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USD/CHF - 0.9907

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 0.9937

Kijun-Sen level                    : 0.9940

Ichimoku cloud top                 : 0.9961

Ichimoku cloud bottom              : 0.9959

New strategy  :

Sell at 0.9940, Target: 0.9840, Stop: 0.9975

Position : -

Target :  -

Stop : -

As the greenback has dropped after meeting renewed selling interest at 0.9987 yesterday, suggesting the fall from 1.0038 top is still in progress and may extend weakness to 0.9885-90 (50% Fibonacci retracement of 0.9737-1.0038), break there would bring further fall to support at 0.9869 but near term oversold condition should limit downside to previous resistance at 0.9837 and price should stay above 0.9795-00.

In view of this, we are looking to sell dollar on subsequent recovery but at a lower level as 0.9940 should limit upside. Above 0.9970-75 would defer but only break of resistance at 0.9987 would signal the fall from 1.0038 has ended instead, bring further gain to 1.0015-20 first.

• European equities lost up to 0.5% today, despite strong EMU eco data. US equities join the setback in Asia and in Europe. Major US indices show losses of 0.3%-0.4%.
• One of the Federal Reserve's leading doves and 2017 voting member, Dallas Fed Kaplan told the FT he is "actively considering" backing another increase in short-term interest rates at the central bank's meeting next month, pointing to the risks that an overheating job market will create "imbalances and excesses" in financial markets.
• The German (0.8% Q/Q) and Italian (0.5% Q/Q) economies moved up a gear in the third quarter, aided by an increase in demand for their exports, as the Eurozone's economy (0.6% Q/Q & 2.5% Y/Y) remained on course for its strongest year since 2007. Central and eastern Europe's economies also kicked into higher gear with forecast-beating growth, as manufacturers thrived and tightening labour markets boosted wages and consumer spending.
• Inflation in the UK remained steady at its highest level in more than five years in October (3% Y/Y), but was lower than expected by economists who had forecast a further rise (3.1% Y/Y). Rising food prices had been offset by a fall in the cost of fuel. The pound slipped after the data with EUR/GBP moving above 0.8950.
• Four of the world's top central bankers - ECB Draghi, Fed Yellen, BoE Carney and BoJ Kuroda - promised to keep openly guiding investors about future policy moves as they slowly withdraw the huge monetary stimulus rolled out during the financial crisis.
• Swedish inflation slowed more than forecast in October (from 2.3% Y/Y to 1.8% Y/y, vs 2.0% Y/Y expected) and dropped below the 2% inflation target for the first time since June. The Swedish krona lost significant ground with EUR/SEK bursting through 9.8 resistance.
• Eurozone industrial production declined in line with forecasts from 1.4% Y/Y to -0.6% Y/Y. German ZEW investor sentiment remained strong with the headline index rising from 87 to 88.8 in November, the highest level since mid 2011. The forward looking expectations component rose less than forecast, from 17.6 to 18.7.
• US PPI final demand PPI rose 0.4% M/M and 2.8% Y/Y in October, significantly more than expected. Core PPI indicators painted a similar picture. Part of the rise in wholesale prices might by due to storm-related activity. In this respect, markets will be keen the see whether US October CPI (to be published tomorrow) will show a similar picture.

Rates

Core bonds hold strong despite stronger eco data

Traditional correlations remain at search on bond markets. The past days, Bunds and US Treasuries lost ground despite weakness on stock markets. Today, global core bonds gain slightly ground despite stronger than expected EMU and US eco data. Especially Q3 GDP data (0.6% Q/Q confirmation for the euro zone, but strong German/Italian readings) and US PPI (2.8% Y/Y and significantly beating forecasts) drew attention. The heads of the 4 largest central banks vowed to keep openly guiding investors about future policy moves, but didn't touch on their own current stances. Several Fed governors took parole as well with dovish Dallas Fed Kaplan, 2017 voter, arguing in favour of a December rate hike. Chicago Fed Evans repeated a recent call from SF Fed Williams to allow price level targeting in the future, allowing a temporary overshoot in inflation. St-Louis Fed Bullard, arch dove, repeated that he's in favour of keeping rates unchanged at least until inflation passes the 2% target.

