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Daily Pivots: (S1) 0.8319; (P) 0.8341; (R1) 0.8372; More...

EUR/GBP is staying in range trading above 0.8259 and intraday bias remains neutral. Outlook stays bearish with 0.8446 resistance intact. On the downside, decisive break of 0.8259 will resume larger down trend to 0.8201 key support.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. However, outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound. Decisive break of 0.8201 will indicate long term bearish reversal.

Daily Pivots: (S1) 1.5948; (P) 1.6041; (R1) 1.6117; More...

EUR/AUD's rebound from 1.5963 extend higher and the break of 1.6161 support turned resistance delays the bearish case. Intraday bias is turned neutral first. Further fall would remain in favor as long as 1.6359 resistance holds. Sustained break of 1.5996 key support will carry larger bearish implications. However, break of 1.6359 will be the first sign of bullish reversal and target 1.6598 resistance for confirmation.

In the bigger picture, immediate focus is now on 1.5996 key support level. Sustained break there will argue that whole up trend from 1.4281 (2022 low) is already reversing. Deeper decline would be seen to 61.8% retracement of 1.4281 to 1.7180 at 1.5388, even as a correction. Nevertheless, strong rebound from current level, followed by break of 1.6359 resistance, will keep medium term outlook neutral at worst.

Daily Pivots: (S1) 0.9281; (P) 0.9313; (R1) 0.9334; More....

With break of 0.9294 minor support, rebound from 0.9204 could have completed after rejection by 55 4H EMA. Intraday bias is back on the downside for retesting 0.9204/9 support zone. Decisive break there will indicate larger down trend resumption. For now, outlook will stay bearish as long as 0.9364 resistance holds.

In the bigger picture, outlook will now stay bearish as long as 0.9444 resistance holds. Decisive break of 0.9209 low will resumed long term down trend to 61.8% projection of 0.9772 to 0.9209 from 0.9444 at 0.9096 next.

Daily Pivots: (S1) 1.3940; (P) 1.3974; (R1) 1.4019; More...

USD/CAD's rally resumed by breaking through 1.4104 and intraday bias is back on the upside. Further rally should be seen to 61.8% projection of 1.3418 to 1.4104 from 1.3930 at 1.4354 next. For now, outlook will stay bullish as long as 1.3930 support holds, in case of retreat.

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.

Daily Pivots: (S1) 0.6478; (P) 0.6514; (R1) 0.6540; More...

No change in AUD/USD's outlook and intraday bias stays neutral at this point. Further decline is expected as long as 0.6687 resistance holds. On the downside, decisive break of 61.8% projection of 0.6941 to 0.6511 from 0.6687 at 0.6421 will resume the fall from 0.6941 to 100% projection at 0.6257 next.

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.

• GBPUSD falls for 8 consecutive weeks
• 20- and 200-day SMAs post death cross
• MACD and RSI suggest more losses

GBPUSD recorded the eighth straight negative week after the pullback from the 1.3433 level, losing more than 7%. The price posted a fresh six-month low of 1.2486 on Friday, meeting the long-term ascending trend line.

More aggressive selling interest would switch the broader outlook to a bearish one, resting near the 1.2445 support, taken from the lows on May 9. Even lower, the bears would gain control, pushing the pair towards the psychological mark of 1.2300.

In case of a bounce off the uptrend line, then the price may test the 1.2715 resistance area, ahead of the 20-day simple moving average (SMA) at 1.2770 and, more importantly, the 200-day SMA at 1.2820.

The momentum oscillators are confirming a bearish structure as the RSI is pointing down near the oversold zone, while the MACD is still extending its negative steam below its trigger and zero lines. The 20- and 200-day SMAs created a death cross, confirming the falling movement.

In summary, GBPUSD  has been trending downward in the short term, but a break below 1.2445 could also alter the long-term outlook.

The NZD/USD pair has experienced a significant decline, touching a low of 0.5841 and reaching a yearly trough of 0.5796. The primary pressure comes from a robust US dollar, bolstered by anticipations of a more stringent tariff regime under US President-elect Donald Trump. Speculations about Trump imposing an additional 10% tariff on all Chinese goods have particularly impacted the Kiwi, given China’s role as New Zealand’s largest trading partner.

The market pre-emptively reacts to potential US policy shifts, recalling Trump’s previous term characterised by aggressive trade policies. This has cast a long shadow over the NZD, influencing investor sentiment.

