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Daily Pivots: (S1) 1.2211; (P) 1.2267; (R1) 1.2325; More...

Range trading continues in GBP/USD and intraday bias stays neutral. Further rally is expected as long as 1.1898 support holds. Break of 1.2343 will resume larger rally from 1.0351 and target 1.2759 medium term fibonacci level next. However, firm break of 1.1898 support will confirm short term topping and turn bias back to the downside.

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.

The Australian dollar has started the week in negative territory. In European trade, AUD/USD is trading at 0.6766, down 0.44%.

Australian dollar eyes confidence releases

Australian confidence indicators headed south in the most recent releases – will we see an improvement on Tuesday? NAB Business Confidence slipped to zero in October, down from 5 a month earlier. The consensus for November stands at 5 points. Westpac Consumer Sentiment declined by 6.9% in November, down from -0.9% in October. The index has only managed one gain in the past 12 months, pointing to prolonged weakness in consumer confidence.

With inflation still not under control, the RBA continues to raise rates, although it has now delivered three straight hikes of 25 basis points. Last week’s meeting was the final one for 2023, with the next meeting not until February. There is a great deal of economic uncertainty, including which direction inflation is headed. This has resulted in differing views on the terminal rate, with forecasts ranging from 3.3% all the way to 3.8%. With the cash rate currently at 3.10%, there is little doubt that the RBA will renew its tightening in February, likely with a 25-bp increase.

The Federal Reserve will also be in the spotlight this week, with the final rate meeting on Wednesday expected to produce a 50-bp hike. Even with a record pace of rate hikes in 2022 and the Fed saying that the terminal rate could hit 5% or higher, the markets haven’t bought into the Fed’s hawkish message. We have seen how softer-than-expected inflation reports have renewed risk appetite and hopes of a dovish Fed pivot. The US will release the November inflation report on Tuesday, a day prior to the Fed meeting. If CPI is weaker than the 7.3% forecast, we could see investors again speculate about the Fed turning dovish. Fed policy makers don’t want to see financial conditions loosening just yet, since that would complicate the Fed’s battle against inflation.

AUD/USD Technical

• AUD/USD tested support at 0.6676 earlier. Next, there is support at 0.6558
• There is resistance at 0.6760 and 0.6878

Daily Pivots: (S1) 1.0497; (P) 1.0543; (R1) 1.0579; More...

Intraday bias in EUR/USD stays neutral for the moment as range trading continues. On the downside, break of 1.0442 support will indicate rejection by 1.0609 fibonacci level. Bias will be back on the downside for 1.0222 support and below. However, firm break of 1.0594/0609 resistance zone will carry larger bullish implication. Next near term target is 61.8% projection of 0.9729 to 1.0481 from 1.0222 at 1.0687, and then 100% projection at 1.0974.

In the bigger picture, focus is now 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.

Euro is trading as the strongest one today so far, followed by Sterling, Swiss Franc and Dollar. All four currencies are going to have respective central bank meetings this week, and all are expected to hike by 50bps. Australian Dollar is leading commodity currencies and Yen lower. News flow is slow while the economic calendar is very light today. UK GDP report was largely ignored by investors. So, today's moves are probably due to traders preparing ahead of the main events.

Technically, EUR/JPY's break of near term channel resistance suggests that corrective fall from 148.48 has completed at 140.75 already. Further rise is in favor to 146.12 resistance first. Break there will bring retest of 148.38 high. The question now is on whether EUR/JPY's rally would be accompanied by break of 137.84 minor resistance in USD/JPY, or 1.0594 high in EUR/USD.

In Europe, at the time of writing, FTSE is down -0.25%. DAX is down -0.29%. CAC is down -0.28%. Germany 10-year yield is down -0.025 at 1.907. Earlier in Asia, Nikkei dropped -0.21%. Hong Kong HSI dropped -2.20%. China Shanghai SSE dropped -0.87%. Singapore Strait Times dropped -0.19%. Japan 10-year JGB yield rose 0.0007 to 0.257.

NIESR: UK GDP to remain flat in Q4

NIESR said the 0.5% mom growth in UK GDP in October "largely reflects the weakness in September" resulting from additional Bank Holiday for the State Funeral of HM Queen Elizabeth II. The risks of GDP contraction in Q4 "remains elevated". It expects GDP to remain flat in Q4.

