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Daily Pivots: (S1) 1.5426; (P) 1.5530; (R1) 1.5616; More...

Intraday bias in EUR/AUD remains neutral as corrective pattern from 1.5747 is extending. As long as 1.5271 support holds, further rally is expected. On the upside, firm break of 1.5747 will resume larger rally from 1.4281. Next target is 61.8% projection of 1.4281 to 1.5704 from 1.5271 at 1.6150.

In the bigger picture, as long as 1.5271 support holds, rise from 1.4281 medium term bottom is expected to continue to 1.6434 key resistance next. However, firm break of 1.5271 will argue that such rebound has completed, and keep medium term outlook neutral at best. But in this case, more range trading should be seen above 1.4281 low first.

Daily Pivots: (S1) 0.9838; (P) 0.9871; (R1) 0.9908; More....

EUR/CHF is still extending the sideway consolidation from 0.9953 and intraday bias remains neutral. On the upside, firm break of 0.9953 resistance will resume larger rally from 0.9407 to 1.0072 fibonacci level. However, break of 0.9720 will extend the decline from 0.9953 to 61.8% retracement of 0.8407 to 0.9953 at 0.9616.

In the bigger picture, price actions from 0.9407 medium term bottom are currently seen as a corrective pattern, rather than trend reversal. Down trend resumption through 0.9407 is mildly favored at a later stage. This will remain the favored case now, as long 38.2% retracement of 1.1149 to 0.9407 at 1.0072 holds.

Daily Pivots: (S1) 1.0549; (P) 1.0612; (R1) 1.0695; More...

Intraday bias in EUR/USD stays on the upside for the moment. Current rally from 0.9534 should target 61.8% projection of 0.9729 to 1.0481 from 1.0289 at 1.0754. Firm break there could prompt upside acceleration to 100% projection at 1.1041. On the downside, break of 1.0503 support is needed to indicate short term topping. Or, outlook will stay bullish in case of retreat.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

Daily Pivots: (S1) 1.2262; (P) 1.2353; (R1) 1.2457; More...

Intraday bias in GBP/USD stays on the upside for the moment. Current rally from 1.0351 should target 1.2759 medium term fibonacci level next. For now, outlook will stay bullish as long as 1.2205 support holds, in case of retreat.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Daily Pivots: (S1) 0.9220; (P) 0.9297; (R1) 0.9363; More...

Intraday bias in USD/CHF remains on the downside at this point. Current fall from 1.0146 should target 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056. On the upside, break of 0.9378 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Sustained break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 0.9545 resistance holds.

Daily Pivots: (S1) 134.18; (P) 136.08; (R1) 137.48; More...

Intraday bias in USD/JPY stays on the downside for retesting 133.61 support and then 133.07 medium term fibonacci level. For now, risk will stay on the downside as long as 137.95 resistance holds, in case of recovery.

In the bigger picture, price actions from 151.93 medium term could be just a corrective pattern to up trend from 102.58 (2021 low). Strong support from 38.2% retracement of 102.58 to 151.93 at 133.07 and 55 week EMA (now at 131.71) will set the range for such corrective pattern. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.

Daily Pivots: (S1) 1.3497; (P) 1.3570; (R1) 1.3619; More....

Range trading continues in USD/CAD and intraday bias stays neutral at this point. The favored case is still that correction from 1.3976 has completed at 1.3224. Above 1.3699 will resume the rebound from there to 1.3807 resistance, and then retesting 1.3976 high. However, break of 1.3383 support will dampen this case and bring retest of 1.3224 low instead.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

The softer-than-expected inflation print in the US sent the stocks higher and the US dollar lower, but the S&P500 couldn’t clear key resistance levels, as investors know that the Federal Reserve (Fed) Chair Jerome Powell could coldheartedly kill the market joy at his post-FOMC press conference today.

On the right path, but

Yesterday’s inflation report in the US filled investors with joy and further hope that

1. Inflation in the US may have peaked this summer and we will be heading lower from here, and,
2. The Fed will adopt a softer monetary policy stance and hike, yes, by 50bp today, but certainly not more than another 25% in February.

The problem with that is, swap pricing now points at a peak Fed rate of less than 4.90% in Q1, while the Fed will likely carry on pushing the rates at least to and above the 5% mark.

