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Price dropped as much as 55.67 level today, but failed to stay near it and now has squeezed a little. Brent is strongly bearish on the short-term and looks too heavy to be stopped at this moment. Is focused on correction after a false breakout, remains to see how long this will be because technically it should drop further in the upcoming months. However, we still need a confirmation that we'll have a major drop on the medium term, that's why I'm waiting for the price to come back in the upcoming days to retest and confirm some resistance levels.

Price dropped even if the USD/CAD is losing altitude, Brent will slide further if the United States data will come in better than expected. The greenback needs support from the US economy, a stronger dollar will bring more pressure on the oil's price.

Price dropped further and is targeting the downside line of the up channel, could reach this in the upcoming days even if we'll have a minor rebound. The perspective is bearish on the short term, but it could turn to the upside to retest the 250% Fibonacci line (descending dotted line) before will resume the corrective phase.

The false breakout above the median line (ML) of the ascending pitchfork signaled that we may have a major drop on the short to the medium term, but we still need a confirmation before we can take action again. Brent could come to retest also the median line (ML), only a rejection from it or a failure to reach this dynamic resistance will send the price towards the next important downside obstacles (61.8%, 50%, etc.).

USD/JPY has posted losses in the Wednesday session. Currently, the pair is trading at 112.42, down 0.38% on the day. In the US, ADP Nonfarm Payrolls kicks off this week’s job reports, with the indicator expected to slow to 131 thousand. The ISM Nonfarm Manufacturing PMI is forecast to edge up to 55.5 points. We’ll also hear from Federal Reserve Chair Janet Yellen, who will deliver remarks at an event hosted by the St. Louis Fed. On Thursday, the US releases unemployment claims, which is expected to drop to 266 thousand.

The Japanese economy has rebounded in 2017, and GDP has expanded for six consecutive quarters. The sore point in the economy is chronically low inflation, but there was some good news earlier this week. BoJ Core CPI, the inflation indicator relied upon by the BoJ, accelerate to 0.6% in August, its strongest gain since May 2016. This reading follows Tokyo Core CPI, which rebounded in September with a respectable gain of 0.5%, its best gain since March 2015. Still, inflation levels remain well below the BoJ inflation target of just below 2.0%, and BoJ Governor Haruhiko Kuroda has been crystal clear that he has no plans to tighten its accommodative monetary policy until inflation levels move higher. Inflation isn’t expected to climb anytime soon, and the BoJ has acknowledged this, saying that is doesn’t expect its inflation target of around 2.0% to be reached before fiscal year 2020.

Will the Fed make a rate move in December? Just a few weeks ago, federal futures had priced in a December hike at below 50 percent, but the odds have surged to 76 percent, according to the latest CME Fed Watch release. Although FOMC members remain divided on the prudence of another rate hike in 2017, Fed Chair Janet Yellen has broadly hinted that she favors a December move, and the markets have picked up on her message. The US economy continues to perform well, and the labor market remains close to capacity. The Achilles heel in an otherwise strong economy is inflation, which remains well below the Fed’s target of 2 percent. If sentiment towards a December hike remains high, the US dollar could gain ground.

After failing to pass a new health care act through a skeptical Congress, will Donald Trump succeed with tax reform? Last week, the White House announced the new tax proposal, called the Unified Tax Reform Framework, which includes lowering corporate and personal income taxes. However, the plan is sketchy and short on specifics, most importantly, how will the plan be paid for? Trump has insisted that the cuts will trigger strong economic growth which will more than pay for itself. However, Moody’s, the well-respected credit rating company, is not impressed by the rhetoric. On Monday, Moody’s said that the tax plan is “likely credit negative”, arguing that tax cuts would not be offset in spending cuts, which would result in a higher federal budget deficit and debt. The reduction in federal government revenue would negatively affect the US credit rating. Some Republican lawmakers have already come out against the plan, so it appears that the proposal will have an uphill battle to pass through the House of Representatives and the Senate.

• Will Yellen and Draghi offer insight into rate hikes and tapering?
• ADP may offer important insight into Friday's NFP;
• Spanish IBEX down as Catalonia prepares to declare independence.

After kicking off the week with two record closes, US indices are currently seen opening marginally lower on Wednesday as we prepare for speeches from Federal Reserve Chair Janet Yellen and ECB President Mario Draghi.

While the two central banks are in very different phases of the tightening cycle, both heads are facing very similar problems in that there is a strong desire within the banks to become less accommodative before the end of the year but the data is making life difficult. Inflation in particular is a massive headache for many central banks around the world, with the normal models proving ineffective in determining when it will return to target.

