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• GBPUSD in bullish correction in short-term
• RSI and MACD head north

GBPUSD has been in a rising correction mode over the last couple of weeks after the bounce off the six-month low of 1.2486. The pair may revisit the 1.2750 barrier, which is holding near the short-term downtrend line. If the market successfully breaks this area, it may face a significant challenge at the flat 200-day simple moving average (SMA) at 1.2820, before encountering the 1.2840 resistance and the 50-day SMA around 1.2900.

However, if the price retreats below the 1.2610 support, then it may challenge the long-term ascending trend line at 1.2530 and the six-month bottom of 1.2486. Slightly lower, the 1.2445 support may pause the decline but the 1.2300 round number may be the next key turning point in the market.

According to technical oscillators, the RSI is ready to cross above the 50 level, and the MACD is strengthening its positive momentum above its trigger line. Both are indicating further increases in the market.

Overall, GBPUSD has shown a bullish tendency over the last one-and-a-half-year and any climbs beyond the 200-day SMA would also shift the short-term negative bias to a positive one.

Daily Pivots: (S1) 1.0474; (P) 1.0509; (R1) 1.0546; More...

Intraday bias in EUR/USD stays neutral at this point. Outlook remains bearish with 1.0609 resistance intact. On the downside, break of 1.0330 will resume the fall from 1.1213. Also, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication. Nevertheless, firm break of 1.0609 will turn bias back to the upside for 1.0760 support turned resistance first.

In the bigger picture, immediate focus is now on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2646; (P) 1.2684; (R1) 1.2737; More...

Intraday bias in GBP/USD remains neutral for the moment. Recovery from 2.2486 could extend through 1.2749. But outlook will stay bearish as long as 55 D EMA (now at 1.2853) holds. Below 1.2615 minor support will turn intraday bias back to the downside for retesting 1.2486. Break there will resume whole fall from 1.3433.

In the bigger picture, a medium term top should be in place at 1.3433, and price actions from there are correcting whole up trend from 1.0351 (2022 low). Deeper decline is now expected as long as 55 D EMA (now at 1.2867) holds, to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8821; (P) 0.8851; (R1) 0.8874; More…

USD/CHF is still bounded in consolidations below 0.8956 and intraday bias remains neutral. Further rise is expected with 0.8800 support intact. On the upside, break of 0.8956 will resume the rally from 0.8374, and target 0.9223 key resistance next. However, firm break of 0.8800 will confirm short term topping and turn bias back to the downside for 55 D EMA (now at 0.8736).

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 149.68; (P) 150.46; (R1) 151.39; More...

USD/JPY is staying in consolidation above 148.64 temporary low and intraday bias remains neutral. On the downside, break of 148.64 will strength the case that rise from 139.57 has already completed at 156.754. Deeper fall should then be seen to 61.8% retracement of 139.57 to 156.74 at 146.12 next. Nevertheless, firm break of 151.94 resistance will revive near term bullishness and bring retest of 156.74 high.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.4056; (P) 1.4070; (R1) 1.4087; More...

Range trading continues in USD/CAD and intraday bias remains neutral for the moment. Further rally is expected with 1.3930 support intact. On the upside, firm break of 1.4177 will resume larger up trend towards 1.4391 projection level. However, break of 1.3926 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.3879).

In the bigger picture, up trend from 1.2005 (2021) is resuming with break of 1.3976 key resistance (2022 high). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391. Now, medium term outlook will remain bullish as long as 1.3418 support holds, even in case of deep pullback.

Markets

Barnier turned out to be France’s shortest-serving prime minister since the establishment of the Fifth Republic in 1958. After only 90 days in his tenure – still double UK Truss’ term – parliament yesterday passed a motion of no confidence. President Macron’s search for a new PM rebegins. But any new administration faces the same issues: a minority government that needs to find common ground to address unsustainable public finances in a heavily divided parliament. Yesterday’s decision was widely expected and as such left little traces on the euro intraday but ongoing political uncertainty (including in Germany) obviously doesn’t help clear the cloudy skies circling over the currency. EUR/USD finished virtually unchanged just north of 1.05 only because of some ISM-induced dollar weakness. The services gauge fell to 52.1 from 56 vs 55.7 expected. The drop was broad-based with subseries including new orders, business activity and employment all printing lower. We don’t jump to pessimistic conclusions, there have been false negatives in the past (e.g. June). Fed chair Powell isn’t at all worried either. A “remarkably good economy” & less pronounced downside risks to the labour market allow the central bank to be “a little more cautious” in dialing back policy restrictiveness towards a more neutral level given that they’re “not quite there on inflation”. ECB’s Lagarde before the European Parliament struck a similar note on inflation but was more concerned about short-term growth prospects. Neither Lagarde nor Powell changed anything to our base case of a 25 bps cut by both central banks in December. Since this isn’t fully reflected in US money markets, yesterday’s disappointing ISM triggered UST outperformance vs Bunds. Yields dropped 4.4-5.7 bps across the curve. German rates added about 1 bp. Gilt yields whipsawed to close with changes <1 bp amid a (too) loosely quoted Bank of England governor Bailey as signaling four cuts next year. EUR/GBP closed at the lowest level (0.827) in 2.5 years. The near-empty eco calendar won’t inspire trading much ahead of tomorrow’s closely watched payrolls report. Weekly jobless claims could trigger some intraday volatility in a mostly technically-driven session. We keep looking for (long-term) core bond yields to find a bottom. EUR/USD has found some relief in yesterday’s weakish dollar but we don’t expect any gains to reach far.