At the time of writing, the German yield curve bull flattens with yields 0.1 bp (2-yr) to 1 bp (30-yr) lower. The US yield curve flattens as well with yield changes ranging between +0.6 bps (2-yr) and -2.3 bps (30-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 3 bps (Portugal) with Greece underperforming (+3 bps).

The Dutch debt agency held a 10-yr DSL auction (€2.5bn 0.75% Jul2027). The amount sold was below the maximum on offer (€3 bn), but that's often the case at Dutch auctions. The German Finanzagentur successfully sold a new 2-yr Schatz (€5 bn 0% Dec2019). Total bids amounted to €6.14 bn, above the €5.31 bn at the previous 4 Schatz auctions. The Bundesbank retained €0.99 bn for secondary market operations, resulting in an official bid cover of 1.5 (real bid cover 1.2). The auction had a tiny tail and the auction yield was close to the one at the previous 4 auctions (-0.71%).

Currencies

EUR/USD jumps on strong German Q3 GDP

Euro strength was the name of the game today.A very strong Q3 German GDP propelled the single currency higher. Other EMU eco data confirmed the health of the EMU economy. Remarkably, there was again a disconnect with the price moves in interest rate markets. On the other hand, the dollar didn't profit from higher than expected US PPI data. EUR/USD cleared the 1.1690 resistance and trades currently in the 1.1750 area. USD/JPY holds in the mid 113 area.

Asian equities mostly traded in negative territory. Japan this time was the exception to the rule. Chinese retail sales and production data were a touch softer than expected. USD/JPY held in the 113.60 area after yesterday's intraday rebound. Changes in EUR/USD (1.1675) were also small, but the pair neared 1.1690 resistance.

At the start of the European session, German Q3 GDP printed very strong at 0.8% Q/Q and 2.8% Y/Y (0.6% Q/Q and 2.3% Y/Y was expected). The unexpectedly strong Q3 German growth marked the start of a protracted intraday euro rebound. Later in the session, German ZEW, Italian Q3 growth and EMU Q3 growth also confirmed the health of the EMU economy . EUR/USD cleared 1.1690 resistance and extended gains well north of 1.17. Remarkably, only the euro reacted to the strong EMU data. European equities lost slightly ground. Even stranger, the Bund, which lost ground in a risk-off environment of late, regained a few ticks despite strong EMU data. Changes in interest rate differentials were also limited and didn't really explain the power of the intraday euro rally . EUR/USD traded in the 1.1750 area going into the US PPI report. USD/JPY was little changed, in line with equities and core yields.

US headline PPI (0.4% M/M and 2.8% Y/Y ) was significantly stronger than expected (consensus 0.1% M/M and 2.4% Y/Y). US yields and the dollar tried a shy attempt to go higher, but the rise almost immediately ran into resistance. Today's price action confirmed the tentative signs of early this week. The dollar fails to profit from data/events that were often USD supportive in the past. At the same time, the euro remains well bid even as the ECB signalled that further policy normalisation is still quite far away.

Today's price action is disappointing for USD bulls. That said we assume that the current disconnect between bond markets and FX won't last indefinitely. In this respect we look out whether tomorrow's US CPI will be able to change fortunes for the dollar. EUR/USD trades currently in the 1.1750 area. USD/JPY is little changed in the mid 113 area.

EUR/GBP rises on sterling weakness AND euro strength

The focus for sterling trading turned from politics/Brexit to the UK eco data today. UK headline inflation stabilised at 3.0%M Y/Y (consensus 3.1% Y/Y). Other price indicators (core inflation, PPI) were also slightly softer than expected. In its November inflation report, the BoE assumed inflation to peak above 3.0% in October. Inflation might cool from here as the upward impact of the decline of sterling on 'end-prices' will gradually decline. If inflation cools from current levels, the BoE can shift into wait-and-see modus. Sterling won't get any additional interest rate support anytime soon. Some market observers even question the need of the November rate hike. Sterling lost further ground after the price data. Cable dropped (temporary?) below 1.31, but the downside was blocked on USD weakness. EUR/GBP extended gains well north of 0.89 (currently 0.8970). This move was reinforced by overall euro gains after strong German/EMU eco data this morning.

