 5.9%.

Currencies: Dollar Faces Mixed Signals. Sterling Extends Brexit Rebound

EMU and US inflation to guide FX trading?

Yesterday, the dollar gained slightly more ground as the progress on a US tax bill caused some USD shorts to reduce exposure. Yellen holding a positive tone at a Congressional hearing was also slightly USD supportive. At the same time, sentiment on risk deteriorated. The dollar received some breathing space as its traded off its recent lows. However, the technical picture didn't really improve. EUR/USD closed the session at 1.1847. USD/JPY finished the session at 111.93.

Overnight, Asian equities trade with substantial losses as tech shares suffer from the Nasdaq correction yesterday. The November China PMI (both manufacturing and services) improved further, but doesn't help sentiment. The Bank of Korea raised its policy rate by 25 bps, but the won declined as BOK comments remained soft. Japanese equities decouple from the broader correction supported by yesterday's USD/JPY rebound. The pair trades in the 112 area. The kiwi dollar lost more than half a big figure as consumer confidence declined sharply. NZD/USD trades in the mid 0.68 area. EUR/USD shows no clear trend and trades in the 1.1860 area.

Today, the November EMU CPI is interesting. The consensus expects a rise from 1.4% to 1.6% (1.0% from 0.9 % for the core). We see a slight upward risk. German and EMU labour market data are interesting too, but no market movers. In the US, investors will keep a close eye at spending and income data. Especially the price deflators have market moving potential in case of the deviation from consensus. A modest rise of 0.1% (headline) and 0.2% (core deflator) is expected. The Chicago PM is expected to ease slightly from 66.2 to 63 after a sharp rise last month. The data might be mixed to slightly euro supportive. However, there is still plenty of event risk that might affect USD trading. The debate on the US tax bill (and the debt ceiling) are potential sources of market volatility (in both directions). We also keep a close eye at the stock market performance. Of late, the dollar often suffered more from a risk-off correction than the euro as US yields declined more than European ones. For now, the dollar holds up rather well given the correction in tech stocks (so do US bond yields) . However, the balance remains fragile

Earlier this week, we were cautious on a sustained USD rebound as markets still question the Fed's rate hike intentions beyond December. Yellen remained optimistic on the economy. It helped to put a floor for the dollar, but nothing more than that. Today's news flow might be uite diffuse (cfr supra). A big beat in the PCE deflators would be a USD supportive, but we don't expect that to happen. Stronger (price) data or other positive events (tax cuts) are still needed for markets to reconsider a more USD positive scenario. Over the previous days price action was a bit more USD constructive, but not good enough to qualify it as a U-turn. We stay dollar neutral.

From a technical point of view, EUR/USD set a post-ECB low mid-November, but on Friday regained the 1.1880 MT correction top. This break opened the way for a full retracement to the 1.2092 top. A return below 1.1713 would signal that the rebound in EUR/USD is aborted. For now there is no clear technical signal. The USD/JPY momentum deteriorated this month. Last week, USD/JPY dropped below the 111.65 neckline. There was no aggressive follow-through selling but if confirmed, the break would make the picture USD negative.

EUR/USD: rally aborted, but no clear correction signal

EUR/GBP

Sterling extends ‘Brexit rebound'

Yesterday, sterling kept a cautiously positive bias, building on Wednesday's gains. The preliminary EU/UK agreement on a divorce bill raised chances that negotiations on the future relationship start after the December EU summit. Ireland's EU commissioner also suggested that a break-through on the issue of the Irish border could follow soon. EUR/GBP finished the session at 0.8835. Cable closed the session at 1.3409, confirming the technical break beyond 1.3350.

Overnight, UK consumer confidence declined from -10 to -12. However, sterling remains well bid on press headlines that the UK and Ireland are making progress on the issue of the Irish border. Later today, there are no important eco data in the UK. The is no formal decision on further Brexit talks yet, but there is apparently good progress. Markets will probably continue adapt positions for the December EU summit to give the green light for talks on the future relationship. Sterling might make some further progress.

MT view/technical picture. A BoE driven sterling rebound ran into resistance early this month. Sterling declined again as markets anticipated that the rate cycle would be very gradual and limited. EUR/GBP trades in a 0.8733/0.9033 consolidation range. Brexit headlines cause day-to-day gyrations. We changed our ST bias on EUR/GBP from positive to neutral two weeks ago. The 0.9015/33 area might be tough to break short-term. In case of more positive news on Brexit, return action to the 0.8733 (or below) level is possible ST.

EUR/GBP: returning south in the consolidation pattern on positive Brexit headlines

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