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Investors Shrug Off North Korean Threat

US equity markets are on course to build on Tuesday's gains as we near the open on Wall Street, with the latest North Korea missile launch doing little to deter investors.

Not so long ago, the threat of escalation caused by such action would send investors fleeing for safe havens but as time has gone on and nothing has escalated beyond tough talk, investors have become less sensitive to the tests. Even Gold, the traditional safe haven, has seen only minor flows on the back of the launch and continues to trade below $1,300 which has been a notable resistance level for the yellow metal.

GBP Hits Two Month High on Divorce Bill Rumours

Sterling is trading at a two month high against the dollar this morning, after reports that the UK has agreed a divorce settlement with the EU following months of negotiations. While nothing has been explicitly confirmed and is unlikely to be given the tight political spot Theresa May finds herself in, if this is correct then this would be a major step towards moving negotiations on to transition deals and a future trade agreement.

Progress has come at a snail's pace so far and this agreement, if true, comes as May is put under substantial pressure by businesses demanding assurances on the future relationship with the EU and how it will impact them. While an agreement will come as a relief, as reflected in the rise in the pound, there's still a long way to go and there's likely to be many many more difficulties faced along the way. This is the first of many large hurdles on the way to Brexit, but it's a very important first step.

Oil Edges Lower as Oil Producers Meet to Discuss Extension

Brent and WTI crude are heading for a third consecutive daily loss on Wednesday as OPEC and non-OPEC officials preparing to meet in Vienna to discuss a possible extension to production cuts. The current cuts expire in March and there appears to be a broad agreement that more needs to be done in order to bring the market back into balance.

The next 12 months is going to continue to be challenging for oil producers and the higher oil prices get, the more we may see US shale companies turning on the taps and undoing the hard work. Still, oil prices have recovered strongly since the cuts were initially agreed and should producers agree to a nine month extension, it should keep prices at these more sustainable levels. That said, with an extension looking almost entirely priced in, I wonder if we'll see a similar response to last time when oil plummeted in the aftermath of the announcement.

Bitcoin Blasts Through $10,000

Bitcoin is tearing higher once again on Wednesday, having broken through the much talked about $10,000 level for the first time ever earlier in the day and is already closing in on $11,000, only hours later. The move takes Bitcoins gains to more than 30% since Saturday morning and more than 900% since the start of the year. It's no wonder why people are questioning whether this is a bubble.

Source - Thomson Reuters Eikon

That said, people have been calling this a bubble for months, if not years, and that hasn't stopped it making record after record. Clearly widespread acceptance and even adoption has aided the rally but the moves we've seen in recent days suggest there's been a substantial speculative component. Perhaps the additional coverage Bitcoin has received on its approach to $10,000 has fuelled the rally and speeded up the process. Whatever the cause, I fear a substantial correction is not far away and this could be the true test of the correct value of the cryptocurrency.

EUR/GBP - 0.8839

Original strategy  :

Sold at 0.8950, Target: 0.8820, Stop: 0.8990

Position : - Short at 0.8950

Target :  - 0.8820

Stop : - 0.8990

New strategy  :

Hold short entered at 0.8950, Target: 0.8820, Stop: 0.8920

Position : - Short at 0.8950

Target :  - 0.8820

Stop : - 0.8920

 
Although the single currency rose to 0.8982, lack of follow through buying and the subsequent selloff has retained our bearishness and downside bias remains for the fall from 0.9015 to extend weakness to support at 0.8792, however, break there is needed to signal the rebound from 0.8733 has ended at 0.9015 earlier this month, bring subsequent fall towards 0.8765-70.

In view of this, we are holding on to our short position entered at 0.8950. Above previous support at 0.8915 (now resistance) would defer and prolong choppy trading, risk rebound to 0.8935-40, however, still reckon said resistance at 0.8982 would cap upside and bring another retreat later. Only above indicated resistance at 0.9015 would risk test of previous resistance at 0.9033 but only a breach of this level would signal an upside break of recent established broad range has occurred, then subsequent rise to 0.9070-75 would follow.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

Daily Pivots: (S1) 1.1806; (P) 1.1863 (R1) 1.1899; More....

EUR/USD's pull back from 1.1960 extends lower but it's kept well above 1.1712 support so far. As long as 1.1712 support holds, rise from 1.1553 is expected to continue. Above 1.1960 will target 1.2091 high first. Break there will resume medium term up trend from 1.0339 and target 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494, which is close to 1.2516 long term fibonacci level. We'd expect strong resistance from there to bring reversal. On the downside, break of 1.1712 will indicate completion of the rise from 1.1553 and turn near term outlook bearish.

In the bigger picture, rise from 1.0339 medium term bottom is seen as a corrective move for the moment. Therefore, in case of another rally, we'd be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. Meanwhile, sustained trading below 55 week EMA (now at 1.1393) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Daily Pivots: (S1) 1.3244; (P) 1.3315; (R1) 1.3410; More....

