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Data released on Monday indicates that the Eurozone economy is on target to close out 2017 strongly. The latest Markit composite PMI fell to 56.0 in October, slightly lower than the previous months reading of 56.7, but well above the key 50 zone indicating positive sentiment for growth. PMI data showed the 2 largest economies, Germany and France, have remained strong. Not all PMI data was positive, as Italian growth slowed and Spain saw its mainstay services sector falling to its lowest level in 9 months. The decline in sentiment in Spain is not surprising given the political crisis that has developed following the Catalonian referendum, with many businesses concerned for their future. An investor sentiment index, released by Sentix, indicated that sentiment has grown to a level not seen in over 10 years – all attributed to a growing economy. With robust economic growth, which is likely to create upward inflationary pressure, the ECB’s recent decision to finally scale back Quantitative Easing can only help in accelerating Eurozone growth.

Earlier this morning, the Reserve Bank of Australia left interest rates unchanged (as expected) at 1.5%, for the 15th month in a row. RBA Governor Philip Lowe said the board expects the current low inflation rate to gradually lift as economic growth improves, stating; “Inflation remains low, with both CPI and underlying inflation running a little below 2%”. The markets are now looking ahead to the RBA’s latest quarterly outlook report (the November Statement on Monetary Policy), due on Friday, which might prove to be more insightful about future policy than today’s interest rate decision. The report is not expected to have changes for growth and inflation forecasts. However, AUD could see volatility if there are any significant changes to the inflation picture, specifically if the report indicates any possible delays to the timing of a rate hike.

EURUSD is unchanged in early Tuesday trading at around 1.1608.

USDJPY is 0.25% higher to currently trade around 114.00.

GBPUSD is little changed overnight, currently trading around 1.3170.

Gold is 0.2% lower in early session trading at around $1,279.50.

WTI is 0.16% higher, trading at around $57.50.

Major data releases for today:

At 15:00 GMT, the UK National Institute of Economic and Social Research will release a 3-month estimate for UK GDP (August to October). The report is released 1 month ahead of the official GDP report and has been known to be highly accurate.

At 19:00 GMT, Bank of Canada Governor Stephen Poloz will be speaking before the CFA Montreal and the Montreal Council on Foreign Relations on the topic of Central banks’ ability to understand inflation. Any hints to future Canadian Monetary Policy will see volatility in CAD.

EUR/JPY - 132.33

Original strategy:

Sold at 132.70, Target: 130.70, Stop: 133.30

Position: - Short at 132.70
Target: - 130.70
Stop: - 133.30

New strategy :

Hold short entered at 132.70, Target: 130.70, Stop: 132.70

Position: - Short at 132.70
Target:  - 130.70
Stop:- 132.70

Although the single currency rose briefly to 133.12 yesterday, as renewed selling interest emerged there and euro has retreated again, retaining our bearishness and consolidation with downside bias remains, below support at 131.98 would suggest the rebound from 131.45 has ended at 133.12, bring retest of this level later, below there would extend the fall from 134.50 for a correction of early upmove to 131.00, then towards 130.50-60.

In view of this, we are holding on to our short position entered at 132.70. Above 133.12 would defer and suggest first leg of corrective decline from 134.50 top has ended, risk a stronger rebound to 133.50-60 but still reckon upside would be limited to 133.95-00, price should falter well below said last week’s high at 134.50, bring another selloff later.

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 – 0.7672

Original strategy:

Sold at 0.7720, Target: 0.7550, Stop: 0.7780

Position: - Short at 0.7720
Target:  - 0.7550
Stop:- 0.7780

New strategy :

Hold short entered at 0.7720, Target: 0.7550, Stop: 0.7720

Position: - Short at 0.7720
Target:  - 0.7550
Stop:- 0.7720

Although aussie rebounded after finding support at 0.7638, as 0.7701 has capped upside and price has retreated, retaining our bearishness for another test of said support, break there would add credence to our view that the rebound from 0.7625 has ended at 0.7730, bring retest of this level, below there would extend recent decline from 0.8125 top to 0.7600, having said that, loss of downward momentum should prevent sharp fall below 0.7550 and reckon 0.7500 would hold from here, bring rebound later. 

In view of this, we are holding on to our short position entered at 0.7720. Above said resistance at 0.7730 would defer and risk a stronger rebound but only break of previous support at 0.7770 would abort and suggest a temporary low has possibly been formed, bring rebound to 0.7800 and then towards 0.7825-35 later.

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.

Currency pair USD/JPY

The USD/JPY is challenging the 114.50-115 resistance zone, which is a major break or bounce spot. Yesterday's daily candle ended up bearish with a major wick on the top of the candle. A rising wedge reversal chart pattern could also be taking place but the confirmation of the pattern occurs when price breaks below the support.

The trend is up at the moment but price seems to be losing steam and speed as it approaches resistance (red). The USD/JPY will need to break above resistance (red) or below support (blue) before the direction could be clear.

