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The euro has started losses in the Monday session. Currently, EUR/USD is trading at 1.1745, down 0.30% on the day. On the release front, we’ll get a look at Eurozone Consumer Confidence, which is expected to remain to remain at -1 point. There are no US events on the schedule. On Tuesday, Germany and the eurozone will release Manufacturing PMIs.

The standoff in Catalonia has continued this week. On Saturday, the central government said it was imposing direct rule, invoking Article 155 of the Spanish Constitution. However, there is plenty of uncertainty, as this clause has never been used and it is unclear what steps Madrid will take. Spanish media is reporting that the central government will strip Catalan President Carles Puigdemont of all his powers and take over Catalonia’s local police force. Unsurprisingly, the Catalan government has condemned Madrid and said it will not accept direct rule. The crisis has led to many companies in Catalonia moving their legal headquarters to Madrid, and investors are nervously watching as developments unfold in Spain, which is the eurozone’s fourth largest economy.

The Brexit clock is ticking, with Britain leaving the European Union in March 2019. However, negotiations between the parties have foundered, as the sides remain far apart on a number of key issues, including the size of Britain’s bill when it says goodbye to the club. Prime Minister May addressed the 27 EU leaders last week in Brussels, imploring the European to show some flexibility. This didn’t prevent the EU leaders from stating that trade negotiations with Britain would not commence until more progress was made on non-trade matters. Prime Minister May has a razor-thin majority in parliament, and adding to the mix, there are sharp divisions in her cabinet regarding Brexit, with some senior ministers in favor of taking a hard stance and leaving the EU without an agreement if the Europeans fail to soften their position.

Geopolitical events again dominate market movements.

The Euro starts the week on the back foot as the market waits for the next big development in Spain, where Catalan separatists are expected to deliver a response after PM Rajoy moved on the weekend to impose federal authority on the region.

In Japan, the PM Abe's Liberal Democratic Party won big as expected, they retained two-thirds majority in Sunday's general election. Abe's win makes the reappointment of Kuroda, and hence the continuation of ultra-easy monetary policy, significantly more likely. Yesterday's victory sent the Nikkei to the longest winning streak on record and the yen to a new three month low outright.

Elsewhere, a number of central bank policy meetings begin this week – Bank of Canada (Oct 25) and European Central Bank (Oct 26). The BoC is expected to pause in its interest rate increases this time around. The bank will also publish its Monetary Policy Report (MPR), while the ECB is expected to announce a recalibration of its asset purchase program.

Also keeping investors busy will be the potential unveiling of President Trump's pick for Fed chair and his efforts to overhaul U.S's tax code. Later in the week, Q3 preliminary GDP data for the U.K and U.S also will be released.

1. Victory for Abenomics lift stocks to new record

In Japan, Abe's convincing election victory lifted the Nikkei to its highest in 21-years and world stocks to an all-time high overnight, despite an escalation of Spain's constitutional crisis. The Nikkei ended up +1.1%, while the broader Topix climbed +0.8%. Expect the market's attention to now shift to corporate earnings.

Down-under, Australia's S&P/ASX 200 lost -0.2%, while South Korea's Kospi index was little changed.

In Hong Kong, stocks fell overnight, led by banking and property shares, amid concerns of slowing economic growth in China. The Hang Seng index fell -0.6%, while the China Enterprises Index also lost -0.6%.

In China, stocks inch a tad higher, with consumer and healthcare firms lending the biggest support in the session. The blue-chip CSI300 index rose +0.1%, while the Shanghai Composite Index also added +0.1%.

Note: Quarterly earnings from a slew of Chinese companies this week will serve as a barometer of the country's economic health.

In Europe, regional indices trade mostly higher across the board with the exception of the Spanish Ibex, which trades lower on continuing worries over Catalonia as Spanish Banks weigh on the index.

U.S stocks are set to open unchanged.