GBP/USD's rise is still in progress with focus on 61.8% retracement of 1.3651 to 1.3026 at 1.3412. Sustained break there will pave the way to retest 1.3651 high. Nonetheless, rejection from 1.3412, followed by break of 1.3220 support, will indicate that price actions from 1.3026 is merely a correction. And intraday bias would be turned back to the downside for 1.3026 low.

In the bigger picture, as noted before, GBP/USD hit strong resistance from the long term falling trend line. Nonetheless, subsequent fall was contained by 55 week EMA (now at 1.3069). Outlook is a bit mixed. For the moment, as long as 1.3835 support turned resistance holds, medium term rise from 1.1946 are viewed as a corrective pattern. That is, we'd expect another leg in the long term down trend through 1.1946 low. However, sustained break of 1.3835 should at least send GBP/USD to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.

Daily Pivots: (S1) 1.2771; (P) 1.2797; (R1) 1.2842; More....

USD/CAD's strong rally and break of 1.2836 resistance suggests that corrective pattern from 1.2916 has completed at 1.2672 already. Intraday bias is turned back to the upside for 1.2916 first. Break will resume whole rise from 1.2061 and target 1.3065 medium term fibonacci level. On the downside, below 1.2753 will delay the bullish case and extend the correction from 1.2916 with another fall. But still, we'd expect downside to be contained by 1.2598 resistance turned support and bring rebound.

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.

Daily Pivots: (S1) 0.9808; (P) 0.9830; (R1) 0.9860; More....

USD/CHF's recovery from 0.9776 extends higher but it's limited well below 0.9946 resistance so far. Intraday bias remains neutral first. As long as 0.9946 resistance holds, another fall is still expected. Below 0.9776 will extend the decline from 1.0037 to 61.8% retracement of 0.9420 to 1.0037 at 0.9656. We'll look for bottoming again below 0.9656 and above 0.9420. On the upside, break of 0.9946 resistance will indicate that the decline from 1.0037 has completed and bring retest of this resistance.

In the bigger picture, range trading continues between 0.9420/1.0342. At this point, 0.9420 appears to be a strong support level. Therefore, in case of decline attempt, we don't expect a firm break of this level. Nonetheless, strong break of 1.0342 is also needed to confirm upside momentum. Otherwise, medium term outlook will stay neutral.

Daily Pivots: (S1) 111.05; (P) 111.34; (R1) 111.76; More...

USD/JPY rebounds strongly in early US session. But for the moment it's limited well below 112.71 resistance. Intraday bias remains neutral first. Decline from 114.73 could still extend lower and below 110.83 will target 61.8% retracement of 107.31 to 114.73 at 110.14. We're still favoring the case medium term corrective pattern from 118.65 has completed at 107.31 already. Hence, we'll looking for bottoming below 110.14 to bring another rise. On the upside, break of 112.71 will suggest that the fall from 114.73 is completed and turn bias to the upside for retesting this resistance.

In the bigger picture, as long as 107.31 support holds, medium term rise from 98.97 (2016 low) is not completed yet. And another rise is in favor. Break of 114.73 resistance will target a test on 118.65 high first. However, break of 107.31 will dampen this will and extend the medium term fall back to 98.97 low.

The CAC has posted considerable gains in the Wednesday session. Currently, the CAC is at 5433.30, up 0.79% since the Tuesday close. On the release front, French data was mixed. Consumer Spending declined 1.9%, missing the estimate of 0.0%. Preliminary GDP in the third quarter remained unchanged at 0.5%. In the US, Preliminary GDP is expected to post a strong gain of 3.3%, and Fed Chair Janet Yellen testifies before a congressional committee. On Thursday, the eurozone publishes CPI Flash Estimate.

A strong performance from bank stocks has boosted the CAC on Wednesday, after comments from Fed Designate Jerome Powell. BNP Paribas has jumped 1.83% and Credit Agricole has climbed 1.85%. At his confirmation hearing, Powell said that he favored tailoring regulations for small banks, leaving the toughest regulations for the big players. Powell takes over the helm of the Federal Reserve in February, and is expected to continue the Fed's current monetary policy, which has been marked by small, incremental gains.

In Germany, President Angela Merkel continues efforts to form a new government. Coalition talks will now center on Merkel's conservative bloc (CDU) and the social democrats (SPD). After the election, the SPD announced that it would remain in the opposition. However, coalition talks imploded when the Free Democrats pulled out of the negotiations and there is pressure on the SPD to reconsider in order to avoid elections. The SPD is split on whether to join a coalition with Merkel, as many SPD members don't want the SPD to be relegated to a junior party in the coalition, as was the case prior to the election. Although the SPD has agreed to exploratory meetings with the CDU, substantial talks of a "grand coalition" are not expected to start before 2018. The SPD is likely to take advantage of Merkel's weak hand and press demands for greater government spending and a looser immigration policy. The SPD could even demand the powerful finance ministry.