Currency pair EUR/USD

EUR/USD is still struggling to move lower as it failed yesterday to break below the low and bottom (green). The pattern however remains bearish but a new break below the bottom is needed before the wave 5 (blue) is able to continue.

The EUR/USD seems to be building a wave 4 (green) correction and the Fibonacci levels could act as resistance. A break above the 61.8% Fibonacci level makes a wave 4 (green) less likely.

Currency pair GBP/USD

The GBP/USD is testing the Fibonacci levels of wave 4 (orange), which could act as resistance. A break above the 61.8% Fib makes a wave 4 (orange) less likely.

The GBP/USD is building a small flag. A break below or above it could indicate a small breakout.

USD/CHF - 1.0003

Most recent candlesticks pattern : N/A

Trend                                    : Up

Tenkan-Sen level                  : 0.9985

Kijun-Sen level                    : 1.0005

Ichimoku cloud top                 : 0.9996

Ichimoku cloud bottom              : 0.9987

Original strategy :

Bought at 0.9950, Target: 1.0050, Stop: 0.9950

Position : - Long at 0.9950

Target :  - 1.0050

Stop : - 0.9950

New strategy  :

Hold long entered at 0.9950, Target: 1.0050, Stop: 0.9970

Position : - Long at 0.9950

Target :  - 1.0050

Stop : - 0.9970

Although the greenback retreated after rising to 1.0029, reckon downside would be limited to 0.9970-75 and bullishness remains for recent rise to resume after consolidation, above said resistance at 1.0029 would bring retest of 1.0038, break there would confirm the rise from 0.9421 low has resumed and extend further gain to 1.0050-55, then towards 1.0075-80 but price should falter below 1.0100 chart resistance.

In view of this, we are holding on to our long position entered at 0.9950. Only below said support at 0.9938-48 would abort and signal top is formed instead, risk correction to 0.9920-23 (38.2% Fibonacci retracement of 0.9737-1.0038) but 0.9885-90 (50% Fibonacci retracement) should limit downside and support at 0.9869 would remain intact. 

RBA: Don't rock the boat baby

The RBA proved yet again to be one of more predictable G-10 Central Banks offering up standard fare of no rate cut with no serious attempt to adjust forward guidance. Given the growing ASX momentum lifted by gains in local miners on the back of surging commodity prices, the Aussie dollar bears may be better-served waiting for Fridays Statement of Monterey Policy. And specifically, the RBA's possibly revamped CPI projections given the tepid Q3 CPI data, which continues to track below the lower end of the RBA's 2-3 % inflation band. But to be honest anything other than the glass half full approach from theRBA would be a surprise at this stage. The Aussie initially moved higher because some thought the RBA would tack dovish, so bearish bets unwound

Saudi's Arabia's 'purge' leads crude's geopolitical surge but traders should watch out of technical indicator cannon fire.

Oil's charge of the light crude brigade continued unabated overnight, with both Brent and WTI galloping 3.0% higher and even Natural Gas shaking of its multi-month lethargy, rising 3.50% in New York trading. Geopolitics continues to drive price surges, which is unsurprising when mainstream media use words such as 'purge' to describe the situation in Saudi Arabia.

Saudi Arabia's apparent purge aside, the rally comes against the backdrop of potential disruption of supplies in Iraqi Kurdistan, Libya and also forgotten in the noise, Venezuela. Venezuela appears to be nearing a default endgame at last with the country struggling with quality control issues of its already modest and declining exports. Much of Venezuela's production is destined for U.S. refineries, and this should be supportive for WTI even if the Saudi Arabia situation calms down.

With an OPEC and Non-OPEC production cut extension seemingly a done deal and Nigeria indicating its support, all would seem rosy for oil's short-term price momentum to continue. The original charge of the light brigade did not end well, however, and we continue to caution that the short-term technical indicators are now severely overbought on both contracts. Geopolitics can override these of course but like the original charge, the longer it went on, the uglier it became. In this case, crude could become vulnerable to an increasingly aggressive correction without some consolidation of the recent rallies.

Brent spot is trading unchanged at 64.25 this morning with initial resistance at the overnight high of 64.60. Its nearest long-term target at these levels remains the 69.00 regions. With oil running on vapours, support appears at 64.25 followed by a lot of clear air until the triple daily bottom at 60.00.

WTI spot is at 57.10, the overnight high at 57.40 being initial resistance, the bottom of a mid-2015 multimonth congestion zone that extends to 61.00 which is the next technical target. Support is at 55.50 followed by a series of multi-day lows around 53.60 and also today, the ascending trendline support that has held all pullbacks since the beginning of October. 53.60 is a critical support level with a break suggesting that the charge of the light crude brigade will be running into some severe cannon fire.

As widely anticipated, RBA left the cash rate unchanged at 1.5% in November. As we await Friday' Statement of Monetary Policy, policymakers revealed at today' statement that the macroeconomic guidance has stayed largely unchanged. In short, policymakers remained upbeat about the growth outlook, although they expressed concerns over household spending and soft inflation. Despite recent weakness in the Australian dollar, RBA reiterated the warning that higher exchange rate would lead to slower growth and inflation. Given the overall unchanged tone of the central bank, we retain the view that RBA would keep the policy rate unchanged at least until 1H18.