Indices: Stoxx600 +0.2% at 390.9, FTSE +0.1% at 7532, DAX +0.3% at 13035, CAC-40 +0.3% at 5389, IBEX-35 -0.4% at 10184, FTSE MIB flat at 22353, SMI +0.2% at 9255, S&P 500 Futures flat.

2. Oil edges higher on tighter supplies, gold falls

Oil prices remain better bid over supply concerns in the Middle East and as the U.S market shows further signs of tightening while demand in Asia keeps rising.

Brent crude futures are at +$57.87, up +12c from Friday's close, while
U.S West Texas Intermediate (WTI) crude is at +$52.04 per barrel, up +20c.

Data on Friday showed that the amount of U.S oilrigs drilling for new production fell by seven to 736 in the week to Oct. 20, the lowest level since June according to Baker Hughes.

In the Middle East, flows from Iraq has reduced due to fighting between government forces and Kurdish groups, and production still being withheld as part of a pact between OPEC and non-OPEC producers to tighten the market.

In Asia, growth remains strong especially in China and India, the world's number one and three importers.

Gold hit its lowest in over two-weeks this morning, as the dollar climbed to a three-month high versus the yen (¥114.05) after Sunday's election results have left the door open to ultra-loose monetary policy for longer. Spot gold was down -0.4% at +$1,275.81 an ounce.

3. Sovereign yields fall

Eurozone borrowing costs have eased a tad as Abe's big win gives the green light for a continuation of Japan's hyper-easy monetary policy.

JGB yield's erased an early rise as Abe's election win reinforced the markets view that his reflation economic policies will remain in place. The yield on the 10-year JGB initially rose to +0.080%, matching a 10-week high, but slipped back to +0.070% or unchanged.

All eyes will now shift to the ECB meet Thursday (07:45 am EDT) when officials are expected to signal baby steps away from their ultra-easy monetary policy stance. Germany's 10-year Bund yields fell -2 bps to +0.43%, pulling back from a one-week high at +0.46%.

With the Fed expected to hike one more time in 2017 continues to support the ‘big' dollar. The yield on U.S 10-year Treasuries has declined less than -1 bps to +2.38%.

4. Dollar is steady, supported by rate differentials

A wider spread between U.S. and eurozone bond yields, as well as political uncertainty in Spain, is weighing on the EUR (€1.1744) outright. U.S yields are being supported by market expectations of U.S tax cuts and the possibility of a new Fed chair that may be more of a ‘hawk.'

The EUR is expected to trade defensively ahead of Thursday's ECB meeting. Central bank officials are expected to outline their asset purchase reduction plan. Market guesstimates expect the ECB to begin to taper its current €60B monthly asset purchases in January 2018 with consecutive €10B monthly reductions. This means the ECB would cease balance sheet expansion by the end of Q2 2018.

The downside risk for EUR is for the ECB to announce that it will taper with lower bond purchases for longer.

5. Catalan parliament to meet on Thursday

Earlier this morning, Catalonia's parliament indicated that it would hold a complete session on Thursday morning, in which it will lay out its response to Madrid after PM Rajoy government, said it would impose direct rule.

Carles Puigdemont party is expected to launch a legal appeal against the application of article 155, which rests power from the regional government and lays the groundwork for new elections.

The Spanish senate is expected to pass article 155 this Friday

Spot Gold is holding firmly below thick daily cloud base after being unable to clearly break support ($1281) in several attempts last week. Gold price hit new two-week low at $1274 on Monday after breaking below next pivotal supports at $1277 (Fibo 61.8% of $1260/$1306 upleg) and $1275 (100SMA).

Close below here is needed for fresh bearish signal after break below cloud base, to extend bear-leg from $1306.

Immediate support lies at $1271 (Fibo 76.4%) but bears may extend towards key point at $1260 (06 Oct low) as the yellow metal remains under pressure by strengthening US dollar.

Thick daily cloud (spanned between $1281 and $1321) weighs strongly and cloud base is expected to limit upside action.