GBP/USD - 1.3117

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.3103

Kijun-Sen level                    : 1.3105

Ichimoku cloud top              : 1.3146

Ichimoku cloud bottom        : 1.3122

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling to 1.3062 yesterday, lack of follow through selling on break of previous support at 1.3085 and the subsequent recovery suggest consolidation would be seen and bounce to 1.3130-35 cannot be ruled out, however, reckon upside would be limited to 1.3160-70 and bring another decline later, below said support at 1.3062 would revive bearishness for weakness towards support area at 1.3027-39 but break there is needed to confirm decline has resumed for further fall to psychological support at 1.3000.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above 1.3160-70 would prolong choppy trading and bring recovery to 1.3190-00 but said resistance at 1.3230 would hold from here, bring further consolidation. Only break of said resistance at 1.3230 would extend the erratic rise from 1.3039 to 1.3250, then 1.3275-80.

EUR/USD - 1.1749

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1715

Kijun-Sen level                  : 1.1710

Ichimoku cloud top             : 1.1657

Ichimoku cloud bottom      : 1.1639

Original strategy  :

Buy at 1.1625, Target: 1.1725, Stop: 1.1590

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1710, Target: 1.1810, Stop: 1.1675

Position : -

Target :  -

Stop : -

As the single currency has rallied today after breaking above indicated resistance at 1.1691-96, adding credence to our bullish view that the rise from 1.1554 low is still in progress and may extend further gain to  1.1775-80, then towards 1.1800-10 but reckon upside would be limited today and price should falter well below previous resistance at 1.1837 due to near term overbought condition, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as the Kijun-Sen (now at 1.1710) should limit downside.Only below previous resistance at 1.1678 (now support) would abort and signal an intra-day top is formed instead, bring correction to 1.1650-55 first. 

USD/JPY - 113.49

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 113.68

Kijun-Sen level                  : 113.58

Ichimoku cloud top             : 113.47

Ichimoku cloud bottom      : 113.41

Original strategy  :

Sold at 114.00, stopped profit at 113.70

Position :  - Short at 114.00

Target :  -

Stop : - 113.70

New strategy  :

Buy at 112.90, Target: 113.90, Stop: 112.55

Position :  -

Target :  -

Stop : -

Although the greenback staged initially rise to 113.91, current retreat suggests an intra-day top is formed and near term downside risk is seen for test of support at 113.24, below there would extend the erratic fall from 114.74 top to 113.09 and then test of previous support at 112.96, however, reckon 112.80-85 (61.8% Fibonacci retracement of 111.65-114.74) would limit downside and bring another rebound later. Above 113.91 would signal low is formed, bring test of 114.07, above latter level would indicate the retreat from 114.74 has ended, then further gain to 114.34 would follow.

In view of this, we are inclined to buy dollar on further subsequent decline. Below 112.80-85 would signal the fall from 114.74 top is still in progress for weakness to 112.50 but minor support at 112.30 should hold due to near term oversold condition.

Daily Pivots: (S1) 0.9908; (P) 0.9968; (R1) 1.0015; More....

USD/CHF's correction from 1.0037 extends lower today but outlook is unchanged. At this point, we'd continue to expect downside to be contained above 0.9835 resistance turned support and bring rally resumption. On the upside break of 1.0037 will resume whole rally from 0.9420. And with sustained trading above 61.8% retracement of 1.0342 to 0.9420 at 0.9990, USD/CHF should then target a test on 1.0342 key resistance. However, sustained break of 0.9835 will argue that whole rebound form 0.9420 is completed and turn outlook bearish.

