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Daily Pivots: (S1) 1.3420; (P) 1.3462; (R1) 1.3539; More....

USD/CAD breached 1.3494 resistance but failed to sustain above. Intraday bias stays neutral at this point. On the upside, firm break of 1.3494 will indicate that correction from 1.3976 has completed at 1.3224, ahead of 1.3207 cluster support (61.8% retracement of 1.2726 to 1.3976 at 1.3204). Intraday bias will be turned back to the upside for 1.3807/3976 resistance zone. However, on the downside, sustained break of 1.3204/7 will carry larger bearish implication and target 1.2952 support next.

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) 0.6620; (P) 0.6675; (R1) 0.6708; More...

Range trading continues in AUD/USD and intraday bias stays neutral at this point. Further rise is expected as long as 0.6521 resistance turned support holds. On the upside, break of 0.6796 will resume the rise from 0.6169 to 0.6871 fibonacci level. However, sustained break of 0.6521 will argue that whole rebound from 0.6169 is over, and bring deeper fall to retest this low.

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 0.6927) will raise the chance of the start of a bullish up trend. This will now remain the favored case as long as 0.6521 resistance turned support holds.

Risk sentiment improved slightly earlier in Asian session on rumors that China is going to exit its zero-Covid policy earlier. Yet the announcement of the National Health Commission on speeding up vaccination for the elderly was a big let-down. After all, Dollar, and Swiss Franc are on the softer side today so far, with Euro. New Zealand, Australian and Canadian Dollar are on the firmer side. Sterling and Yen are mixed. Focuses will partly stay on unrest in China, and partly back on economic data and comments from central bankers.

Technically, EUR/USD's rally overnight was cut short, reflecting much indecisiveness in the markets. There could be some more volatility ahead in the week with Eurozone inflation and US employment data featured. But after all, near term outlook will stay mildly bullish as long as 1.0222 support holds and rise from 0.9534 should resume sooner or later. However, break of 1.0222 will complete a double top pattern (based on current structure 1.0481 and 1.0496), and indicate near term bearish reversal.

In Asia, Nikkei dropped -0.48%. Hong Kong HSI is up 3.79%. China Shanghai SSE is up 2.31%. Singapore Strait Times is up 1.00%. Japan 10-year JGB yield is down -0.001 at 0.257. Overnight, DOW dropped -1.45%. S&P 500 dropped -1.54%. NASDAQ dropped -1.58%. 10-year yield rose 0.012 to 3.703.

Fed Barkin supportive of slower, but probably longer and potentially high tightening

Richmond Fed President Thomas Barkin said in an interview yesterday, "I'm very supportive of a (tightening) path that is slower, probably longer and potentially higher than where we were before."

"It is helpful to be somewhat more cautious as you are in restrictive territory," he said. "It is a better risk-management approach."

"Inflation has been stubborner than I would like," he said. "As long as inflation stays elevated, that makes the case to me that we need to do more."

Fed Bullard: Strong labor market gives us license to pursue disinflationary strategy

St. Louis Fed President James Bullard reiterated yesterday that interest rate has to be raised to at least 5.00-5.25%, from the current 3.75-4.00%, to be "sufficiently restrictive" to curb inflation. The interest rate will have to stay at that level "all during 2023 and into 2024".

But regarding the size of the next hike in December, Bullard said he would leave the exact tactics to Chair Jerome Powell. "In macroeconomic terms I'm not sure it matters that much at exactly which date we get there or what meeting we get there (the terminal rate)", he said. "Generally speaking I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation, but I would defer to the chair as to how he wants to play the tactics on this."

"I do think that the fact that the labor market is so strong gives us license to pursue our disinflationary strategy now and try to get the inflation under control right now so we don't replay the 1970s where the FOMC at that time took 15 years to get inflation under control," Bullard noted.

Fed Williams: Restrictive policy to continue through at least next year

New York Fed President John Williams said yesterday, "Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential... There is still more work to do."