Res: 1277, 1281, 1283, 1288
Sup: 1274, 1271, 1266, 1260

The New Zealand dollar bears are taking a breather on Monday after sharp fall last week when the pair was down nearly 3% on strong sell-off, triggered by political uncertainty.

Last week's fall marks the biggest weekly losses since early Nov 2016.

Fresh five-month low at 0.6930 was hit in Asia on Monday, with subsequent bounce remaining capped under broken psychological 0.7000 level.

However, stronger correction cannot be ruled out as slow stochastic is in deep oversold territory but no firmer reversal signal being generated yet.

Stronger recovery through 0.7000 should stay below falling daily Tenkan-sen (0.7070) before bears resume, as overall structure is negative.

The pair is riding on the wave C of five-wave sequence from 0.7558, which eyes its FE 123.6% at 0.6907.

Res: 0.7000, 0.7055, 0.7070, 0.7126
Sup: 0.6930, 0.6907, 0.6844, 0.6817

EUR/USD

Current level - 1.1767

The intraday outlook remains bearish below 1.1790, for a slide towards 1.1715 area. Only a violation of 1.1790 will signal a reversal of the slide from 1.1860.

USD/JPY

Current level - 113.69

The uptrend is intact, heading towards 114.50, en route to 115.50 zone. Key support lies at 113.50 and crucial on the downside is 113.10.

GBP/USD

Current level - 1.3211

A reversal has been confirmed at 1.3085 and the intraday bias is positive, with a risk of a rise towards 1.3340 hurdle. On the senior frames the current leg should be the final one of the prolonged consolidation above 1.3020, preceding a renewal of the general slide towards 1.2590. Minor intraday support lies at 1.3160.

EUR tumbles ahead of ECB decision

The single currency started the week on the back foot as the ECB decision looms. The euro was down roughly 0.30% against the US dollar but lost even more ground against high quality commodity currencies such as the Aussie and the Kiwi, which gained 0.30% and 0.45% respectively. For the past two weeks the single currency has been trading in a volatile range as investors awaited the European Central Bank’s penultimate meeting of the year. Although there is absolutely no doubt that the ECB will trim its monthly bond purchase, which currently stands at €60bn/month, the date of the announcement is still quite uncertain.

There is a high probability that Mario Draghi will make this announcement on Thursday as waiting longer would send a negative signal to investors. Indeed, waiting until December will suggest that the ECB is not happy with the current economic conditions in the EU. However, In order to avoid throwing the cat among the pigeons, Mario Draghi will likely adopt a very cautious tone and will also reiterates that the ECB could potentially increase again its support to the economy should the situation require. Indeed, is there is one thing that Draghi wants to avoid is to trigger further EUR appreciation as it would both damage the economic outlook but, most importantly, it will add pressure on an already anaemic inflation.

Looking at the market this morning, EUR/USD realized volatility has reached its lowest level since August 2014 which suggest that investors are too worried. However, the 1-week implied volatility has spiked to 9.36%, compared to 6% a week ago. The 1-week 25 delta risk-reversal measure rose to 0.53% indicating that investors are buying protection against an upside move in EUR/USD. On the longer-term, it is worth mentioning that the 6-month 25 delta risk reversal measure has returned in negative territory, sliding to -0.17%. This move below the neutral threshold is clear indication that investors await a reversal of EUR/USD within the next 6-month.

In addition, the appreciation of the Swiss franc against the single currency also suggests a certain tensions among investors. Although we believe that the market is almost done pricing in the upcoming QE reduction, the single has still upside potential, though limited thanks to political uncertainties.