The longer the central bank's models fail to correctly anticipate price increases, the more likely it is that policy makers lose faith in the forecasts and withdraw their support for tighter monetary policy, something traders appear to be banking on next year when it comes to the Fed. The ECB may have a little more time given they're much earlier in the cycle, they're expected to move much slower and the amount of remaining slack is still significantly higher.

It will be interesting to get the views of the two central bank heads today and traders will likely be paying very close attention to what they have to say regarding meetings later this year. With the Fed currently indicating that one more rate hike is likely and the ECB giving the impression that a further asset purchase reduction will happen, traders are naturally curious about whether these views are changing in light of recent data. As it is, traders have only recently become convinced that we'll see another Fed rate hike this year and the possibility of more next year is only just being priced in.

Central bankers aside, we'll also get some noteworthy US economic data today. The ADP employment report is always followed closely, with it intending to be an estimate of Friday's NFP number. This may be the case more so this month, with its reputation but not being entirely reliable possibly being set aside as traders look for any insight into what impact the hurricanes had on hiring last month. Fewer than 100,000 jobs are expected to have been created last month but the reality could be very different and today's ADP may offer some insight on this.

Markets in Europe have mostly traded in the red this morning, particularly the Spanish IBEX which is down more than 2%, with yields on the countries debt also climbing after the head of Catalonia's devolved government claimed they will declare independence from Spain at the end of this week or the beginning of next. The handling of the referendum at the weekend by Spanish authorities has already seen the situation deteriorate more than it may have otherwise done and as we near the weekend, it could deteriorate much further again creating more uncertainty for Spanish investors.

The two pairs, that favor USD weakness are USDCAD and USDNOK, where we see both at the end of a corrective rally. They might have already reached a top, but we still want to see more weakness before we may confirm a bearish trend. USDCAD would have to see a fall below channel support line and through 1.2400, while USDNOK needs to get below 7.9299 region.

USDCAD, 1H

USDNOK, 4H

Spot Gold price bounced on Wednesday after hitting fresh seven-week low at $1268 the previous day. Tuesday's action ended in Doji, signaling hesitation ahead of strong supports at $1265/63 (daily cloud base/Fibo 61.8% of $1204/$1357 ascend).

Gold is expected to consolidate within daily cloud (cloud top lies at $1290 and is reinforced by Tenkan-sen) before broader bears resume. Break below $1265/63 would generate strong bearish signal for extension of downtrend from $1357) towards weekly cloud top at $1348. Alternative scenario requires sustained lift above daily cloud top to sideline immediate bears and generate bullish signal for extended correction.

Res: 1278, 1280, 1290, 1296
Sup: 1271, 1268, 1265, 1263

Notes/Observations

Euro Area Service PMI data mixed in session (Beats: Euro Zone, UK, Spain; Misses:France, Italy, Russia; in-line: Germany )

Overnight

Asia:

BOJ Dep Gov Nakaso said not to rule out BoJ deficit in exit strategy. Revenue fluctuations in the short-term from exit strategy would not hurt policy execution as BoJ had been saving some of its revenues for future losses.

Japan Sept PMI Services: 51.0 v 51.6 prior (11-month low)

The World Bank raised China’s 2017 and 2018 GDP growth forecasts, putting them in line with those of the IMF

Europe:

UK Trade Min Fox: have reached agreement with EU on the methodology of WTO quotas

PM May reiterated seeks a deal on Northern Ireland power sharing agreement; UK will do everything it can to get to a deal. UK PM May said to plan to tell her Tory party to “shape up and go forward together” in her closing speech at today’s annual party conference

UK Foreign Min Johnson: things are going well in the EU Brexit negotiations, but it's amid too much gloom. Expected to complete many free trade deals before the next election

UK Sept BRC Shop Price Index Y/Y: -0.1% v -0.3% prior (smallest decline since May 2013)

Catalan govt President Puigdemont confirmed planning to declare independence within day

Spain King Felipe VI: Spanish democracy is in a serious moment; referendum plans by Catalan leaders were illegal. Committed to Spanish unity; Spanish crown firmly committed to constitutional order

Americas:

President Trump aides said to deliver shortlist for Fed Chair, Treasury Sec Mnuchin is said to have given support to Jerome Powell for the position. President could bring in a wild-card candidate, but some said this is not likely (**Note: 4 candidates for the Fed chair position that President Trump interviewed including Yellen, Gary Cohn, Jerome Powell and Kevin Warsh)

House GOP tax plan reportedly likely to include fourth tax bracket on high earners; not likely to exceed 39.6%

Bank of Canada (BOC) Leduc: Need to promote economic stability by aiming for 2% CPI target (did not comment directly on BOC interest rates)

