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• European equities gain up to 1% today, rebounding following a 7 day sell-off. US stock markets opened around 0.5% higher.
• ECB Executive Board member Mersch said in an interview with CNBC that financial markets wouldn't be right to expect another extension of asset purchases after September.
• UK retail sales fell for the first time since March 2013 in the 12 months to October (-0.3%), but the figures were still stronger than economists had forecast. The M/M statistics look brighter: total volumes rose 0.3%, or 0.1% excluding the volatile automotive fuel component. That beat expectations for a rise of 0.1% and no change, respectively.
• A Brexit transition deal is in everyone's interest but the Bank of England will support the economy no matter what the result of the negotiations, BoE Governor Carney said in an ITV television interview.
• The Republican-controlled US Congress was approaching a major test later today of its ability to overhaul the federal tax code, as lawmakers prepared for their first full-scale vote on sweeping tax legislation.
• The number of Americans filing for unemployment benefits unexpectedly rose last week to 249k in part as a backlog of applications from Puerto Rico continued to be processed, but the underlying trend pointed to tightening labor market conditions. The Philly Fed Business outlook declined more than forecast, from 27.9 to 22.7 (vs 24.6 expected). Industrial production rose a strong 0.9% M/M in October, beating 0.5% M/M forecast.

Rates

Bonds lose slightly ground as risk sentiment improves

Global core bonds lost ground during Asian trading and in the first half of European dealings as risk sentiment improves. Following a 7-day sell-off and a test of key support in eg the German Dax, stocks found their composure and rebounded. Positive risk sentiment weighted on the US Note future and the Bund. The equity rally stalled around European noon, putting a bottom below core bonds. The German Bund even started outperforming the US Note future, erasing most of the intraday losses. US eco data printed mixed, but once again failed to move markets. ECB Mersch said that markets shouldn't anticipate APP to be extended beyond September 2018, clearing a misunderstanding which originated at Draghi's press conference after the October meeting. ECB Praet was dovish as usual. The US House is expected to vote on its tax reform proposal a first time tonight which remains a wildcard.

At the time of writing, the US yield curve shifts 2.1 bps (2-yr) to 2.7 bps (30-yr) higher, slightly bear steepening the curve (hopes on tax reforms?!). Changes on the German yield curve range between -0.8 bps (30-yr) and +0.4 bps (2-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany range between -1 bp and +1 bp with Greece underperforming (+11 bps).

The French treasury held a small OAT auction by tapping two off the run (€ 1.02 bn 3.5% Apr2020 & €1.46 bn 0.5% May2025) and one on the run (€2.52 bn 0% Mar2023) bond. The amount sold was the upper bound of the indicative €4-5 bn range. Demand was very strong, resulting in an auction bid cover of 2.72. Additionally, the French treasury raided €2 bn via inflation-linked notes.. The Spanish debt agency sold 4 on the run bonds (€1.02 bn 0.05% Jan2021, €0.97 bn 0.45% Oct2022, €1.24 bn 1.45% Oct2027 and €1.43 bn 3.45% Jul2066). The combined amount sold (€4.65 bn) was in the upper half of the €4-5 bn target range with good auction bid cover of 1.92.

Currencies

Dollar off recent lows, but gain still far from impressive

An improvement in global risk sentiment and a rise in core yields supported a modest USD rebound, confirming yesterday's intraday trend-reversal. (US) data were mixed and had no significant impact on trading. EUR/USD trades in the 1.1775 area. USD/JPY changes hands near 113. The dollar trades off yesterday's lows, but the US currency has still a quite a long way to go to reverse the losses it occurred since the middle of last week.

Asian risk sentiment improved this morning as the downward correction of the previous days lost momentum. Most regional equity indices showed moderate gains with Japan outperforming. USD/JPY tried to regain the 113 level. EUR/USD was little changed from yesterday's close and traded in the high 1.17 area.

European equity indices joined the risk-on correction from Asia. Core yields rose and, contrary to what was often the case of late, US Treasuries underperform Bunds, (slightly) widening the interest rate differential in favour of the dollar. EUR/USD drifted to the 1.1760 area. USD/JPY gained a few more ticks north of 113. The dollar was in better shape compared to earlier this week, but the gains remained modest given the recent setback. ECB Praet defended the gradual ECB policy approach despite solid EMU growth. There was no noticeable negative impact on the euro. The early morning US data (import prices; Philly Fed and claims) were slightly below consensus, but the rise in the jobless claims may be partly due to statistical issues (Veterans day). Still the dollar lost a few ticks. Later in the session, the US production data were very strong, but again with little (positive) impact on the dollar. The US House and the Senate are developing parallel proposals on US tax reform, but it remains uncertain whether they will lead to a workable combined result in the end. EUR/USD trades currently in the 1.1775 area. USD/JPY trades near 113.