News & Views

Czech average real monthly wages grew a more-than-expected 4.6% y/y in the previous quarter. Wage dynamics accelerated especially in services, profiting from rising domestic demand. Construction wages are starting to accelerate as well but there was a noticeable slowdown in industrial wage growth. The Czech industry had a weaker year with a still-uncertain outlook. All in all, the numbers add to upside inflation risks for the central bank, especially due to the developments in the services sector. The CNB sees wage growth structurally at around 4.5% YoY, while both this year and next year it is highly likely to be 1-2 percentage points higher. In addition, the latest figures ended up visibly above the CNB's 3.6% (in real terms) staff forecast. The wage data fit into recent CNB guidance flagging an easing pause in the near future. Governor Michl yesterday said that they might choose for interest rate stability for some time, giving the bank time to “assess the new forecast with a goal to bring core inflation slightly below 2% and overall inflation to the target.” The next meeting is scheduled for December 19. The Czech koruna at EUR/CZK 25.11 yesterday touched the strongest levels since end-September, but with no follow-through gains (currently 25.17).

The National Bank of Poland (NBP) yesterday as expected left its policy rate unchanged at 5.75%. CPI in November slowed from 5.0% to 4.6%, but has been higher than in H1 2024 mainly due higher administered prices of energy carriers and food prices. Domestic/services inflation is also supported by marked wage growth. Yet, demand-driven inflation is assessed to remain low, due to weakened economic conditions. NBP expects inflation to remain markedly above target in coming quarters due to the effect of earlier increase in energy prices and planned increases in excise duties and administered services prices. In the medium term inflation should return to target, but there remains a factor of uncertainty amongst others due to the impact of higher energy prices on inflation expectations. Several NBP members including governor Glapinski recently indicated that the NBP might start to discuss interest rate cuts in March. Glapinski comments on the decision this afternoon. The zloty yesterday strengthened to close near EUR/PLN 4.28 but this was probably mainly due to global factors.

There are rare moments when the market’s reaction to news leaves me baffled. And today – this week – is one of them. The French government just collapsed, and the composition of the government suggests that whoever replaces Micel Barnier will face the same problems than he did, in a France that became ungovernable. But who cares? The EURUSD was around 1.0510 when the news broke yesterday night, and is trading around 1.0526 now. The total absence of reaction from the euro hints that we won’t see a bloodshed in stock and bond markets, either. The message is clear: chaos feels better than the stability that was proposed to France.

What now? The uncertainty will grow and the pressure on Macron to quit will mount. But investors will move on with their lives, and look elsewhere, to the European Central Bank (ECB), to decide what to do next with their positioning. The ECB Chief Lagarde said yesterday that their battle against inflation ‘is nearing completion’ but not ‘mission accomplished’ yet. The services inflation remains sticky – near 3.9% in November – the headline inflation ticked above the 2% target, gas prices have been rising, and US is threatening Europe with tariffs. In the jungle of unknowns, the most cautious option for the ECB is a 25bp cut – and not a 50bo cut. The scaling back of the dovish ECB expectations and the resilience to the French chaos strengthen support near the 1.05 level and should allow a further rebound. The key resistance to the September-November selloff stands at 1.0672, the major 38.2% Fibonacci retracement. Until there, the euro’s recovery will not raise major questions regarding the medium term trend.