Energy:

Weekly API Oil Inventories: Crude: -4.1M v -0.8M prior

Economic data

(IE) Ireland Sept Services PMI: 58.7 v 58.4 prior; Composite PMI: No est v 58.2 prior

(RU) Russia Sept PMI Services: 55.2 v 54.6e (20th month of expansion); Composite PMI: 54.8 v 54.2 prior

(SE) Sweden Sept PMI Services: 68.3 v 55.4 prior

(ES) Spain Sept Services PMI: 56.7 v 55.5e 47th month of expansion and highest since Aug 2015); Composite PMI: # v 55.1e

(ZA) South Africa Sept PMI (Whole Economy): 48.5 v 49.8 prior (2nd straight contraction)

(IT) Italy Sept Services PMI: 53.2 v 55.0e (16th month of expansion) ; Composite PMI: 54.3 v 55.9e

(FR) France Sept Final Services PMI: 57.0 v 57.1e (confirmed 15th month of expansion); Composite PMI: 57.1 v 57.2e

(DE) Germany Sept Final Services PMI: 55.6 v 55.6e (confirmed 51st month of expansion); Composite PMI: # v 57.8e

(EU) Euro Zone Sept Final Services PMI: 55.8 v 55.6e (confirmed 51st month of expansion);; Composite PMI: 56.7 v 56.7e

(BR) Brazil Sept FIPE CPI (Sao Paulo) M/M: 0.0% v 0.0%e

(UK) Sept Services PMI: 53.6 v 53.2e (14th month of expansion); Composite PMI: 54.1 v 53.8e

(IS) Iceland Central Bank (Sedabanki) cut its 7-Day Deposit Rate by 25bps to 4.25%

(IN) India Central Bank (RBI) left its Repurchase Rate at 6.00% (as expected)

(EU) Euro Zone Aug Retail Sales M/M: -0.5% v +0.3%e; Y/Y: 1.2% v 2.6%e

Fixed Income Issuance:

(IE) Ireland Debt Agency (NTMA) opened its book to sell Oct 2022 IGB bond; guidance seen -23bps to mid-swaps

(IN) India sold total INR140B vs. INBR140B indicated in 3-month, 6-month and 12-month Bills

(DK) Denmark sold total DKK2.12B in 2020 and 2027 DGB bonds

(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicated in 2026 and 2032 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.4% at 3,581, FTSE flat at 7,423, DAX +0.2% at 12,909, CAC-40 -0.3% at 5,348, IBEX-35 -1.9% at 10,030, FTSE MIB -1.0% at 22,497, SMI -0.1% at 9,255, S&P 500 Futures flat]

Market Focal Points/Key Themes: European stocks opened mixed and slipped lower as trading progressed; Catalan independence worries keep markets depressed in the periphery; oil slipped adding additional pressure on energy stocks; safe havens supported; Israel closed for holiday; attention turning to new Fed Chair pick, with President Trump said to have received a shortlist of candidates; reminder that China and South Korea remain closed for holiday this week; upcoming earnings in US session include Pepsico and Monsanto

Equities

Consumer discretionary: Bang & Olufsen BO.DK +3.4% (results),Tesco TSCO.UK -1.9% (results), Eniro ENRO.SE +51.0% (recapitalization plan completion)

Consumer staples: Bakkafrost BAKKO.NO +2.5% (harvest update)

Energy: Scatec Solar SSO.NO +6.1% (JV with Statoil)

Financials: International Personal Finance IPF.UK -9.5% (comments on tax proposal in Poland)

Healthcare: Motif Bio MTFB.UK +30.6% (sudy results)

Industrials: Grupo Ezentis RDT.DE -12.8% (share issue), Pirelli PIRC.IT -0.9% (first day of trading), Royal Mail RMG.UK -2.7% (strike notice)

Technology: Worldline WLN.FR +2.9% (analyst action)

Telecom: Telefonica Deutschland O2D.DE -2.3% (analyst action)

Speakers

ECB proposed new guidance for banks’ bad-loan provisioning (NPL); as speculated. Starting Jan. 1, banks will have at most two years to set aside funds to cover 100 percent of the value of their newly classified non-performing unsecured debt and seven years to cover all secured bad debt

Euro Working Group (EWG) chief Wieser: Expect member States to order the completion of banking union

Iceland Central Bank policy statement noted that GDP growth to be weaker in 2017 due to easing in tourism

India Central Bank (RBI) policy statement noted that the vote was 5-1 to keep policy steady with memberDholakia votingd for at least 25bps cut. Saw inflation picking up from recent record lows and cuts its FY18 GVA from 7.3% to 6.7%. Forecasted H2 inflation between 4.2-4.6%