Abe win give USD/JPY a boost

In Japan Prime Ministers Shinzo Abe ruling LDP-Komeito coalition was handed a resounding victory in the Lower House elections. Upstart opposition Party of Hope failed to converted general popularity into votes but did end up splitting the opposition vote making its easer for Abe to obtain a 2/3 majority. Despite the fact that Abenomics does have much room to debase the JPY, USDJPY rallied to 114.10 result on the removal of political uncertainty. Looking forward Prime Minister Abe will run again for the LDP leadership next year while the BoJ will be dominated by dovish members as BoJ governor and deputy governor’s selection next April will be under Abe strong control. Moving forward the fate of USDJPY depends less on BoJ policy and more the outlook for the Fed.

Growing expectations for a positive turn in US data has added to higher US interest rates. In addition, positive developments over a tax reform and continuity in naming the next Fed chairperson should keep USD firm against the JPY. Finally Japanese’s institutional investors knowing lower interest rates and YCC are unlikely to changes will further search overseas of yields. FX Asia is looking increasingly balanced with higher US yields on one side and solid global growth (expected around 3.0% 2017) and trade data on the other. We suspect that the risk is skewed towards USD upside. US data momentum is expected to reverse softness starting with 3Q GDP and PCE this week. However, given the recent strength of upside surprises in export momentum we anticipate cyclical softening which will send Asia FX lower.

Price increased in the morning, but failed to reach and retest the 250% Fibonacci line. Technically is should drop further on the short term after the failure to stabilize above the 250% level. It could come down to retest the SL of the major descending pitchfork and could move in range on the short term before we’ll see what will happen on the USDX.

EUR/USD opened with a gap down as well and looks determined to resume the bearish momentum as the USDX is trading in the green. Price is almost to reach the median line (ml) of the minor blue descending pitchfork, where could find temporary support again. Technically is somehow expected to drop much deeper after the failure to retest the median line (ml) of the ascending pitchfork, the next downside should be at the lower median line (lml) of the minor ascending pitchfork. A valid breakdown below the 1.1711 and below the median line (ML) of the major ascending pitchfork will confirm the Head and Shoulders pattern.

The USD/JPY opened with a gap up and reached fresh new highs today. Was strongly bullish as the Yen was punished by the Nikkei’s impressive jump, the index opened with a gap up as well and touched new highs.

The JP225 continues the upside movement, technically should approach and reach new highs if will stay above the morning gap. A Nikkei’s minor drop will be confirmed only if the index will drop and will close today’s gap up.

Personally, I still believe that the Nikkei will decrease a little to correct after the amazing rally, the USD/JPY has already lost altitude after the morning bullish momentum. The USD was expected to increase versus its rivals as the after the last days’ very good US data, the USDX climbed above the 93.81 horizontal resistance, but remains to see if will have enough energy to make a valid breakout.

The USD/JPY edged higher and jumped above the 23.6% retracement level, but failed to stay there and now could retest the median line (ml) of the minor ascending pitchfork. A valid breakout above the median line (ml) will signal a further increase on the Daily chart . The bullish movement was expected after the failure to reach and retest the 38.2% retracement level, but only a valid breakout from the extended sideways pattern will confirm a larger increase, while a false breakout above the median line (ml) will send the rate tumbling.

Nikkei 225 index rose to fresh multi-year high at 21770 on Monday (the highest since July 1996) in fresh bullish extension of last Friday's strong rally.

The index was boosted by election victory of Japan PM Abe's ruling coalition, signaling continuation of their policy for fiscal spending and monetary easing.

The price was up around 0.75% since opening and maintaining strong bullish momentum for further advance.

Bulls eye immediate target at 22402 (Fibo 123.6% projection of the upleg from monthly higher base at 14761 (2016 lows) and may extend to 23305 (Fibo 138.2% projection).

On the other side, strongly overbought daily studies warn of correction but so far without firmer bearish signal.

Monday's low at 21585 marks initial support, followed by Friday's low at 21300, reinforced by rising daily Tenkan-sen. Ascending thick 4-hr Ichimoku cloud (spanned between 21235 and 20985) which tracks the ascend in past two weeks, should contain corrective dips.

Res: 22000, 22286, 22402, 22760
Sup: 21680, 21585, 21300, 21235