The upcoming Reserve Bank of New Zealand (RBNZ) meeting on Wednesday is crucial, with expectations leaning towards a 50-basis-point rate cut to 4.25% per annum. This expected move aligns with the RBNZ’s dovish stance from October and could sustain the downward pressure on the NZD.

Technical analysis of NZD/USD

H4 chart: the NZD/USD has completed a decline wave, reaching 0.5797, with a subsequent recovery phase targeting 0.5922 underway. After reaching this level, a potential pullback to 0.5860 could establish a consolidation zone around this marker. A break below this range might extend the decline to 0.5777, while an upward breach could pave the way to 0.5977.

H1 chart: the pair is forming an initial growth wave towards 0.5860. Following this target, a retraction to 0.5828 is likely. The Stochastic oscillator supports this currency forecast, indicating a possible downturn from elevated levels and enhancing the likelihood of continuing the downward trajectory.

Markets

The rise in US yields and the dollar showed signs of fatigue lately, hardly reacting to positive data. What can’t go up, must come down. Donald Trump picking Scott Bessent for Treasury Secretary yesterday was a perfect trigger for a countermove. While fully supporting Trump’s tariffs and tax cuts, markets considered him as a relatively moderate/pragmatic profile. This was perceived as giving some comfort on the potential inflationary impact of future policy and to some extent mitigated worries on fiscal exuberance. US yields in a bull flattening move declined between 10.5 bps (2-y) and 12.7 bps (10-y). A $69bn 2-y US Treasury auction attracted solid investor demand with a strong bid-cover ratio of 2.77 and printing 1.8 bps below the WI bid, reinforcing the intraday bond rally. Fed governors Kashkari and Goolsbee suggested they were still open to considering rate cuts at the December meeting. German Bunds underperformed Treasuries in the wake of Friday’s post-PMI rally. Yields changed between +3.3 bps (2-y) and 5.5 bps (30-y). The Bessent nomination also triggered a positive open on US and European equity markets, but the move lacked conviction, leaving limited gains at the close (EuroStoxx 50 +0.23%; S&P 500 +0.3%). The dollar fell prey to some profit taking. DXY dropped to close at 106.82 compared to 108+ levels briefly touched on Friday. EUR/USD tried to regain the 1.05 levels but gains couldn’t be sustained with a close at 1.0495. The (temporary?) global relief didn’t help sterling much as it underperformed the euro (close EUR/GBP 0.835).

Yesterday’s market hope on a ‘guarded’ implementation of Trump policies, is already seriously challenged this morning as the US president-elect announced additional tariffs on Canada, Mexico and China (cf infra). Asian equity indices mostly show losses between 0.5% and 1%. US yields gain modestly and so does the dollar (DXY 107.1, EUR/USD 1.048). The damage for the likes of the euro could have been bigger, but we don’t draw any conclusion from the fact that Trump didn’t say anything about tariffs on European imports. It’s still a long way to January 20. At 153.9, the yen continues its recent outperformance. In this respect, Japanese October PPI services price inflation (2.9%) jumped more than expected. A sub-indicator considering firms with a high labour cost ratio at 3.3% even jumped to a multi-year high, reinforcing the case for the BOJ to proceed with policy normalization, maybe already at the December meeting. Later today, the calendar contains US consumer confidence (Conference Board) and housing data (prices, new home sales). The Fed will publish the minutes of the November 7 meeting. Data probably will be secondary to ‘announcements’ from the Trump administration. In this respect we look out whether yesterday’s correction in US yields and the dollar has much further to go. Markets will also keep an eye at multiple ECB speakers looking for ‘guidance’ on the December rate cut.

News & Views

US President-elect Trump posted on his Truth Social platform that he’ll slap steep tariffs on Mexico and Canada on his first day back in office. He will charge both neighboring countries a 25% tariff on all products until “Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country”. Doing so would likely end the trade agreement (USMCA) from his first term in office. In a separate post, he also aimed at China for not doing enough to stem flow of drugs or migrants to the US.: “Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America”. Local currencies clearly underperform this morning. USD/CAD set a new multi-year high above 1.41. USD/MXN jumped to the YTD top of 20.75 and USD/CNY returns to 7.25 for the first time since the end of July.

The British Retail Consortium’s shop price index showed overall prices rising by 0.2% M/M in November, with both food (+0.3%) and non-food prices (+0.2%) increasing. Annual shop price deflation of 0.6% in the 12 months to November followed a 0.8% drop in the 12 months to October. BRC chief executive warned that “with significant price pressures on the horizon, November’s figures may signal the end of falling inflation”. She warns that stores will pass on higher staffing costs including those coming from a rise in social security contributions by employers (2025 Budget) and a 6.7% increase in the minimum wage. A separate survey from British supermarket Asda warns that a drop in households’ disposable income and rising inflation could subdue Christmas spending..

