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The Federal Reserve minutes of the October 31-November 1 meeting are due at 1900 GMT with investors being on the lookout for any signals on the outlook of monetary policy.

Communication by Fed officials has broadly supported the view for an additional rate hike - the third such move this year - to be delivered by the US central bank as it completes its last monetary policy meeting for 2017 on December 13. Consequently, futures markets have almost completely priced in an interest rate rise in December with odds for such a move materializing currently being in excess of 90%. The meeting that ended on November 1 is likely to echo the aforementioned consensus by communicating that FOMC members remain on track to support a 25bps rise in the federal funds rate for it to enter the 1.25-1.50% band.

The base case scenario is for today's release to spur little market reaction as the latest Fed meeting was a non-event with no accompanying press conference, no revision in forecasts and lacking the introduction of fresh initiatives to move towards the direction of policy normalization, such as the beginning of downsizing the Fed's balance sheet which was announced earlier in the year and is currently underway.

However, there is also the possibility that the minutes deviate from the base case scenario. Should for example Fed policymakers signal concerns that factors keeping inflation low may not be transitory - as they have done during September's meeting - then this is expected to lead to dollar weakness as it could justify more patience in raising rates moving forward. In such a case, forex market participants are anticipated to push dollar/yen lower, with the pair potentially finding support around 111.72, this being the current level of the 200-day moving average.

On the other hand, if the minutes project a hawkish bias, pushing investors to upwardly revise their expectations for rate hikes moving forward (currently the markets have priced a little more than one interest rate rise to be delivered in 2018), then this would fuel long dollar positions. In such an event, a gain in dollar/yen could meet resistance around 112.79, the current level of the 50-day moving average.

Beyond the meeting minutes, Fed chief Janet Yellen's decision to leave the Federal Reserve Board once her term expires in February (she will be succeeded by current Federal Reserve Board of Governors member Jerome Powell) means that US President Donald Trump will have the task of filling four vacancies on the Fed's seven-person board. One of those is the position of Fed vice-chair and recently there has been speculation that Stanford University economist John Taylor could be appointed to the post, balancing some of Powell's perceived dovishness.

Proportionally, those four new members reflect a major change in the composition of the Fed Board and they definitely have the capacity to completely reshape Fed hike expectations depending on where they stand on the dovish to hawkish spectrum. This, at a time when policymakers are tasked to deliver a smooth transition towards policy normalization.

So far Trump has nominated Randal Quarles on the Fed Board. He is specifically serving as vice-chair for financial supervision and is perceived by markets as a centrist (being neither a dove nor a hawk).

The pair penetrates daily cloud, pressured by fresh dollar's weakness, signaling extension of pullback from 114.73 top, which was paused for two-day consolidation. Daily close below key 111.90/70 supports (daily cloud top / Fibo 38.2% of 107.31/114.73 / converged 100/200SMA's) is needed to signal deeper fall into daily cloud which is spanned between 111.94 and 110.37. Next target lies at 111.02 (50% retracement) but bears could extend towards cloud base (110.37) and Fibo 61.8% (110.15) on stronger bearish acceleration. Broken cloud top now acts as immediate resistance with further barriers at 112.46 (55SMA) and Monday's high/falling daily Tenkan-sen at 112.71/81, offering decent resistance.

Res: 111.90; 112.46; 112.71; 112.81
Sup: 111.47; 111.02; 110.66; 110.37

Cable regained traction after dipping to cloud base (1.3214) and surged above key barriers at 1.3261/66 (daily cloud top/Fibo 38.2% of 1.3655/1.3026).

Fresh strength and eventual break above daily cloud signals bullish continuation for test of next layer of resistance at 1.3300 zone (upper 20-d Bollinger band / trendline connecting 1.3337/20 tops).

Close above the cloud to confirm and generate bullish signal, as broader longs remain in play and eye 1.3320/37 pivots, break of which would expose next target at 1.3415 (Fibo 61.8% of 1.3655/1.3026 descend).