Therefore, the chances are that Jerome Powell will seem satisfied regarding the falling inflation  - because it means that whatever turmoil the Fed has been causing in the markets is at least working through to the end goal of taming inflation.

But Powell could also stress the fact that inflation remains significantly high compared with the 2% policy target, and that relaxing the tightening measures prematurely is not a good idea.

Therefore, there is no guarantee that the latest fall in US inflation will lead to a softer terminal rate on the dot plot. The Fed officials will likely plot a terminal Fed rate of above 5%, and the gap between where the Fed sees its peak rate next year, and where the market thinks the Fed rate will be a risk for investor appetite.

This is maybe why we saw a great kneejerk reaction to the CPI print yesterday, but the S&P500 didn’t rally as much as expected. The S&P500 futures gapped higher at the open, but gently softened to close the day with less than a 1% advance, without being able to clear the 4100 resistance and the ytd bearish trend top.

This means that investors are cautious before Jerome Powell’s press conference and the dot plot. They know that the last thing the Fed wants is to reverse slowing inflation by triggering a bullish market euphoria.

And at the end of the day, it’s Jerome Powell, and the Fed, who will either give a green light for a modest Santa rally, or tell investors that Santa is stuck in a snow storm this year.

Significance of the dot plot 

It’s important to note that the dot plot projections give an idea on how the feeling and the expectations change at the heart of the FOMC.

But it’s not rocket science.

If you look at the rate projections last year, the Fed funds rate was expected to advance to 0.90% by the end of this year. But the rates advanced far beyond that level. Assuming that the Fed will hike by another 50bp today, the Fed rates will finish the year at 4.25/4.50%. It’s more than five times compared to the projections.

The softer-dollar joy  

The US dollar index fell following the softer-than-expected CPI print, and hit a fresh low since summer.

The EURUSD spiked to 1.0673, Cable advanced to 1.2444 and the dollar-yen re-tested the 200-DMA to the downside, and gold spiked to $1824 per ounce.

The softer US dollar, and stronger euro sent the European indices to fresh highs since summer. The DAX flirted with the June peak, and the Eurostoxx50 traded at the highest level since February

Crude oil rallied more than 2.50% yesterday, on hope that the Fed could slow down the rate hikes, and not push the US into a deep recession to fight inflation – in which case, the scenario of a soft landing could materialize and prevent demand outlook from becoming too morose.

But the rally in US crude remained capped at around $76pb, and the surprise US inventory build last week, pre-announced by API, may have capped the topside. The more official EIA data is out today and could mark the end of a series of 4 consecutive months of significant decline in US inventories.

Bitcoin can’t care less about the FTX, Binance drama 

The FTX drama continues with the arrestation of Sam Bankman-Fried in the Bahamas, and news that investors withdrew $3.7 billion worth of funds since last week, the last $1.9 billion being withdrawn over the past 24 hours.

Plus, Binance reportedly stopped the stablecoin USDC withdrawals.

But Bitcoin couldn’t care less. The price of a coin advanced more than 3% yesterday, and tested the 50-DMA to the upside, showing that the FTX drama has been priced in and out and further drama should not hit the coin harder.

The same is not true for cryptocurrency exchanges, however, which remain at a hot seat with the drama spilling over to other exchanges. Coinbase shares lost more than 9% yesterday.

Market movers today

After the CPI downside surprise yesterday, markets revert focus to the FOMC rate decision today. Despite signs of peak inflation, economic data continues to paint a strong picture of services activity and the US labour market, with high wage inflation and stagnant labour supply. Nevertheless, in line with guidance from various FOMC members, we (and markets) expect Fed to slow the hiking pace to 50bp today. But with the recent easing in financial conditions further rate hikes might be needed in 2023, read more in Fed Preview - Tightening pressure persists into 2023, 8 December.

In Sweden, November inflation figures are on the agenda and we expect both headline and underlying inflation to print higher compared to October.

Ahead of the Bank of England meeting tomorrow, we think UK inflation will slow to 10.9% in November, but core inflation could accelerate to 6.6% as wage growth remains high.