"I do think we're going to need to keep restrictive policy in place for some time; I would expect that to continue through at least next year," he added.

Nevertheless, "at some point, nominal interest rates will need to come down. Otherwise real interest rates will be going up and that would just be tightening policy further and further in terms of its effects on the economy... I do see a point, probably in 2024, that we'll start bringing down nominal interest rates because inflation is coming down and we would want to have real interest rates appropriately positioned."

NZIER: RBNZ rate to peak at 5% next year

In the November Monetary Policy Statement, RBNZ projected that interest rate would peak at 5.5% while the economy would start contracting in Q2 2023 until Q1 2024.

NZIER said it expected the negative impact of higher interest rates on demand will "become more apparent around mid-2023". With that, RBNZ "will not need to increase interest rates by as much as it currently expects to".

"Nonetheless, we expect further increases in the OCR and for it to peak at 5 percent over the coming year," NZIER added.

Looking ahead

Swiss GDP will be released in European session. UK will release M4 money supply and mortgage approvals. Eurozone will release economic sentiment indicator. Germany will publish CPI flash. Later in the day, Canada will release GDP. US will release consumer confidence and house price index.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6620; (P) 0.6675; (R1) 0.6708; More...

Range trading continues in AUD/USD and intraday bias stays neutral at this point. Further rise is expected as long as 0.6521 resistance turned support holds. On the upside, break of 0.6796 will resume the rise from 0.6169 to 0.6871 fibonacci level. However, sustained break of 0.6521 will argue that whole rebound from 0.6169 is over, and bring deeper fall to retest this low.

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 0.6927) will raise the chance of the start of a bullish up trend. This will now remain the favored case as long as 0.6521 resistance turned support holds.

Economic Indicators Update

Daily Pivots: (S1) 165.22; (P) 166.76; (R1) 167.66; More...

Break of 166.08 minor support suggests that GBP/JPY's rebound from 163.02 has completed at 168.99, ahead of 169.07 resistance. Intraday bias is back on the downside for retesting 163.02 support. Break there will resume whole decline from 172.11 to 159.71 support next. For now, risk will stay on the downside as long as 168.99 resistance holds.

In the bigger picture, there is no clear sign of medium term topping yet. Up trend from 123.94 (2020 low) could still resume through 172.11 high at a later stage. However, firm break of 159.71 support will argue that it's already in correction to the up trend from 123.94, and deeper decline would be seen back towards 148.93 support.

Daily Pivots: (S1) 142.79; (P) 143.90; (R1) 144.75; More....

No change in EUR/JPY's outlook and intraday bias stays neutral. Break of 142.52 support will extend the decline from 148.38, to 61.8% retracement of 133.38 to 148.38 at 139.11. On the upside, though, above 146.12 minor resistance will bring stronger rebound back to retest 148.38 high instead.

In the bigger picture, there is no clear sign of medium term topping yet. Up trend from 114.42 (2020 low) could still resume through 148.38 to 149.76 (2014 high). However, break of 137.32 support argue that a medium term correction has already started to correct the whole up trend from 114.42.

Daily Pivots: (S1) 0.8597; (P) 0.8637; (R1) 0.8686; More...

EUR/GBP recovered after hitting 0.8570 support and intraday bias is back on the upside for stronger recovery. But overall outlook will remain bearish as long as 0.8827 resistance holds. Firm break of 0.8570 will resume the decline from 0.9267, towards 0.8338 support.

In the bigger picture, current development suggests that fall from 0.9267 is a down leg inside long term range pattern. Deeper fall could be seen towards 0.8201/8338 support zone. But strong support should be seen there to bring reversal. Nevertheless, firm break of 0.8827 resistance will turn favor to the case that such decline is merely a correction in the up trend from 0.8201. That is, further rally would be seen at a later stage through 0.9267.

