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Daily Pivots: (S1) 0.9865; (P) 0.9883; (R1) 0.9902; More....

No change in EUR/CHF's outlook as sideway trading from 0.9953 is still extending. Intraday bias remains neutral for the moment. 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, prior rejection by 0.9970 support turned resistance retains medium term bearishness. That is, while 0.9407 is a medium term bottom, price actions from there would develope into a corrective pattern rather than a 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.

The S&P 500 edged higher after US jobless claims rose moderately last week . The index has struggled in the supply zone (4130) from last September. The tumble below the base of the previous bullish momentum at 3950 has thrown the bulls into disarray. This lack of follow-through might lead to a bearish reversal as the buy side may choose to bail out. Only a climb back above the psychological level of 4000 would attract more interest and signal a recovery. Below 3905, the bears would take over and press towards 3840.

The Japanese yen weakens as the BoJ remains resolutely dovish. The pair has seen increasing pressure after it broke below October’s low of 141.00. 144.70 at the start of the previous bearish push is a major obstacle. A bullish breakout may propel the pair above 146.00, putting the uptrend back on track for the weeks to come. However, if buyers fail to clear it the single currency could head back south. A drop below 143.20 would trigger renewed selling towards 142.00 which is a critical level to keep the current rebound valid.

The New Zealand dollar treads water ahead of the Fed's policy meeting. The pair hit resistance right under August’s high of 0.6460. Profit-taking from short-term buyers compounds selling from those who believe in a bear market in the medium-term in this area of confluence. The bearish RSI divergence was already a giveaway of a slowdown in the rally. 0.6250 near the previous highs is the first level to assess buying interest. 0.6160 is the bulls’ second layer of defence in case of a deeper correction.

Markets

To say it hasn’t been the most exciting week is an understatement. Volumes are typically low this time of the year and are being further depressed by looming event risk in the form of a central bank bonanza next week. Economic data is mostly of secondary importance. Trading in such circumstances is merely technically driven. US yields recouped between 2.3 bps and 8.3 bps yesterday after slumping the day before with the longest maturity being the exception (-0.2 bps). The 10y yield hit support from the 50% retracement level of the Aug-Oct rally which coincides with the incoming downward trendline connecting the lower lows in the current corrective move (around 3.42%). German yields rose in similar fashion (3.8-6.5 bps), slightly underperforming vs swaps. Equity sentiment was fragile in European dealings but improved throughout the US session (Nasdaq +1.13%), helping explain the dollar’s defensive mode. EUR/USD closed at 1.055, up half a big figure. USD/JPY (136.37) went nowhere. EUR/GBP simply held above 0.86. The US oil reference, WTI, surged >4% intraday after the US/Canada Keystone pipeline was shut after detecting a leak in Nebraska. It closed the day lower still, as did the European Brent reference. The latter finished at $76.15/b, the lowest since December last year.

After this morning’s Chinese CPI numbers (see below), the remaining data releases take place in US dealings. December University of Michigan consumer confidence (expected to stabilize around 57) is a harbinger for data points ahead. Especially consumer inflation expectations caught attention this year. They are expected unchanged at 4.9% and 3% for 1y and 5-10y respectively.  as well with markets looking for more evidence of easing pipeline price pressures that may translate into further declines in next week Tuesday’s CPI number. European attention turns to the second early TLTRO redemption figure. Banks repaid €296bn on the first occasion (Nov 23) with over €1.8tn still outstanding. Recent changes to TLTRO modalities make them less attractive to hold to maturity. A faster wind down of TLTRO’s, together with the end to APP reinvestments from early next year onwards, will help shrink the central bank’s balance sheet and reduce excess liquidity in the system. From a policy normalization point of view, this is the elephant in the room next year rather than the pace of ECB rate hike and their peak levels. Turning to markets today, we expect more of what we’ve seen all week … which is not much. We do pay close attention whether crucial technical support level holds in Germany’s and the US 10y yield at 1.77% (September correction low) and 3.42% respectively. Closing the week above these targets is important going into the ECB and Fed meetings next week. EUR/USD extends gains this morning and is creeping towards 1.0611, the 38.2% Fibonacci recovery of the 2021-2022 decline. We still believe the USD correction is way overdone.

News Headlines

Price pressures in China remain very modest. CPI inflation eased from 2.1% in October to 1.6% in November, in line with expectations. Especially food price inflation eased from 7.0% Y/Y in October to 3.7% Y/Y. Core inflation, excluding volatile food and energy prices was unchanged from previous month at 0.6% Y/Y. Price for consumer goods rose 2.3% Y/Y, services inflation stays very modest at 0.5% Y/Y. Soft inflation data at least partially mirror subdued consumer demand. Chinese firms even still face some of a deflationary environment. Producer prices were 1.3% lower compared to the same month last year. Analysists expected a slightly bigger price decline. The price data give Chinese authorities room for a policy of selective monetary and fiscal support. Despite low inflationary pressures, the yean this morning gains slightly with USD/CNY trading near 6.955.