Paula Bejarano Carbo Associate Economist, NIESR said:

"Monthly GDP grew by 0.5 per cent in October, in line with our forecast last month, driven by a strong pick-up in wholesale and retail trade, and repair of motor vehicles and motorcycles, which seem to have been strongly affected by the additional September bank holiday.

"Despite this positive outlook from the monthly growth figure, there are still strong downside risks to GDP in the fourth quarter of this year due to high inflation and interest rates –which continue to suppress demand –and supply chain disruptions, as well as work backlogs due to industrial action and a tight labour market –which continue to weigh on business growth. We still expect GDP to remain flat in the fourth quarter of this year."

UK GDP grew 0.5% mom in Oct, driven by services

UK GDP grew 0.5% mom in October, better than expectation of 0.4% mom. Services grew 0.6% mom and was the main driver of growth in GDP. Production was broadly flat for the month. Construction grew 0.8% mom. GDP is estimated to be 0.4% above is pre-coronavirus levels in February 2020.

In the three months to October, compared with the three months to July, GDP contracted -0.3%. Services was down -0.1%. Production dropped -1.7%. Construction rose 1.1%.

Also released, industrial production came in at 0.0% mom, -2.4% yoy, versus expectation of -0.3% mom, -4.2% yoy. Manufacturing was at 0.7% mom, -4.6% yoy, versus expectation of -0.1% mom, -6.3% yoy. Goods trade deficit narrowed to GBP -14.5B, versus expectation of GBP -15.0B.

Japan PPI slowed to 9.3% yoy in Nov, global commodity prices easing

Japan corporate goods price index slowed from 9.4% yoy to 9.3% yoy in November, above expectation of 8.9% yoy. The index, at 118.5, was a record high. Yen-based import price index slowed notably from 42.3% yoy to 28.2% yoy.

"Companies were passing on rising raw material costs for a broad range of goods. But some goods saw the impact of recent easing of global commodity prices," a BOJ official told a briefing.

Also from Japan, MoF's Business Survey Index for all large industries rose from 0.4 to 0.7 in Q4. BSI large manufacturing, however, dropped from 1.7 to -3.6. BSI large non-manufacturing improved form -0.2 to 2.7. BSI medium all industries rose from -2.2 to 4.7. BSI small all industries rose from -15.9 to -6.0.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0497; (P) 1.0543; (R1) 1.0579; More...

Intraday bias in EUR/USD stays neutral for the moment as range trading continues. On the downside, break of 1.0442 support will indicate rejection by 1.0609 fibonacci level. Bias will be back on the downside for 1.0222 support and below. However, firm break of 1.0594/0609 resistance zone will carry larger bullish implication. Next near term target is 61.8% projection of 0.9729 to 1.0481 from 1.0222 at 1.0687, and then 100% projection at 1.0974.

In the bigger picture, focus is now 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.

Economic Indicators Update

The Aussie Dollar failed to clear the 0.6820 resistance against the US Dollar. The AUD/USD pair started a downside correction below the 0.6800 and 0.6780 support levels.

There was a move below a key bullish trend line with support at 0.6780 on the hourly chart. The pair is now consolidating above the 0.6755 support and the 50 hourly simple moving average. An immediate resistance on the upside is near the 0.6785 level.

If there is an upside break above the 0.6785 zone, the pair could rise steadily towards the 0.6820 level in the near term. The main resistance now sits near 0.6850 on FXOpen.

An immediate support is near the 0.6760 level. The next key support is near the 0.6750 level. A downside break below the 0.6750 support could lead the pair towards the 0.6710 support.

NIESR said the 0.5% mom growth in UK GDP in October "largely reflects the weakness in September" resulting from additional Bank Holiday for the State Funeral of HM Queen Elizabeth II. The risks of GDP contraction in Q4 "remains elevated". It expects GDP to remain flat in Q4.

Paula Bejarano Carbo Associate Economist, NIESR said:

"Monthly GDP grew by 0.5 per cent in October, in line with our forecast last month, driven by a strong pick-up in wholesale and retail trade, and repair of motor vehicles and motorcycles, which seem to have been strongly affected by the additional September bank holiday.