Yesterday offered a moment of relief for some investors amid the Trump euphoria sweeping through the markets. The nomination of Scott Bessent for Treasury Secretary resonated well across investment communities as the man – who runs a macro hedge fund and backs Trump’s tariffs and tax cuts – is seen a ‘measured choice’ for the economy and financial markets, as he would tame spending and adopt a ‘gradual’ approach to imposing tariffs. As a reaction, the US 2-year yield fell to 4.26% and the 10-year yield posted a sharp drop to below the 4.30% for the first time in two weeks. The US dollar softened against major peers and the major US indices posted gains. The S&P500 added 0.30%, Nasdaq 100 0.14% and Dow Jones jumped 1% while Russell 2000 rallied 1.50% to a fresh ATH.

But, wait. Investors didn’t have time to fully enjoy the news as Trump said that the US will impose extra 10% tariffs on Chinese goods and 25% levies on all products from Mexico and Canada. Mood in Asia was less cheery. The Mexican peso took a hit, and the USD/CAD shortly rallied to 1.4180, hit by the falling oil prices as well, and traded at a level last seen in April 2020.

Of course, the new tariff talk didn’t enchant investors in China, but the CSI 300 recovered early losses on optimism that the additional tariffs were only 10% and not 60%, and perhaps on the expectation that the renewed tariff threat would trigger a bigger policy response from the Chinese government.

Coming back to the US, the market reaction to Bessent’s appointment was probably exaggerated. Donald Trump - who has been cleared for a few important criminal charges including obstruction of justice and classified records – is probably free to play his hand as he pleases.

US crude slips below $70pb on easing Mid East tensions

US crude slipped below the $70pb level on rising hope of a cease-fire between Israel and Hezbollah. From a technical standpoint, US crude’s latest geopolitical-led rally remained short the $72.85pb level, the major 38.2% Fibonacci retracement on summer selloff. As such, the medium term outlook remains bearish on weakening global demand and ample global supply outlook. The failure to clear key offers brings the $65/67pb range back to target.

On the nat gas front, the positive pressure due to geopolitical tensions remains intact. Nat gas futures came down from January highs, but the bulls are chasing a solid ground to jump back on the back of a bull. European nat gas futures kicked off the week with a 2.5% rally on the back of renewed tensions between Russia and the West. The geopolitical setup remains supportive of a further rise as we enter cold winter months in the Northern hemisphere.

In the FX

The US Dollar’s weakness on Bessent’s nomination remained short-lived. The EUR/USD – which tested the 1.05 offers to the upside yesterday - is back below this level. On the macro front, yesterday brought more weakness from Germany: Thyssenkrupp’s steel unit announced to cut its labour force by 40% this decade, adding to industrial worries in Germany where investments are in a free fall since the war in Ukraine started and the energy crisis took a toll on country’s industries. Needless to say that yesterday’s Ifo data from Germany didn’t look bright.

Today, the FOMC will release its latest meeting minutes and investors will be looking for signs of Federal Reserve’s (Fed) easing plans. The Fed has lowered interest rates by 50bp in September – a bit too much in my opinion, and another 25bp in the last meeting. But inflation started giving signs of a potential uptick and the inflationary worries got a boost with Trump’s election. Of course, Trump’s nomination is a politically sensitive subject for Powell, therefore the Fed minutes will certainly not mention the political risks directly. But what we could find an increased focus on the resilience of the US economy that could – in return - justify a slower easing path for the Fed in an effort to tame the potential boosting effect of Trump’s tax cuts and tariffs. If that’s the case, if we find a clear hawkish shift in the Fed minutes, the US dollar could get a fresh boost. Activity on Fed funds suggests that the Fed would cut its rates by another 25bp at the December meeting with a little more than 50% probability. From a data perspective, it would make sense for the Fed to sit and wait for the impact of the first cuts on data. But from a political perspective, not cutting the rates could be interpreted as a sign of weakness. And Powell can’t afford that.

In focus today

Tonight, FOMC will publish minutes from its November meeting. Markets remain divided over whether the Fed will continue cutting rates in December, so any clues about the most likely policy rate path will be followed closely. In the afternoon we receive the conference board consumer confidence.