Stops at daily cloud base should be raised if pair closes above cloud today, with 55SMA (1.3250) marking next significant point.

Res: 1.3294; 1.3309; 1.3320; 1.3337
Sup: 1.3261; 1.3250; 1.3214; 1.3194

• Most European equity markets eke out small gains today with the German Dax underperforming (-0.2%). US stock markets opened flat. US trading is expected to slow down ahead of Thanksgiving and Black Friday.
• UK Treasury chief Hammond presented gloomier forecasts for the economy and government finances in a budget address to parliament aimed at boosting the country's feeble productivity as well as his own political fortunes.
• US business equipment orders unexpectedly fell in October for the first time in four months (-1.2% M/M) even as a gain in capital goods shipments (+0.4% M/M) pointed to steady investment growth, Commerce Department figures showed. Weekly jobless claims declined in line with forecasts from 249k to 239k.
• Pressure is mounting on Germany's Social Democrats to join Chancellor Merkel in a revived alliance and end the impasse threatening political stability in Europe's largest economy.
• Top crude exporter Saudi Arabia is lobbying oil ministers to agree next week on a nine-month extension to OPEC-led supply cuts, sources familiar with the matter said, as Riyadh seeks to ensure a price-sapping glut is eradicated.
• The national budgets of six euro zone countries may break EU deficit rules next year, the EC said, issuing what has become a frequent plea for governments to stay within the limits. For 2018, the draft assumptions of Belgium, Italy, Austria, Portugal, Slovenia and France posed a risk of not cutting the structural budget gap fast enough.

Rates

Core bonds mixed (US) to marginally lower (Germany)

In an uneventful pre-Thanksgiving session, core bonds showed no directional bias. There were no EMU eco data, while the US durable orders were mixed. The headline figure disappointed, but the measure excluding the volatile transportation was stronger than expected. Similarly, the capital goods orders were weaker (after a strong September month) but the shipments were stronger. The report suggests that equipment investment continued to expand at fast clip in Q4. However, the report had little lasting impact. US Treasuries evolved in a tight range with the curve slightly steeper, likely due to mild profit taking on past flattening. The German curve bear flattened slightly. While the intra-day curve moves were a bit erratic, the steepening might have been due to comments of ECB Coeuré. He said he expects "interest rate guidance to gain importance over time, up to a point where" it would be possible to delink it from the end of net asset purchases. This suggests that the first rate hike might come faster than hitherto expected by many market participants. All in all moves were technically insignificant.

At the time of writing, the US yield curve steepened slightly as yield changes varied between -1.5 bp (2-yr) and +1.2 bp (30-yr). German yields bear flattened with yields down 0.4 bp (30) to up 1.5 bp (2-5-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany were flat (semi-core) to marginally narrower (-1 to -2 bp) for the peripherals.

Currencies

USD/JPY stays under pressure. EUR/USD going nowhere

There was again no obvious story to guide USD trading. The euro was temporary supported by a slight narrowing in the US/EMU interest rate differential, but the gain could not be sustained. US data were close to expectations with little impact on the dollar. EUR/USD still trades in the 1.1750/60 area. USD/JPY remains in the defensive and struggles (111.85).

Overnight, The WS equity-rally continued in Asia, with several regional indices reaching a cycle top. Even so, the USD dollar remains in the defensive. USD/JPY (112.10) drifted again south despite good gains of Japanese equities. EUR/USD traded little changed in the 1.1750 area.

There were no data in EMU. European equities underperformed the rally in Asia and the US. The dynamics in the bond markets was slightly different from the previous days. Core bonds declined slightly and the interest rate differentials between the dollar and the euro narrowed slightly in favour of the single currency. EUR/USD jumped temporary to the 1.1770 area, but the incentives from other markets were not strong enough to cause any sustained move.