Of course, the dollar leg of the EURUSD trade is as - if not more - powerful than the euro leg. And sentiment among the dollar bulls is weakening despite the Federal Reserve (Fed) members’ cautious communication. The Fed Chair Powell couldn’t help but admit that the US economy is in a remarkably good shape and that the downside risks from the labour market have decreased. But his words did little to convince the Fed doves to dial back their 25bp cut expectations for December. The US 2-year yield – which best captures the Fed expectations – fell to 4.11% as the services PMI and ADP numbers came in lower than expected. Up next: Friday’s official jobs data – which will hardly derail the dovish Fed expectations. A potentially strong NFP number will be disregarded due to the hurricane disruptions of the month before. If that’s the case, the US dollar should lose some more field and let the majors recover.

The USDJPY continues to go up and down around the 150 mark, but the yen bulls lack conviction that the Bank of Japan (BoJ) rate hike would lead to a significant appreciation of the yen when the carry traders gently come back to the market to benefit from the comfortable rate differential – December hike or not.

In energy, US crude fell 1.80% yesterday after failure to clear the $70pb resistance. Even the 5.1 mio barrel weekly drop in US crude inventories couldn’t bring the buyers in. OPEC will announce its verdict about the production restrictions in a few hours and they have a tough job. First, they must announce more than a 3-month delay to attract the bulls’ attention. And even then, the bears are waiting in ambush to sell the slightest tops into and above the $70pb level on ample supply/weak demand outlook.

Away from these problems, the S&P500 just printed its 56th record high this year and Nasdaq 100 jumped to a fresh ATH. Amazon advanced to a fresh record as news that Amazon is building a supercomputer powered by hundreds of thousands of its own Trainium chips to train Anthropic AI models wet investors’ appetite. The move could help Amazon cut reliance on pricey Nvidia chips and do the same for its Big Tech buddies. The rumour has it, Apple is on board as a customer. Do Nvidia investors worry about it? Not for now. The shares jumped 3.5% yesterday to past $145 per share. But it’s worth keeping an eye on this space because the Big Tech stood for half – yes half – of Nvidia’s revenue last quarter and their ambition to build their own chips is one of the major risks to Nvidia’s revenue growth.

In focus today

President Macron is faced with the difficult task of appointing a new prime minister following PM Barnier being outed at yesterdays no-confidence vote. We think it is likely that a new government will not be formed before the new year, with the current government to continue in a caretaker capacity. We anticipate the passing of a 'special law' that will extend the 2024 budget into 2025. This measure would ensure the continuation of minimum state expenditures and revenue collection from 1 January 2025, until a new government is able to propose a formal budget.

In the euro area, we receive retail sales data for October. Retail sales increased 1% q/q in Q3, signalling decent consumption growth in the third quarter. This positive development has been flying a bit under the radar, so it will be interesting to see if the rebound continued in October as the recent development is one of the bright spots of the euro area economy.

Swedish preliminary November CPI and CPIF inflation is released, and we expect headline measures to overshoot the Riksbank's forecast by a large margin in part due to soaring electricity prices.

Overnight we get October wage data from Japan. Real wage growth remains key to the economic recovery and further Bank of Japan hikes.

Economic and market news

What happened overnight

In the crypto space, Bitcoin surpassed previous records reaching USD 103,284. Investors are betting on a friendlier US regulatory approach to cryptocurrencies under President Trump to bring crypto closer to mainstream adoption.

What happened yesterday

In France, the no-confidence vote against PM Barnier succeeded, pushing the country into deeper political turmoil. The decisive vote tallied 331 out of the required 288 and was initiated by the left-wing coalition which was met with support from Marine Le Pen's far-right National Rally. President Macron now faces the difficult task of appointing a new prime minister who can survive a no confidence vote in the National Assembly. The current stalemate in French politics is likely to persist, with no large reforms to be pushed through.

In South Korea, officials announced readiness to activate a USD 7.1bn stock market stabilisation fund and a USD 28.4bn bond market stabilisation fund if needed. This comes as both the won and South Korean stocks declined in the wake of President Yoon's declaration of martial law Tuesday evening. The declaration has since been repealed and calls have been mounting for President Yoon to face impeachment.

In the US, The Fed chair Powell refrained from providing any strong signals about FOMC's upcoming rate decision in his final remarks before the December blackout begins on Saturday; markets are pricing 18bp worth of cuts for the meeting. He emphasized that the economy remains in a good place, and as downside risks have diminished since September, the Fed 'can afford to be a little more cautious' in finding neutral. Earlier in the day, St. Louis Fed's Musalem and Richmond Fed's Barkin also kept all options open, citing more data still to come

ADP's private sector employment report landed close to consensus at +146k (cons. +150k) although with negative revisions. The manufacturing sector recorded job losses at odds with the strong ISM and PMI readings seen earlier. In addition, the ISM Services index released yesterday afternoon declined to 52.1 (cons: 55.5, prior: 56.0) driven by weakness in business activity, new orders and employment components, and also contrasting the stronger signal from its PMI counterpart released before.