Daily Pivots: (S1) 1.5430; (P) 1.5538; (R1) 1.5654; More...

EUR/AUD spiked higher to 1.5643, but failed to break through 1.5647 resistance and retreated. Intraday bias remains neutral first, and overall outlook is unchanged. In case of another fall, downside should be contained by 55 day EMA (now at 1.5315) to bring rebound. Decisive break of 1.5704 resistance will resume larger up trend.

In the bigger picture, a medium term bottom should be in place at 1.4281, on bullish convergence condition in daily MACD. Further rise would be seen back to 1.6434 key resistance next. Break of 1.4965 resistance turned support is needed to indicate reversal. Otherwise, further rally will remain in favor.

Daily Pivots: (S1) 0.9772; (P) 0.9832; (R1) 0.9872; More....

EUR/CHF is still extending the corrective pattern from 0.9953 and intraday bias stays 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, 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 week started with a selloff across global equities. Unrest in China due to protests against the Covid zero policy combined with the Federal Reserve (Fed) members’ hawkish comments led to an early week selloff in both Asian, European and US equities.

In cryptocurrencies, it was another day of bankruptcy news. This time, the crypto lender BlockFi, which had strong ties with FTX announced to file for bankruptcy.

I told you

… that the latest market optimism was a bit overdone and that investors just wanted to read that the Fed would slow the pace of its rate hikes in the coming months following a softening inflation, but totally ignored the idea that the terminal rate will go higher than previously thought.

Therefore, the latest Fed minutes were not as dovish as investors read them. At the end of the day, where the Fed goes is more important than at what speed it goes there.

As a result, St Louis Fed President Bullard repeated that markets are ‘underestimating the chances of higher rates’, as New York Fed’s John Williams said that the Fed have more work to do to curb inflation.

The S&P500 lost 1.54% on Monday, as Nasdaq slid 1.58%.

There is still hope that Fed President Jerome Powell talks about slower rate hikes at his speech this week, but again, his words shouldn’t be heard halfway through. The Fed is willing to slow the pace of rate hikes to avoid going too far. But if they slow down, it’s also because they want to go higher than 5%.

What’s the impact of China’s reopening delay? 

There is great uncertainty regarding the impact of the Chinese unrest on global economy.

In one hand, the Chinese authorities stood behind the Covid zero policy, which means that the Chinese reopening will be delayed. A delay in Chinese reopening means further negative pressure on energy and commodity prices, and slower inflation for the rest of the world.

But on the other hand, the Chinese unrest increases the possibility of renewed supply chain crisis – although the US said it doesn’t expect supply disruptions due to the unrest just yet.

US crude fell to $73pb on Monday then rebounded to flirt with the $80pb this morning, despite the Chinese slowdown worries.

Chevron is allowed to resume oil production in Venezuela for the next six months, after being forced to stop all activity due to sanctions almost three years ago. Good news is, Venezuela has the world’s largest proven oil reserves, and they used to pump around 3 mio barrels per day before sanctions. But the bad news is, it is said that Chevron could increase oil production by around 20 to 30’000 barrels per day, which is insignificant compared to the daily demand of around 100 mio barrels. Chevron lost almost 3% yesterday.

Plus, OPEC will take advantage of the Chinese unrest to justify restricted output at its next meeting, which is scheduled for Dec 4.

And finally, the Europeans still don’t have a clear price cap for the Russian oil, and the clock is ticking louder into the Dec 5 deadline, where the price cap is supposed to become effective.

In summary, there are both positive and negative drivers for oil prices. US crude will likely see resistance at $80, then near $85pb, where stands the 50-DMA, while dipbuyers should continue buying into the $70pb psychological support.

One thing is sure, we won’t finish the year having seen $200 as many predicted at the start of the year. Phew!