Inflation data in Mexico in November showed a mixed picture. Headline inflation rose 0.58% M/M and 7.8% Y/Y (was 8.41% in November). Core inflation however rose 0.45% M/M and is slightly higher Y/Y (to 8.51% from 8.42%). As such inflation remains well above the central bank’s target of 3.0% (+/- 1.0%). The Bank of Mexico currently has its policy rate at 10%. The Bank meets next week. Analysts expect the bank to raise the policy rate by an additional 50 bps to 10.5%. After a trend of appreciation against the USD this year, the peso recently fell prey to profit taking. The peso yesterday regained slightly to currently trade in thee USD/MXN 19.63 area.

The US initial jobless claims for employment benefits rose last week, and continuing claims advanced to their highest levels since February, meaning that people who are out of work take more time to find a job.

It sounds terrible to a normal ear, but it’s music to the Federal Reserve’s (Fed) ears, as it is a sign that the jobs market in the US could be weakening – and that could help weaken inflation.

So, yesterday’s trading session was a bit better than the previous five sessions. The US indices eked out small gains after taking over a mixed session from European traders.

The Eurostoxx index was flat yesterday, while FTSE 100 fell despite a good session for the mining stocks, which rallied on a jaw-dropping $7 billion profit announced by the commodity trader Trafigura.

Activity on FTSE and European index futures hint at a slightly positive start on Friday. The US PPI data will, however, say the last word.

The data of the week  

The US will release its November PPI figure today and expectations are low.

Released earlier, the Chinese inflation fell to 1.6%, the lowest since March in line with expectations; the factory gate prices fell 1.3%. Prices of production materials shrank as the cost of extractions and processing cost continued to decline. A sharp slowdown in the cost of raw materials also helped cooling the Chinese PPI.

The consensus of analyst estimates on Bloomberg survey shows that the US PPI is expected to have slowed to 7.2% in November from 8% printed a month earlier. The core PPI is also seen down from 6.7% to 5.9%.

If this is the case, if the factory gate inflation in the US slowed last month – which would also hint at a potentially slower CPI data next Tuesday before the FOMC decision – we could see the risk assets shrug off some of this week’s weakness. The S&P500 could rebound back to its 200-DMA and close the week above the 4000 mark.

But if the US PPI figure is higher than expected – which is well possible given that the low expectations are harder to beat, then we will probably see the US stocks sink back in the red.

The key bearish targets for the S&P500 stands at 3900, which has acted as a pivot a couple of times this year, and the 3870 mark, the major 38.2% Fibonacci retracement on the latest bear market rally, if broken, would hint at a medium term bearish reversal.

More potential for hawkish price action 

The US dollar index remains under a decent selling pressure against many majors. The US dollar index hasn’t extended losses below last week’s lows but remained clearly offered into its 200-DMA this week, meaning that the conviction that the US dollar should fall sustainably strengthens among traders.

A US PPI figure in line, or ideally softer-than-expected, could boost the US dollar bears, and help the dollar close the week at fresh lows since summer. Whereas disappointment on the PPI front will likely give a boost to the dollar, as it would boost the hawkish Fed expectations and the rate bets.

It’s important to note that the Fed is given around 80% probability to hike the interest rates by 50bp next week. But the inflation data will hardly change that expectation. It will change the bets on the Fed’s terminal rate, instead. The market pricing still points at a terminal Fed rate below 5%, which means that, in case of PPI disappointment, there is more potential for a hawkish price action, than a dovish one.

In commodities, gold is also pushing higher thanks to a broadly softer US dollar. The precious metal is above its 200-DMA this morning and is flirting with the $1800 mark. Soft PPI data could help extend the yellow metal’s rally above $1800, whereas a stronger-than-expected figure will likely lead to some profit taking before the weekly closing bell.

Crude to $65pb? 

The barrel of American crude extended losses to $71 per barrel. Trend and momentum indicators remain comfortably bearish, inviting traders to sell the tops for a further fall in oil prices in the short run. A fall below the $70 psychological level could pave the way for a further decline to $65, in continuation of an ABCD pattern building since end of September.

But the price should rebound back above $82 sometime in the first quarter of next year.

Market movers today

Today's key data release is the University of Michigan Consumer Survey where the main focus is on inflation expectations. Given the market is dead set on Fed 'only' hiking 50bp next week, a positive surprise today may lead to a change of mind, a rise in short-term US interest rates and another dent in EUR/USD. US PPI is also released today.