Overnight, China will release a batch of data, including industrial production, retail sales and home sales. They will likely be weak as signalled by both manufacturing and service PMI, however, Chinese growth should recover next year, as the zero-Covid policy is phased out.

The 60 second overview

US CPI: US inflation eased more than expected in November, as headline CPI rose by only 0.1% m/m (from 0.4%) and core CPI by 0.2% m/m. Price pressures eased on a fairly broad basis, although lower gasoline prices affected both the energy and transportation service components. Stickier parts of the CPI showed a more mixed picture; core goods prices continued to decline (-0.5%) amid normalizing used car prices while core services (ex. shelter) inflation was limited by a delayed negative base effect in health insurance prices. Neither effect reflects easing in the broader wage-sensitive part of inflation, which Fed has been the most worried about recently, and indeed core services inflation excl. shelter and healthcare accelerated slightly to 0.52% on m/m basis. Atlanta Fed's sticky CPI also accelerated to 6.6% y/y, signalling that while Fed is now moving in the right direction, it still needs to be able to cool labour market further and limit wage inflation to a level better consistent with its inflation target.

Market reaction and the Fed: The CPI release sparked a pronounced risk-on move in the markets, although equities reversed some of the gains later in the session. 50bp is still fully priced in for Fed's rate decision tonight, but markets pulled back on the terminal rate pricing to around 4.85%. Hence the focus will be on both the updated 'dot plot' and Powell's views on the monetary policy stance in 2023. We think Fed will still likely look to avoid sparking a too dovish market reaction in the evening, as the combination of lower yields, stronger equities and weaker broad USD seen yesterday reflect easing financial conditions. Commodity prices also moved higher, underlining the inflationary impact of the market reaction.

Equities: The initial cheer in equities at the CPI release wore off somewhat into the session. Dow Jones rose a mild 0.3% vs Nasdaq up 1%. Yield sensitive sectors naturally the winners, such as tech and real estate. Yet, in the Nordics, yield sensitive names like EQT or Hexagon outperformed together with value cyclicals like Boliden and Volvo. So, not very selective buying in the Nordics yesterday but rather full risk on.

FI: The lower than expected US inflation data lead to a solid bullish steepening of the US yield curve. The inflation data is supportive for the view that the Federal Reserve can slow down on the tightening of monetary policy. Hence, all focus will be on the FOMC meeting tonight and the ECB meeting on Thursday.

FX: Lower than expected US CPI immediately boosted risk sensitive assets and orchestrated a USD setback. The risk rally reverted somewhat later in the session and over the night, but EUR/USD remains well over 1.06 this morning. Today, all eyes turns from CPI to the Fed later tonight, where market expectations are for a 50bp hike. Before we get there, however, we start the day off with Swedish November CPI where we expect a re-acceleration of headline CPI on the back off a surge in domestic energy prices.

Credit: Yesterday, credit markets benefitted from a lower-than-expected US CPI print, which drove broad based spread tightening in CDS indices. iTraxx Main was 4.8bp tighter to 84.6bp while iTraxx Crossover was 24.9bp tighter at 439.1bp. Moreover, the primary markets saw only modest new deal activity across the Eurobond market.

Nordic macro

Sweden: We expect November inflation in Sweden to print 10.0% on CPIF ex energy on the back of significantly higher energy prices. Our forecast is higher than median consensus (9.6%) and way higher than the Riksbank's 8.8%. On the core measure, ex energy, our forecast is 8.3%, close to consensus 8.2% and slightly higher than the Riksbank's 8.1%. Given the outcomes in neighbouring Nordic countries, food for example, there might be a small downside risk to CPIF ex energy.

UK CPI rose 0.4% mom in November, below expectation of 0.6% mom. In the 12 months to November, CPI slowed from 11.1% yoy to 10.7% yoy, below expectation of 10.9% yoy. Core CPI also slowed from 6.5% yoy to 6.3% yoy, below expectation of 6.5% yoy.

ONS said: "The easing in the annual inflation rate in November 2022 reflected, principally, price changes in the transport division, particularly for motor fuels and second-hand cars. There were also downward effects from tobacco, accommodation services, clothing and footwear, and games, toys and hobbies. The largest, partially offsetting, upward effect came from price rises for alcohol in restaurants, cafes and pubs."

Full release here.