EUR/GBP 0.90+ test rejected

EUR/GBP traded off yesterday's top early in Europe. The pair hovered in the mid 0.89 area going into the publication of the October UK retail sales. The UK currency was supported by the better overall risk sentiment. Yesterday's potential trend reversal signal in EUR/GBP (and in EUR/USD) also weighed on the euro cross rates today. The UK retail sales were marginally stronger than expected at 0.3% M/M. Still, the series printed the first negative Y/Y reading since 2013 (-0.3%). EUR/GBP initially hardly reacted to the report, but sterling finally gained slightly further ground, especially against the euro. Some press headlines indicating that UK and EU (German) politicians acknowledge the need for an orderly, well-organised Brexit may have been slightly supportive for sterling. Investors don't want to be positioned aggressively sterling short as more constructive Brexit news remains possible. EUR/GBP trades currently in the 0.8920/25 area. The topside test looks rejected for now. Cable (1.3190 area) holds with the sideways consolidation pattern.

USD/CHF - 0.9908

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9911

Kijun-Sen level                    : 0.9891

Ichimoku cloud top                 : 0.9921

Ichimoku cloud bottom              : 0.9888

Original strategy :

Sold at 0.9935, Target: 0.9835, Stop: 0.9970

Position : - Short at 0.9935

Target :  - 0.9835

Stop : - 0.9970

New strategy  :

Hold short entered at 0.9935, Target: 0.9835, Stop: 0.9970

Position : - Short at 0.9935

Target :  - 0.9835

Stop : - 0.9970

As the greenback has rebounded after falling to 0.9846 yesterday, suggesting minor consolidation above this level would be seen and marginal gain from here cannot be ruled out, however, reckon 0.9940-45 would limit upside and bring another decline later, below said support at 0.9846 would signal the erratic decline from 1.0038 top is still in progress 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 which is likely to hold on first testing.

In view of this, we are holding on to our short position entered at 0.9935. Above 0.9940-45 would defer and risk test of 0.9970-75 but price should alter below resistance at 0.9987, bring another decline later. 

GBP/USD - 1.3193

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.3172

Kijun-Sen level                    : 1.3172

Ichimoku cloud top              : 1.3162

Ichimoku cloud bottom        : 1.3138

Original strategy :

Buy at 1.3100, Target: 1.3210, Stop: 1.3065

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3100, Target: 1.3210, Stop: 1.3065

Position : -

Target :  -

Stop : -

As the British pound retreated after rising to 1.3214 yesterday, retaining our view that further consolidation would take place, however, reckon downside would be limited to 1.3100 and 1.3075-80 should hold, bring another bounce to 1.3210-15, then towards resistance at 1.3230 would be seen, having said that, as broad outlook remains consolidative, reckon upside would be limited to 1.3250 and price should falter below 1.3275-80.

In view of this, we are looking to buy cable on dips as 1.3100-05 should limit downside. Below 1.3075 would risk test of said support at 1.3062 but break there is needed to suggest a downside break of recent broad range has taken place, bring retest of strong support area at 1.3027-39, only break there would confirm and extend recent decline to psychological support at 1.3000 first.

EUR/USD - 1.1780

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1779

Kijun-Sen level                  : 1.1809

Ichimoku cloud top             : 1.1802

Ichimoku cloud bottom      : 1.1746

Original strategy  :

Buy at 1.1745, Target: 1.1845, Stop: 1.1710

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1745, Target: 1.1845, Stop: 1.1710

Position : -

Target :  -

Stop : -

As the single currency retreated after rising to 1.1861 yesterday, retaining our view that consolidation below this level would be seen, however, reckon 1.1745-50 (50% Fibonacci retracement of 1.1637-1.1861) would limit downside and bring another rise later, above 1.1830-35 would bring a retest of said resistance at 1.1861, break there would extend recent rise from 1.1554 low to previous resistance at 1.1880, then 1.1900-10.

In view of this, would not chase this rise here and we are looking to buy euro on subsequent pullback as 1.1745-50 should limit downside. Below the lower Kumo (now at 1.1721) would defer and signal a temporary top is formed instead, bring weakness to previous resistance at 1.1678 (now support) but only break there would provide confirmation.

Contrary to market expectations for a decline (-0.5% m/m), Canadian manufacturing sales climbed 0.5% on a month-on-month basis. Volumes were up a touch more, +0.7% m/m, and prices fell back a bit.

Petroleum and coal product sales drove gains in the month (+10.3%), largely a reflection of strong volume growth, and marks the third consecutive monthly advance. Machinery (+1.9% m/m) and paper industries (+1.0% m/m) also recorded gains, with volumes outpacing nominal performance.