In euro area, our focus will be on the TLTRO early repayment option. Given the large uncertainty, we judge that our expectation of EUR300bn is broadly in line with the Bloomberg survey which was released yesterday (at EUR333bn). This will come on top of the EUR52bn as part of the maturity of the TLTRO operation.

The morning kicks off with inflation data out of Norway. Despite early signs of weaker demand having an effect on businesses' pricing power, we expect inflationary pressures to remain considerable with core inflation climbing further to 5.9% y/y in November.

The 60 second overview

ECB preview: At next week's meeting, we expect the ECB to deliver a 50bp rate hike with a hawkish twist. Specifically, we expect the ECB to present key principles of the end to reinvestments under the APP process (in which reinvestments will almost come to a full stop) and an open-ended wording for more rate hikes to come. This will be a compromise, which we believe will be palatable to both hawks and doves. We currently expect ECB rate hikes into Q1 next year, with the deposit rate peaking at 2.75%, but with risks skewed for more hikes. Read more on Research Euro area: ECB preview - A hawkish 50bp, 8 December.

Fed preview: A 50bp hike seems like the clear base case for next week's Fed meeting. That said, we expect Fed to deliver a hawkish message on the 2023 policy stance, as the recent data releases and easing in financial conditions suggest that the pressure to keep tightening will persist into 2023. We adjust our Fed call for the 50bp hike next week, but still expect Fed to reach a terminal rate of 5.00-5.25% by March. Read more on Research US: Fed preview - Tightening pressure to persist into 2023, 8 December.

FI: European rates grinded higher through the day and ended 3bp higher in core jurisdictions. Intra-euro area spreads widened by 2-4b amid parts of European out on holiday (Italy, Spain, Portugal). There was generally little market moving news yesterday.

FX: Another calm day for global FX markets, which seems to be in a wait-and-see mode before a busy week next week. EUR/USD edged higher again and above 1.0550 and USD/JPY held steady around 137. SEK and NOK were largely unchanged vis-à-vis EUR.

Credit: Credit market activity was once again fairly muted on Thursday, although still with a slight bearish tilt on index level. iTraxx main widened 0.5bp to close at 92.2bp, while iTraxx Xover widened 2.9bp to close at 469.9bp. Primary market activity cooled down somewhat compared to earlier in the week.

Nordic macro

In Sweden, Riksbank vice governor Per Jansson gives his annual December speech (08:30 CET). The title is "Monetary policy when inflation is too high - conditions and challenges". Mr Jansson has since he joined the Board started a tradition to end the year with guiding speeches on how to conduct monetary policy in a changing world, addressing issues such as leaning against the wind, negative interest rates and the interaction between fiscal and monetary policy. His speeches have laid the ground for how the Riksbank has implemented monetary policy. Hence, worth a close read.

Daily Pivots: (S1) 1.3540; (P) 1.3615; (R1) 1.3668; More....

Intraday bias in USD/CAD is turned neutral but further rally is still in favor. Correction from 1.3976 could have completed with three waves down to 1.3224. Further rise should be seen to 1.3807 resistance first, and then 1.3976. For now, this will remain the favored case as long as 1.3383 support holds, in case of retreat.

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).

Daily Pivots: (S1) 0.6719; (P) 0.6750; (R1) 0.6801; More...

Intraday bias in AUD/USD stays neutral as range trading continues. On the downside, break of 0.6641 support should indicate short term topping, following rejection by 0.6871 fibonacci level. Intraday bias will be back on the downside for 0.6521 resistance turned support first. However, sustained break of 0.6871 will extend the rise from 0.6169 towards 55 week EMA at 0.6922.

In the bigger picture, a medium term bottom is in place at 0.6160 already. But it's too early to call for trend reversal. Nevertheless, even as a corrective move, rise from 0.6169 should target 38.2% retracement of 0.8006 to 0.6169 at 0.6871. Sustained trading above 55 week EMA (now at 0.6922) will raise the chance of the start of a bullish up trend. However, rejection by 0.6781 or 55 week EMA, followed by 0.6521 resistance turned support and retain medium term bearishness.

Daily Pivots: (S1) 136.21; (P) 136.72; (R1) 137.20; More...

Breach of 135.95 minor support suggests rejection by 4 hour 55 EMA. Intraday bias in USD/JPY is back on the downside for retesting 133.61 low. Firm break there will resume the decline from 151.93. On the upside, above 137.84 resistance will revive the case of short term bottoming, and turn bias back to the upside for 55 day EMA (now at 141.02).

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It's too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 131.33). Some support should be seen around this zone to bring rebound. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.