Dollar's rally gathers momentum in early US session. Q3 GDP growth was revised higher to 3.3% annualized, up from 3.0% annualized and beat expectation of 3.2% annualized. The 3.3% annualized growth was the fastest in three years. More importantly, US growth has topped 3% for two quarters in a row. Considering the current momentum, it's possibly that the economy will make it three for the first time since 2004/5. There is little doubt that Fed will raise interest rate again in December. Solid growth momentum will most likely push wage and inflation and ease some Fed doves' concerns. Senate Republican's tax bill has already passed the Budget Committee and could be put to floor vote on Thursday.

Quick update: There is additional support to Dollar from Fed Chair Janet Yellen, who's having her last Congressional testimony. She said that the economy has strengthened further this year" and growth "is increasingly broad-based." Also, "we continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around 2% objective."

Sterling stays strong on Brexit optimism

Sterling is trading as the strongest on as boosted higher by reports that agreement was made between UK and EU on the divorce bill, and will add up to EUR 45-55b. That would be made in time for EU leaders to approve in the December 14/15 summit to move the negotiations to trade relationship. Though, EU chief negotiator sounded cautious in his comments and said "we are still working. The only comment I can make." Released from UK, mortgage approvals dropped to 65k in October, M4 rose 0.6% mom. BRC shop price index dropped -0.1% yoy in November.

Eurozone confidence improved but missed expectations

Eurozone business climate rose to 1.49 in November, up from 1.44 but missed expectation of 1.51. Economic confidence rose to 114.6, up from 114.1, meeting consensus, and hit the highest since 2000. Industrial confidence rose to 8.0, up from 8.0 but missed expectation of 8.6. Services confidence rose to 16.3, up from 16.2, also missed expectation of 16.7. Consumer confidence was finalized at 0.1. European Commission said that "employment plans saw significant upward revisions in retail trade and industry, both indicators reaching the highest levels in more than 30 years. In construction, employment plans improved more moderately, while also reaching a 10-year high. Employment plans worsened slightly in the services sector."

Also from Eurozone, French GDP rose 0.5% qoq in Q3. German CPI accelerated to 1.8% yoy in November.

ECB warned of financial markets risk taking

ECB warned in its semi-annual Financial Stability Review that "continued compression of risk premia, subdued volatility and signs of increased risk-taking behavior in global financial markets are all sources of concern, as they may sow the seeds for large asset price corrections in the future." Also, "higher interest rates may trigger concerns about sovereigns' debt-servicing capacity." And, "distrust in mainstream political parties continues to rise, leading to fragmentation of the political landscape away from the established consensus."

BoJ Nakaso: No immediate threat to financial stability

BoJ Deputy Governor Hiroshi Nakaso said that the central bank can learn a lot from Fed's experience on stimulus exit. Nonetheless, "what tools we will use and in what sequence would depend on economic, price and financial conditions at the time." Also, "regional financial institutions have sufficient capital and liquidity at present. Thus, there are no immediate threats to the stability of the financial system." Released from Japan, retail sales rose 0.8% yoy in October.

RBNZ to unwind home loan restrictions

RBNZ indicates today that it would to unwind some restrictions on home loans. The loan-to-value ratio restrictions could be modestly eased starting January 1 next year. Governor Grant Spencer said that "over the past six months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016." And, "the market has been coming off really since mid-last year and so we have been considering it particularly as Auckland was flattening out and indeed going negative." Also, "housing market policies announced by the government are also expected to have a dampening effect on the housing market."

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2771; (P) 1.2797; (R1) 1.2842; More....

USD/CAD's strong rally and break of 1.2836 resistance suggests that corrective pattern from 1.2916 has completed at 1.2672 already. Intraday bias is turned back to the upside for 1.2916 first. Break will resume whole rise from 1.2061 and target 1.3065 medium term fibonacci level. On the downside, below 1.2753 will delay the bullish case and extend the correction from 1.2916 with another fall. But still, we'd expect downside to be contained by 1.2598 resistance turned support and bring rebound.

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

Recovery rally from 147.80 higher base and yesterday's spike to 146.97, where strong downside rejection occurred, extends today and probes above strong barrier at 149.40 provided by daily cloud top, reinforced by daily Kijun-sen.

Close above cloud is needed to generate bullish signal for recovery extension and test of nearby psychological 150.00 barrier (also Fibo 61.8% of 151.94/146.97 downleg). Double-bottom on daily chart (146.93/97, 09 Oct/28 Nov lows) also boosts recovery which requires close above 150.00 to generate signal of recovery continuation towards 150.76 (Fibo 76.4%) and 151.00 (round-figure resistance).

Daily MA's are turning into bullish setup and expected to support advance. Broken 20SMA marks initial support at 148.94, followed by 10SMA at 148.59 which holds today's action.

Res: 150.00; 150.32; 150.76; 151.00
Sup: 148.94; 148.59; 147.80; 146.97