The US jobless claims were close to expectations. The US durable orders report was mixed. October orders were weaker than expected, but the September data were upwardly revised. At the same time, capital goods shipments were stronger than expected. The dollar lost marginal ground after the data. USD/JPY holds near the intraday lows. The pair trades near 111.80/85. EUR/USD (1.1775) also returns higher in the intraday range.

Sterling in consolidation modus

There were no UK eco data today. Evidently, there were still plenty of political comments on Brexit. Ireland's Minister Coveney said that the UK controls the odds for a Brexit breakthrough. UK PM May repeated that she doesn't want a hard Ireland border. However, there were no concrete indications of progress on the specific Brexit issues.. Sterling basically followed the broader swings in the euro and the dollar going into the budget announcement of UK Fin Min Hammond. Hammond said that the government set aside £ 3bln for Brexit preparations. The UK government also wants to use some of the fiscal room to invest, to support public services and keep taxes low. However, Hammond didn't bring any prospect of a substantial fiscal stimulation. The OBR also reduced the growth forecasts for the coming years, but this was no surprise. Sterling ceded temporary ground during Hammons's statement, but the move was soon reversed. EUR/GBP trades currently in the 0.8865 area. Cable drifted back to the 1.3220 area, but also reversed the intraday dip (currently 1.3270 area). In a broader perspective, sterling holds recent sideways consolidation pattern.

USD/CHF - 0.9870

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9882

Kijun-Sen level                    : 0.9894

Ichimoku cloud top                 : 0.9930

Ichimoku cloud bottom              : 0.9912

Original strategy :

Sold at 0.9935, Target: 0.9835, Stop: 0.9950

Position : - Short at 0.9935

Target :  - 0.9835

Stop : - 0.9950

New strategy  :

Hold short entered at 0.9935, Target: 0.9835, Stop: 0.9920

Position : - Short at 0.9935

Target :  - 0.9835

Stop : - 0.9920

As the greenback has retreated after meeting renewed selling interest at 0.9947 yesterday, adding credence to our view that the rebound from 0.9846 low has ended at 0.9947, hence bearishness remains for a retest of 0.9846, once this level is penetrated, this would confirm the erratic decline from 1.0038 top has resumed for at least a retracement of early upmove to previous resistance at 0.9837, break below there would encourage for subsequent decline towards 0.9795-00.

In view of this, we are holding on to our short position entered at 0.9935. Above said resistance at 0.9947 would defer and risk test of 0.9970-75 but price should alter below resistance at 0.9987, bring another decline later. 

GBP/USD - 1.3275

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3248

Kijun-Sen level                    : 1.3248

Ichimoku cloud top              : 1.3238

Ichimoku cloud bottom        : 1.3225

Original strategy :

Buy at 1.3200, Target: 1.3300, Stop: 1.3165

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3200, Target: 1.3300, Stop: 1.3165

Position : -

Target :  -

Stop : -

As cable has maintained a firm undertone, bullishness remains for recent erratic rise from 1.3039 to extend further gain to 1.3300, having said that, as broad outlook remains consolidative, reckon upside would be limited and price should falter below indicated previous resistance area at 1.3321-38, bring another retreat later.

In view of this, would not chase this rise here and would be prudent to buy cable on pullback. Below 1.3200 would bring weakness to 1.3180-85 but only break of support at 1.3170 would abort and risk correction to 1.3150, then test of said support at 1.3134, once this level is penetrated, this would signal top has been formed.

EUR/USD - 1.1772

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1757

Kijun-Sen level                  : 1.1746

Ichimoku cloud top             : 1.1764

Ichimoku cloud bottom      : 1.1744

Original strategy  :

Buy at 1.1680, Target: 1.1780, Stop: 1.1645

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1680, Target: 1.1780, Stop: 1.1645

Position : -

Target :  -

Stop : -

Although the single currency has recovered after finding support at 1.1713 yesterday, reckon upside would be limited to 1.1780 and near term downside risk remains for the erratic fall from 1.1861 top to bring retracement of recent rise, below 1.1730 would extend weakness to 1.1700, however, reckon downside would be limited to 1.1671-78 (61.8% Fibonacci retracement of 1.1554-1.1861 or previous resistance) and bring rebound later to 1.1809 but break of resistance at 1.1822 is needed to signal the pullback from 1.1861 (last week’s high) has ended, bring retest of said resistance later.