In the euro area, service PMIs were revised up slightly in the final release to 49.5 from 49.2. The manufacturing PMI remained unchanged, and the composite index was revised up to 48.3. Despite the small upward revision, the November PMIs have still increased our concerns over the near-term growth outlook for the euro area economy. We expect GDP growth in the final quarter of the year to be 0.1% q/q, but this reflects large differences between countries where Germany and France are expected to contract while Spain, Portugal and Greece are expected to continue to grow at full speed. For details see our Nordic Outlook, 4 December.

In Denmark, The Danish Ministry of Finance yesterday published an update on the borrowing requirement for 2024 and 2025 relative to the forecast in August. The numbers show a significant improvement in the public finances for 2024 as the net financing requirement is revised downwards from DKK -66bn to DKK -81bn. Hence there is a bigger surplus on the budget in 2024. Furthermore, the net financing requirement for 2025 is revised downwards by DKK 11bn to DKK -15bn - hence, we are going from an estimated deficit in 2025 to a modest surplus.

In the UK, PMIs for November were revised slightly up, bringing them in line with euro area PMIs. Composite was revised to 50.5 from 49.9 and services to 50.8 from 50.0. In the morning, BoE governor Bailey (dove) made some dovish remarks noting that he expects four rate cuts the coming year and downplaying the impact of the budget, pushing UK rates slightly lower. However, he also noted that the BoE central forecast implied a gradual easing of monetary policy. We think a gradual easing is warranted by the BoE for now but expect a step up in easing pace in the spring.

Equities: Global equities were higher yesterday, driven by cyclicals and large caps. Over the past five trading days, there has been a very steady increase in investor sentiment and risk-taking. Although this aligns well with our strategy, we must admit that the complacency around Germany, France, and South Korea is slightly surprising to us. The guiding star remains the US, where the S&P 500 yesterday posted its 11th gain in the past 12 sessions, with all three leading indices - S&P500, Dow, and Nasdaq - achieving fresh record closes yesterday. Additionally, please note the narrow sector leadership we have seen both yesterday and over the last week, with cyclicals up by 2.4% and defensives down by 0.5% in the last five trading days. In terms of single sectors, tech is higher by 4.7%, while utilities were down by 2% the last five trading days. This builds on the historical outperformance of cyclicals over the last two years. Since 1 January 2023, MSCI World cyclicals have risen by 73.9%, while MSCI World defensives have increased by 14.1%. Again, this fits very well with the strategy we have had for the last two years but we have now reached a level at which the relative valuation between cyclicals and defensives will be a challenge going into 2025. In the US yesterday, the Dow was up by 0.7%, the S&P 500 by 0.6%, the Nasdaq by 1.3%, and Russell 2000 by 0.4%. Asian markets are mixed this morning, while European and US futures are lower.

FI: Yesterday's disappointing ISM Services figures for November led to a significant rally in bond markets. The 10Y UST yield closed some 5bp lower, taking the level back below 4.20%. The EUR swap curve rose from the front as markets trimmed expectations for a 50bp cut next week despite the rather dovish remarks from Lagarde in her speech in the EU parliament. Markets now discount 27bp ahead of next week's meeting. The OAT-Bund spread held steady in the 83-85bp range, as markets awaited last night's no-confidence vote against the French government. The motion was passed, implying that President Macron now faces the challenging task of appointing a new prime minister. We expect a special law to extend the 2024 budget into 2025, as we see little chance that a new French government will be formed before New Year.

FX: EUR/USD found slight support from weak ISM services and with the no-confidence vote out of the way in France focus now turns to the US jobs report out on Friday. EUR/GBP dipped slightly lower during yesterday's session as UK PMIs for November were revised slightly up and a dovish Bailey failed to provide support for the cross. It was a quiet day for NOK yesterday with EUR/NOK virtually ending the day where it started; just north of 11.60, SEK on the other hand was the big winner of the day with EUR/SEK breaking below the 11.50 mark.

Daily Pivots: (S1) 0.6390; (P) 0.6439; (R1) 0.6479; More...

Intraday bias in AUD/USD remains on the downside for the moment. Fall from 0.6941 is in progress for 0.6348 support. Break there will target 0.6269 low next. On the upside, above 0.6503 minor resistance will turn intraday bias neutral again first.

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.