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) 112.82; (P) 113.77; (R1) 114.47; More...

USD/JPY is still staying in range above 112.95 and intraday bias remains neutral at this point. As long as 112.95 support holds, near term outlook remains bullish and further rise is expected. On the upside, sustained break of 114.49 key resistance will pave the way to retest 118.65 high. However, break of 112.95 support will now indicate rejection from 114.49 and turn bias to the downside for 111.64 support and below.

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.

Daily Pivots: (S1) 1.3088; (P) 1.3159; (R1) 1.3259; More....

Intraday bias in GBP/USD remains neutral as it's still bounded in range of 1.3038/3337. In case of another recovery, 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.

EUR/GBP - 0.8970

Original strategy  :

Sold at 0.8890, stopped at 0.8930

Position : - Short at 0.8890

Target :  -

Stop : - 0.8930

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

 
The single currency found renewed buying interest at 0.8812 late last week and has rallied above previous resistance at 0.8939, signaling low has indeed been formed at 0.8733 earlier, hence consolidation with upside bias is seen for further gain to 0.9000, however, reckon resistance at 0.9033 would hold on first testing due to near term overbought condition.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 0.8900 would suggest top is possibly formed instead, bring weakness to 0.8880 and possibly towards 0.8850-55, however, said support at 0.8812 should remain intact, bring another rebound later.

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.

Sterling was under immediate selling pressure against the Dollar and most other major counterparts on Tuesday morning, after UK inflation unexpectedly held steady in October.

Consumer price inflation stagnated in October, coming in at 3.0% as cheaper fuel offset the rising cost of food. While today's steady CPI release is a breath of fresh air to the Bank of England, it must be kept in mind that consumers are still feeling the pinch because inflation remains at a five-year high. While BoE Governor Mark Carney has yet again narrowly avoided having to pen out an open letter to the Chancellor, explaining why inflation is more than 1% above target, the question is for how long?

With the trajectory of the British Pound tilted to the downside amid mounting political risk and ongoing Brexit uncertainty, Carney and Co could receive an unpleasant surprise, in the form of rising inflation before year end. The Pound's woes are likely to be compounded by the ever-fading prospects of higher UK interest rates which should be seen as another reason for bears remaining in the vicinity.

Taking a look at the technical picture, the GBPUSD depreciated towards 1.3075 following the inflation report, before recovering back towards 1.3100. Technical lagging indicators such as the MACD and 50 Simple Moving Average reinforce the bearish daily outlook on the pair. Bears need to secure a daily close below 1.3050 which may encourage a further decline towards 1.3000 and 1.2960, respectively. Alternatively, a technical bounce towards the 1.3150 resistance level, could present a fresh opportunity for sellers to jump back to target 1.3050 and 1.3000, respectively.

Top Central Bankers in focus

Will we see fireworks across financial markets today, as the world's major central bank heavyweights make their way to the Central Bank Communications Conference in Frankfurt?

With Janet Yellen, Mark Carney, Mario Draghi, and Haruhiko Kuroda, all in the limelight, investors will be alert and are likely to closely scrutinize their speeches for clues on monetary policy. Any surprises or fresh insights from any of the top central bankers, could spark volatility in the currency markets.

Currency spotlight - EURUSD

The Euro roared back to life on Tuesday after positive economic data from Germany boosted sentiment towards the European economy and stimulated investor appetite for the Euro.

With short-term bulls inspired by rising expectations over economic growth in Europe remaining strong, further upside may be on the cards. Taking a look at the technical picture, the EURUSD still remains somewhat bearish on the daily charts. Although prices have broken above the 1.1730 level, buyers need to secure a close back above the 50 Simple Moving average to threaten the current daily bearish setup. A daily close above 1.1730 could open a path towards the 1.1850 resistance level which could result in the EURUSD finding itself back within a range. For bulls to be truly back into the game the 1.1850 level needs to be thoroughly conquered on the daily and weekly timeframe.