In Sweden, Riksbank vice governor Anna Seim will discuss the concept of a neutral rate. Erik Thedéen said in his speech at Danske Bank last week that the views put forward by Seim today should be seen as the board's and the Riksbank's common view. The speech will be published on their website at 08:30 CET and will be webcast live. At 08:00 CET Statistics Sweden publishes producer prices for October, which is kind of old news given that the big spike in energy prices occurred in November. That said, the Riksbank has said that it (the spike) will not affect monetary policy as long as there are no second-round effects.

Overnight to Wednesday, the Reserve Bank of New Zealand (RBNZ) will have a monetary policy meeting. We expect a 50bp cut to the Official Cash Rate following a similar move in the previous October meeting. Markets are even speculating with a small probability for a very aggressive 75bp move.

Economic and market news

What happened overnight

In the US, President elect Donald Trump said that he will impose tariffs of 25% on all US imports from Canada and Mexico on his first day in office. Furthermore, he will add 10% extra tariff to the existing tariffs on Chinese goods. Trump said that the tariffs will continue until drugs, in particular fentanyl, and migrants stop crossing the US borders. USD strengthened after the announcement.

In the Middle East, rumours of Israel and Lebanon being close to a ceasefire deal started emerging last week and now it seems an agreement to end the hostilities is very near. President-elect Donald Trump has previously communicated to Israeli Prime Minister Netanyahu that he wants the wars in Lebanon and Gaza to end before he enters office. Hence, Netanyahu's willingness to sign a deal with Hezbollah could be part of his effort to please Trump and ensure he can still have US backing for his residual activities in Gaza, and possibly for targeting Iran. Oil prices fell yesterday in response to the ceasefire news, but we stress that the situation in the region remains explosive, and Trump's re-election adds to unpredictability.

What happened yesterday

In Germany, the Ifo indicator declined slightly more than expected to 85.7 (consensus: 86.0) in November from 86.5 in October. The decline was due to the assessment of the current economic situation that fell to the lowest level since Covid. In contrast, expectations about the future situation increased marginally. With the Ifo indicator declining in line with the PMIs the German economic situation likely turned worse in November. As employment has also started declining, we expect that the economy likely stagnated or contracted slightly in Q4 and we do not expect growth in the first quarter of 2025 neither.

ECB's chief economist Lane said yesterday that monetary policy should not remain restrictive for too long, otherwise inflation risks falling below target. There seems to be increasing concerns in the ECB over monetary policy potentially overshooting the negative effect on inflation, as Villeroy and Nagel said something similar last week. In the markets there is speculation about ECB increasing the speed of monetary easing with the current market pricing slightly below 50% probability for a 50bp rate cut in December.

Equities: Global equities were higher yesterday, with cyclicals outperforming and the VIX ticking lower on a day devoid of significant news. Three key developments stood out: massive small-cap outperformance, tech underperformance, and a significant drop in the long end of the US bond curve. The most intriguing aspect for us is the performance of small-caps. It makes sense to see this style outperform given the solid macro tailwinds, impending deregulation, loosening monetary policy, and the long end of the yield curve not skyrocketing as feared following the US election. Additionally, investors had been underweight in this style heading into the election, and it currently trades at a sizable discount to large caps.

In the US yesterday, the Dow was up 1.0%, the S&P 500 increased by 0.3%, the Nasdaq also rose by 0.3%, and the Russell 2000 surged by 1.5%.

Asian markets are mixed this morning, while European futures are down approximately 1%. This is due to President Trump initiating his trade war rhetorically. Despite his messages on Truth Social suggesting significant tariffs, the resilience of Asian markets this morning is notable. This could be attributed to Trump's focus on the 10% rather than the 60% tariffs. Yesterday, Canada and Mexico were the first targets, with Trump proposing 25% tariffs referencing drugs and immigration issues. It is important to remember that the largest import from Canada to the US is energy, and it is difficult to envision the US imposing a 25% tariff on energy.

FI: Global bond yields continue to decline on the back of the appointment of Scott Bessent as the new US Treasury Secretary. The rally was driven from the long end of the curve as 10Y US Treasury yield declined some 13bp, while the 2Y US Treasury yield declined 10bp.

FX: While yesterday's session was relatively quiet in FX markets this morning is characterised by renewed Trump tariff fears with CAD, MXN and CNY coming under pressure amid threats of an extra 10% tariff on Chinese imports and 25% tariffs on all imports from US neighbouring countries. Unsurprisingly, the USD is among the few winners this morning and we will closely monitor how the Scandies open in the coming hours.