Market movers today

The Chinese National Health Commission will host a briefing at 3pm Beijing time (08:00 am CET). However, they regularly hold briefings and they do not include senior political officials, which would be expected if a bigger change was to be announced. The question is if we will see any hints of future changes, though, or calls for stronger vaccination efforts that could signal a move towards an earlier reopening.

Germany and Spain release inflation numbers for November today ahead of the Euro area release tomorrow, which will likely be key for whether the ECB hikes 75bp or 50bp at their 15 December meeting. We see some upside risk to the headline inflation but expect core inflation to be unchanged.

In the US focus turns to house prices for September. Consensus is a decline of 1.2% adding to declines in the previous two months. US Consumer confidence from Conference Board is also due, where the most focus should be on the labour market component 'jobs plentiful' vs 'jobs hard to get' as it tends to be a good leading indicator for unemployment and has deteriorated in recent months, albeit from a high level.

The 60 second overview

Chinese markets rally: Chinese offshore stocks are up close to 5% this morning as there were no new protests in China yesterday, and markets set their eyes on the Chinese press briefing this morning hoping for signs of China moving closer to a full re-opening. Chinese authorities yesterday stressed that barriers in front of apartment buildings should be removed in a small sign that they may be listening to protesters' call for a softening of Covid rules. Oil prices also rebounded following the decline yesterday.

We doubt China will move completely away from zero-Covid policy going into the winter but any sign that more spread of the virus will be tolerated would be a hint that China is moving towards a full reopening within the next 6-9 months. However, if China doubles down on the zero-Covid policy to reign in the outbreaks, it would likely throw cold water on the market rally.

Fed's Bullard says market underestimates peak rate: One of the hawkish Fed officials, James Bullard, said yesterday he believed "markets are underpricing a little bit the risk that the FOMC will have to be more aggressive rather than less aggressive". The money market currently prices a peak around 5%, corresponding to around 115bp further hikes from here. New York Fed President John Williams struck a tone a bit softer and mentioned rates could come down in 2024 as inflation falls. But he also said he saw the rate path a bit higher than in September (the time of Fed's latest rate projections). It is still a close call if the Fed will move 50bp or 75bp at their next meeting and will likely depend on Friday's payrolls and the next CPI print on 13 December, one day before the FOMC meeting.

Equities: US equities sold off yesterday with tech seeing the biggest hit. Hawkish Fed comments and uncertainty about developments in China probably led to some profit taking after a decent rally over the past 1½ months. Stocks rallied in most of Asia on hopes of a faster Chinese reopening.

FI: An immediate drop in the European rates from the morning on risk-off was quickly replaced by hawkish comments from Knot which sent yields 8bp higher from the lows. The afternoon trading session was mainly a sideways move in the afternoon amid Lagarde's EP hearing underway. Lagarde did not provide significant policy signals for the December meeting where a significant hike is expected (50b or 75bp) and a play laying out the QT principles are expected.

FX: Hawkish Fed comments from familiar hawks such as Bullard and Williams dented hopes for a soon-to-come Fed pivot which alongside negative equities throughout the European and US sessions pushed the USD higher vs peers while SEK and NOK continued to post losses against the EUR. With the better risk sentiment (China Covid policy-related) seen overnight, yesterday's trends may take a pause.

Credit: After a relatively strong performance last week the credit market started out on a slightly negative note this week with iTraxx main widening 2.6bp to 91.9bp and Xover widening 10bp to 463bp. Overall, we saw limited primary activity with Metso Outotec a notable exception in the Nordic market. Metso Outotec issued a EUR300m 5Y bond with a MS+220bp spread which represented a new issue premium of some 20-30bp versus the company's already outstanding bonds.

Nordic macro

Sweden: NIER November confidence survey will be out and we expect to see a continuation of weakening new orders and the sentiment in general. We also keep an extra eye on hiring plans and perceived unemployment risk. Final Q3 GDP numbers are also due and judging from the preliminary GDP indicator, Q3 GDP is likely to print +0.7 % q/q sa/2.6 % y/y.