Transportation equipment industry sales fell 0.7% m/m, driven by declines in the motor vehicle (-5.9%) and motor vehicle parts (-2.5%) industries; the decline in volumes was a little less pronounced.

Quebec recorded a gain of 1.7% in September, as petroleum and coal manufacturing and the aerospace industry helped propel sales to their highest level on record ($13.3 billion). Performance across the remaining provinces was generally positive with the exception of Nova Scotia (-3.9%), Ontario (-0.9%), and Alberta (-0.9%).

Inventory levels declined for the fourth consecutive month, helping to push the inventory-to-sales ratio down a bit to 1.36 (August: 1.38). Forward looking indicators declined in September, with unfilled orders falling 1.1% and new orders declining 1.7%.

Key Implications

Both headline and volume prints for manufacturing sales were surprisingly strong despite concerns that labour disruptions at an assembly plant in Ontario could negatively impact automotive sales. This report follows on the heels of a hot August report that featured a rebound in automotive production.

Overall, today's report remains consistent with our view that after four consecutive quarters of growth well in excess of trend the Canadian economy has slowed to a more sustainable pace of around 2.0% in the third quarter.

The AUD/JPY is following a bearish zigzag pattern that could reach D camarilla support levels as I showed during my Real-Time Daily Trading Ideas Live Webinar today. The AUD/JPY could reject from the POC zone 85.90-95 (50.0, W L5, EMA89, D H3) and as long as 85.18-25 holds we might see a drop towards 85.50 and 85.35. Only if we see a 4h or 1h momentum close below 85.35 the pair might target 85.05 and 84.56. Have in mind that the AUD/JPY is a bislow moving pair so it might take some time to get to its final target. At this point the focus is on the POC zone.

• H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)
• W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)
• D H4 - Daily Camarilla Pivot (Very Strong Daily Resistance)
• D L3 - Daily Camarilla Pivot (Daily Support)
• D L4 - Daily H4 Camarilla (Very Strong Daily Support)
• PPR - Progressive Polynomial Channel
• POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

Daily Pivots: (S1) 1.1763; (P) 1.1811 (R1) 1.1839; More...

Intraday bias in EUR/USD remains neutral for consolidation below 1.1860 temporary top. Outlook is unchanged that correction from 1.2091 has completed at 1.1553 already. Further rise is expected. Above 1.1860 will target 1.2091 high. However, break of 1.1677 support will 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 1.1346) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Daily Pivots: (S1) 112.40; (P) 112.94; (R1) 113.42; More...

With 113.90 minor resistance intact, deeper fall could be seen to 38.2% retracement of 107.31 to 114.73 at 111.89 first. Sustained break of 111.64 support will now argue that rise from 107.31 has completed. In that case, USD/JPY should target 61.8% retracement at 101.14. On the upside, break of 113.90 resistance is needed to confirm completion of the fall. Otherwise, near term outlook will now stay cautiously bearish.

In the bigger picture, medium term rise from 98.97 (2016 low) is not completed yet. It should resume after corrective fall from 118.65 completes. Break of 114.49 resistance will likely resume the rise to 61.8% projection of 98.97 to 118.65 from 107.31 at 119.47 first. Firm break there will pave the way to 100% projection at 126.99. This will be the key level to decide whether long term up trend is resuming. However, firm break of 111.64 support will dampen this view and turn focus back to 107.31 instead.

Daily Pivots: (S1) 0.9850; (P) 0.9881; (R1) 0.9915; More....

Intraday bias in USD/CHF stays neutral as it rebounds ahead of 0.9835 resistance turned support. Such rebound remains near term bullishness in the pair and favors further rise. Decisive break of 1.0037 resistance will extend the rise from 0.9420 and target 1.0342 high. However, firm break of 0.9835 will argue that whole rebound form 0.9420 is completed and turn outlook bearish. In that case, USD/CHF should target 61.8% retracement of 0.9420 to 1.0037 at 0.9565 and possibly below.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could is a medium term up move and should target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9736 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

Daily Pivots: (S1) 1.3127; (P) 1.3171; (R1) 1.3212; More....

GBP/USD recovers today but stays at around middle of range of 1.3038/3337. Intraday bias remains neutral for the moment. In case of further rise, upside should be limited below 1.3337 resistance to bring fall resumption. Break of 1.3038 will now resume decline from 1.3651 to 1.2773 key support level. However, decisive break of 1.3337 will indicate that pull back from 1.3651 is completed and medium term rise from 1.1946 is resuming.

In the bigger picture, as noted before, GBP/USD hit strong resistance from the long term falling trend line. Current development is starting to favor that corrective rebound from 1.1946 low has completed at 1.3651. Decisive break of 1.2773 will confirm this bearish case and target a test on 1.1946 low next, with prospect of resuming the low term down trend. Nonetheless, break of 1.3320 resistance will restore the rise from 1.1946 for 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.