On the dovish side first, RBA pointed out that an ongoing source of uncertainty is the outlook for household consumption, due to slow growth in household incomes and high debt levels. Policymakers noted that growth in housing debt has continued to outpace that of household income. Policymakers also acknowledged the persistent weakness on both headline and core CPI.

Yet, policymakers were upbeat over the growth outlook, retaining the forecast is for GDP growth to “pick up and to average around +3% over the next few years. The optimism was driven by improvement in the business conditions and the increase in capacity utilization. They also noted that “the outlook for non-mining business investment has improved, with the forward-looking indicators being more positive than they have been for some time”. Meanwhile, the strong employment market also added to optimism. The central bank expected the unemployment rate to fall gradually from its current level of 5.5%. They, however, raised concerns of the subdued wage growth. On the housing market, the RBA noted that property prices eased further in Sydney, but continued to rise in Melbourne. Policymakers judged that additional supply of apartments over the coming years should help ease the conditions in the latter. Other cities have shown little change during the intermeeting period.

All in all, recent mixed macroeconomic data has not altered the central bank' stance. We expect to see similar forecasts at the upcoming Statement of Monetary Policy. We also retain the view that RBA would keep the policy rate unchanged at least until 1H18.

GBP/USD - 1.3154

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.3164

Kijun-Sen level                    : 1.3123

Ichimoku cloud top              : 1.3164

Ichimoku cloud bottom        : 1.3078

Original strategy :

Sold at 1.3175, Target: 1.3045, Stop: 1.3210

Position : - Short at 1.3175

Target :  - 1.3045

Stop : - 1.3210

New strategy  :

Hold short entered at 1.3175, Target: 1.3045, Stop: 1.3210

Position : - Short at 1.3175

Target :  - 1.3045

Stop : - 1.3210

Although cable staged another strong rebound since yesterday, as this move from 1.3039 is viewed as retracement of last week’s selloff, reckon upside would be limited and mild downside bias remains for test of the Kijun-Sen (now at 1.3123), break there would suggest an intra-day top is formed, bring weakness to 1.3095-00 but below 1.3065-70 is needed to signal the rebound from 1.3039 has ended and bring retest of recent low at 1.3027. Looking ahead, only a drop below this level would confirm early downtrend has resumed for weakness to psychological support at 1.3000, then towards 1.2970-75.  

In view of this, we are holding on to our short position entered at 1.3175. Above 1.3175-80 would risk gain to 1.3200, break there would defer and prolong choppy trading, risk a stronger rebound to 1.3235-40 first.

Market movers today

Euro-area retail sales are expected to rebound in September after a 0.5% drop in August; consumer confidence is at the highest level in 20 years pointing to continued robust consumption.

Chinese FX reserves are due today but no time of the release has been announced. The reserves are expected to be broadly flat and have not attracted much attention since capital out flows stabilised again in spring 2016.

Tonight, Fed Chairman Janet Yellen will speak at an event where she will be given an Award for Ethics in Government. However, we do not expect her to say anything about the monetary policy out look in her speech, and indeed as she steps down in February, her speeches are getting less important by the day.

The US House of Representatives' tax-writing committee continues to work on a tax reform with a proposal possibly due by the end of the week, but markets will stay alert to progress on this issue to sense how wide raging it will be.

US President Trump arriving in Seoul, South Korea, could put focus back on geopolitical tensions with North Korea.

It is time for Norwegian industrial production. More on Scandi markets, page 2.

Selected market news

Risk appetite remains decent with notably energy stocks lifted by a continued uptick in oil prices with the price on Brent crude topping USD64/bbl. The main driver behind the most recent oil spike seems to be rising tensions around Iran's missile programme with UAE and Bahrain yesterday backing Saudi Arabia in saying that tackling the programme is an urgent priority. The ongoing purge launched by the Saudi Crown Prince bin Salman also seemingly continued to provide support to oil supply worries. Separately, the prospect of a Broadcom- Qualcomm tie-up also helped to lift notably tech stocks. US yields edged lower during the day led by the long end of the curve with the 10Y Treasury yield firmly below 2.35% again. Separately, Fed's Vice Chair Dudley announced that he will retire in mid-2018, which is somewhat earlier than expected, heightening uncertainty with respect to Fed policy .

Overnight, the Reserve Bank of Australia (RBA) as expected kept its cash target rate unchanged at 1.50%. The RBA noted that investment is picking up outside of mining but issued worries over household consumption, which remains low due to still subdued wage growth. Also this morning, data on Japanese wages for September was released, showing overall wage growth at 0.9% y/y. Although up from a (revised lower) 0.7% last time, the details showed that this is due mainly to part -time workers seeing salary increases. This limits the impact on inflationary pressure more broadly and in our view means there is still a long way before the Bank of Japan will see the overshoot of its inflation target it was again stressing its devotion to earlier this week. USD/JPY is slightly higher.