Saudi Arabia Central Bank Gov Alkholifey: FX Reserves are adequate

Russia Energy Min Novak: To keep 2017 oil exports flat y/y. Reiterated view that expected oil market to achieve balance in Apr 2018

Venezuela Oil Min Del Pino: There are talks whether to extend oil production cuts or even deepen them - comments from Russia oil forum

IEA raised its forecast for Renewable energy growth over the next 5 years. Expects global renewable electricity capacity to rise by more than 920 gigawatts, or 43 percent, by 2022, due to supportive policies for low-carbon energy and cost reductions for solar PV and wind

LIbya's Sharara oil field said to have reopened (was closed since late Sunday)

Currencies

The USD was slightly softer in a quiet session with some dealers noting of a report that President Trump aides delivered a shortlist for Fed Chair position (Treasury Sec Mnuchin is said to have given support to Jerome Powell for the position)

EUR/USD was higher by 0.2% and holding above 1.1750 area as various European Services PMI data came in mixed but holding onto expansion territory.

GBP/USD was aided by the UK Services PMI data which beat expectations. Pair trading around 1.3270 area.

Fixed Income

Bund futures trades at 161.36 up 24 ticks being aided by continued tensions in Spain, with a take out of 161.62 high targeting 161.98 followed by 162.23. A reversal continues to target 160.86 initially then 160.66.

Gilt futures

Wedneday's liquidity report showed Tuesday's excess liquidity rose to €1.778T from €1.767T prior, use of the marginal lending facility rose to €497M from €344M prior.

Corporate issuance saw $3.5B come to market via 2 issuers headlined by Enel Finance $3B 3 part offering, bringing weekly issuance to $6.65B.

Looking Ahead

(US) Senate Intelligence Committee update on Russia probe

05:30 (DE) Germany to sell €3.0B in 0.50% Aug 2027 Bund

06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

06:00 (EU) EU Parliament votes on non-binding Brexit Resolution

06:00 (RU) Russia to sell combined OFZ bonds

06:30 (US) Fed's Fischer – media interview

07:00 (US) MBA Mortgage Applications w/e Sept 29th: No est v -0.5% prior

07:00 (FI) Finland Parliament on possible no-confidence vote

07:30 (TR) Turkey Sept Effective Exchange Rate(REER): No est v 89.71 prior

08:00 (HU) Hungary Central Bank (NBH) Sept Minutes

08:05 (UK) Baltic Dry Bulk Index

08:15 (US) Sept ADP Employment Change: +138Ke v +237K prior

09:00 (EU) Weekly ECB Forex Reserves:

09:00 (MX) Mexico July Gross Fixed Investment: -1.4%e v -0.9% prior

09:00 (BR) Brazil Sept PMI Services: No est v 49.0 prior; Composite PMI: No est v 49.6 prior

09:45 (US) Sept Final Markit Services PMI: 55.1 v 55.1 prelim; Composite PMI: No est v 54.6 prelim

10:00 (US) Sept ISM Non-Manufacturing Composite: 55.5e v 55.3 prior

10:00 (PT) Portugal PM Costa in Parliament

10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference

10:30 (US) Weekly DOE Crude Oil Inventories

12:15 (EU) ECB chief Draghi in Frankfurt

15:00 (CO) Colombia Sept Total PPI M/M: No est v 0.6% prior

15:00 (ES) Spain region of Catalon President Puigdemont statement on referendum

15:15 (US) Fed Chair Yellen at community banking event

Bitcoin is still on a strong momentum. Strong support is given at 2975 (22/08/2017 low). Sell walls around $4000 have been broken. Key resistance can be located at 4921 (01/09/2017 high). The road is wide open for further increase.

In the long-term, the digital currency has had an exponential growth. There are decent likelihood that the asset will reach $10'000.

EUR/CHF is back into bearish. Short-term downside pressures are increasing. Strong resistance is now at 1.1623 (22/09/2017 high). Expected to show further short-term weakness.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

EUR/GBP is ready to bounce back lower.. As long as prices remain below the resistance at 0.8899 (19/09/2017 low), the short-term technical structure is biased to the downside. Hourly support is given at 0.8746 (27/09/2017).

In the long-term, the pair has largely recovered from recent lows in 2015. The technical structure suggests a growing upside momentum. The pair is trading above from its 200 DMA. Strong resistance can be found at 0.9500 (psychological level).

Crude Oil is pushing lower towards $50 level. Key support is given at 45.40 (17/08/2017 high). Strong resistance found at 52.43 (26/09/2017) has been broken. Expected to show continued weakness.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).