"Despite this positive outlook from the monthly growth figure, there are still strong downside risks to GDP in the fourth quarter of this year due to high inflation and interest rates –which continue to suppress demand –and supply chain disruptions, as well as work backlogs due to industrial action and a tight labour market –which continue to weigh on business growth. We still expect GDP to remain flat in the fourth quarter of this year."

Full release here.

BTCUSD (Bitcoin) pierced through its simple moving averages (SMAs) for the first time since the start of November to crawl back above the 17,000 round level.

While the weekly resistance of 17,380 seems to be a hurdle at the moment, and some weakness is evident in the RSI and the MACD, the indicators keep hanging within the bullish area, promoting a continuation higher. If that proves to be the case, the spotlight will shift towards the 38.2% Fibonacci retracement of November’s fall, seen at 17,842. Additional gains may flirt with the 50% and 61.8% Fibonacci levels at 18,540 and 19,240 respectively. Yet, whether the bulls have enough fuel to trim the collapse from 21,470 remains to be seen.

Should the bears retake control, squeezing the price beneath the 17,000–16,780 support region, some congestion could initially develop somewhere between 16,330 and 16,000 before the door opens again for the 15,749 low.

In short, BTCUSD is facing renewed downside pressures around 17,380. A successful close higher would strengthen the bull case.

It promises to be a very busy week in the UK, with a host of key events on the calendar. Monday started on a positive note, as GDP for October climbed 0.5%, up from -0.6% in September and ahead of the 0.4% consensus. Investors will have plenty of data to digest, including employment, inflation, retail sales and the Bank of England rate decision. It should be a busy week for the pound as well.

The UK economy is likely in recession, and the markets are bracing for a winter of discontent on the public sector front. Many workers, faced with the ever-increasing cost-of-living, could go on strike in order to demand higher wages. This could trigger a cost-wage spiral, which would be a massive headache for the BoE as it would exacerbate inflationary pressures. With inflation already at a staggering 11.1%, the BoE has little choice but to continue raising rates, and the markets have priced in 50 basis points at the final meeting of the year on Thursday. The cash rate which is currently at 3.0%, is expected to continue to rise in 2023, with forecasts ranging from 3.50% to 4.75%.

The Federal Reserve will also be in the spotlight this week, with the final rate meeting on Wednesday. The Fed is on its way to a record year for tightening, with 375 bp in rate hikes already this year. Even with a torrid pace of rate hikes, the markets have been reluctant to internalize the Fed’s hawkish message, and softer-than-expected inflation reports have renewed risk appetite and hopes of a dovish Fed pivot. The Fed recently trotted out a stream of FOMC members to drum up the message that inflation remained unacceptably high and that the Fed expects to raise rates higher than anticipated. The Fed doesn’t want to see financial conditions loosening before inflation is defeated, which makes it critical that the markets buy into the Fed’s hawkish stance.

GBP/USD Technical

• 1.2240 and 1.2136 are the next support levels
• There is resistance at 1.2374 and 1.2478

The 1H timeframe of the USDJPY pair shows that the formation of a global cycle impulse could have ended not so long ago. Then the fall of the exchange rate and the formation of a new bearish trend began.

It is assumed that a bearish double zigzag of the primary degree may form in the market. It is possible that the actionary wave and the intervening wave have been completed to date.

Thus, in the near future we can expect the development of the final actionary wave, which can take a standard zigzag structure (A)-(B)-(C) and end near 131.35. At that level, wave will be at 76.4% of wave.

Alternatively, it is assumed that in the bearish double zigzag, only the first actionary wave is completed, and the intervening wave is still under development.

Perhaps the wave will have the form of a double zigzag (W)-(X)-(Y), as shown in the chart. In the near future, the price growth may continue in the sub-wave (Y) at 140.57.

At that level, wave will be at 38.2% along the Fibonacci lines of wave.

We have a busy week ahead, with plenty of important data for the interest rates policy in US, UK and EU. We have US CPI already tomorrow, which will be interesting data as speculators will put their bets on FOMC decision which is schedule a day later. From an Elliott wave perspective, I still focus on the 10 year US notes, where I see price coming back into a wave four, so short-term weakness on bonds can support USD while stocks can drop lower. However, that's only for the short-term correction, the mid-term trend is still down for the USD which is clearly defined on USDJPY after five wave drop from 151.92. I will again turn bearish on USD across the board after USDJPY completes corrective rise. Nice resistance is at 140-142.30.