In view of this, we are looking to buy euro on next decline as 1.1671-78 should limit downside and bring rebound later. Only below 1.1650 would defer and signal top has been formed instead, bring a stronger retracement of recent rise to previous support at 1.1637 first. 

Daily Pivots: (S1) 1.1714; (P) 1.1736 (R1) 1.1759; More....

EUR/USD recovers after drawing support from 4 hour 55 EMA again. But it's staying below 1.1860 and intraday bias stays neutral first. Near term outlook remains cautiously bullish with 1.1677 support intact. As noted before, corrective fall from 1.2091 has completed at 1.1553 already, ahead of 38.2% retracement of 1.0569 to 1.2091 at 1.1510. Above 1.1860 will turn bias to the upside for retesting 1.2091 high. However, break of 1.1677 will dampen this bullish view and turn focus back to 1.1553 low instead.

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 cautious on 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 1.1373) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

The CAC continues to gain ground this week. Currently, the CAC is at 5383.45 up 0.32% on the day. The index has posted three consecutive winning sessions, gaining 1.3% in that time. On the release front, the sole eurozone indicator is Consumer Confidence, which is expected to remain unchanged at -1 point. On Thursday, France and the Eurozone release manufacturing PMI reports. As well, the ECB will release the summary from its October policy meeting.

All eyes are on Germany, which is currently facing one of its biggest political crises in decades, as President Angela Merkel has been unable to form a coalition. Talks to form a government have been ongoing for a month, but the Free Democratic Party (FDP) pulled the plug on Sunday, saying there was no "basis of trust" to enter a government with Angela Merkel's CDU-CSU alliance and the Greens. The parties have been holding negotiations for a month, but have failed to bridge the gaps on issues such as immigration. Merkel has said she is not interested in running a minority government, whereby the opposition could topple the government at any time. President Frank-Walter Steinmeier has urged the parties to redouble their efforts in order to reach an agreement, warning that another election would cause uncertainty in German as well as Europe.

Germany's political problems is far from strictly a domestic crisis. The political uncertainty in the eurozone's largest economy could paralyze the European Union, as Angela Merkel is the unofficial leader of the bloc. Euro-supporters such as French President Emmanuel Macron have ambitious plans to strengthen European integration, but this will have to wait until Merkel can straighten out her domestic challenges. Macron wants to take advantage of Britain leaving the EU and solidify France's position in the bloc. His proposals include a budget and a finance minister for the eurozone.

USD/JPY - 112.00

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 112.00

Kijun-Sen level                  : 112.19

Ichimoku cloud top             : 112.45

Ichimoku cloud bottom      : 112.30

Original strategy  :

Sold at 112.60, Target: 111.60, Stop: 112.60

Position :  - Short at 112.60

Target :  - 111.60

Stop : - 112.60

New strategy  :

Hold short entered at 112.60, Target: 111.60, Stop: 112.50

Position :  - Short at 112.60

Target :  - 111.60

Stop : - 112.50

As the greenback met renewed selling interest at 112.72 earlier and has retreated, retaining our bearishness and consolidation with downside bias remains for another test of indicated support at 111.88 (this week’s low), break there would extend recent decline from 114.74 top to previous support at 111.65, below there would bring further fall to 111.45-50, however, near term oversold condition should limit downside and reckon 111.00-05 would hold from here.

In view of this, we are holding on to our short position entered at 112.60. Above said resistance at 112.72 would risk test of previous support at 113.09 but only break there would abort and signal low is formed instead, bring a stronger rebound to 113.33 resistance first.