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Daily Pivots: (S1) 165.39; (P) 166.85; (R1) 167.73; More...

GBP/JPY is extending the consolidation from 172.11 and intraday bias stays neutral first. Overall, further rally is mildly in favor with 164.95 support intact. On the upside, break of 172.11 will resume larger up trend. However, break of 164.95 will bring deeper pull back to 159.71 support and below.

In the bigger picture, up trend from 123.94 (2020 low), as part of the trend from 122.75 (2016 low) is still in progress. Further rise would be seen to 161.8% projection of 122.75 to 156.59 (2018 high) from 123.94 at 178.69. This will now remain the favored case as long as 148.93 support holds.

Daily Pivots: (S1) 0.9975; (P) 1.0031; (R1) 1.0070; More...

Intraday bias in EUR/USD remains neutral for the moment. On the upside, firm break of 1.0092 will resume whole rise from 0.9534. Further rally should then be seen to 38.2% retracement of 1.1494 to 0.9534 at 1.0283, even as a corrective rise. On the downside, however, break of 0.9907 minor support will turn bias back to the downside for 0.9729 support first. Break there should bring retest of 0.9534 low.

In the bigger picture, medium term outlook stays bearish with trading inside the falling channel. That is larger down trend from 1.2348 (2021 high) is still in progress. Firm break of 0.9534 low will confirm this bearish case. However, break of 1.0092 will add to the case of medium term bottoming, on bullish convergence condition in daily MACD, and bring further rally towards 55 week EMA (now at 1.0583).

Daily Pivots: (S1) 1.1272; (P) 1.1420; (R1) 1.1505; More...

Intraday bias in GBP/USD remains neutral as range trading continues. On the upside, break of 1.1644 will resume the whole rise from 1.0351 and target 1.1759/2292 resistance zone. On the downside, break of 1.1145 will reaffirm the case that corrective rise from 1.0351 has completed at 1.1644. Deeper fall would then be seen back to 1.0922 support and below.

In the bigger picture, fall from 1.4248 (2018 high) is part of the long term down trend from 2.1161 (2007 high). Outlook will stay bearish as long as 1.1759 support turned resistance holds. Parity would be the next target on resumption. Nevertheless, firm break of 1.1759 will confirm medium term bottoming, and open up stronger rise back to 55 week EMA (now at 1.2357).

Daily Pivots: (S1) 0.9802; (P) 0.9838; (R1) 0.9876; More...

Intraday bias in USD/CHF remains on the downside and outlook is unchanged. A double top pattern should be completed (1.0146, 1.0146). Deeper fall should be seen to 61.8% retracement of 0.9369 to 1.0146 at 0.9666. On the upside, above 0.9925 minor resistance will turn intraday bias neutral first.

In the bigger picture, upside momentum is diminishing as seen in daily MACD. But up trend from 0.8756 (2021 low) is still in favor to resume as long as 0.9799 support holds. Break of 1.0146 will target 1.0342 (2016 high). However, sustained break of 0.9779 will suggest that a large scale correction, at least, is underway.

Daily Pivots: (S1) 145.45; (P) 146.12; (R1) 147.07; More...

Outlook in USD/JPY remains unchanged as consolidation from 151.93 is still in progress. Intraday bias stays neutral. Deeper decline might be seen but downside should be contained by 38.2% retracement of 130.38 to 151.93 at 143.69 to bring rebound. On the upside, above 148.84 minor resistance will bring stronger rebound back towards 151.93 high. But upside should be limited there to continue the corrective pattern.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). 147.68 (1998 high) was already met and there is no clearly sign of topping yet. In any case, break of 140.33 support is needed to be the first sign of medium term topping. Otherwise, further rise is in favor to next target at 160.16 (1990 high).

Daily Pivots: (S1) 1.3444; (P) 1.3493; (R1) 1.3575; More....

USD/CAD recovered after hitting 1.3386 and intraday bias is turned neutral first. On the upside, firm break of 1.3351 minor resistance will invalidate the head and shoulder top pattern. Bias will be turned back to the upside for 1.3807 resistance first, and then retest of 1.3976 high. On the downside, break of 1.3386 will resume the correction from 1.3976 towards 1.3207 cluster support (61.8% retracement of 1.2726 to 1.3976 at 1.3204).

In the bigger picture, up trend from 1.2005 (2021 low) is still in progress. Based on current impulsive momentum, it could be resuming long term up trend from 0.9056 (2007 low). Whether it is or it isn't, retest of 1.4689 (2016 high) should be seen next. This will now remain the favored case as long as 1.3222 resistance turned support holds.

Republicans gained field in this week’s US midterm elections, but much less than they expected. While the Republicans have a slim majority in the House, it’s still too close to call for who will control the Senate. We may not get the final picture until December 6 runoff in Georgia.

Less aggressive support for the Republicans, and more importantly, looming uncertainty, are the major factors that weighed on investor sentiment yesterday. The S&P500 slid more than 2%, Dow Jones lost 1.95%, while Nasdaq dumped 2.40%. The selloff was also fueled by the shaking crypto markets, and perhaps some investors taking risk off the table before the US inflation data, due today.

FTX drama got worse

The FTX drama got only worse since yesterday, as Binance, which gave a nonbinding offer to buy FTX on Tuesday, pulled out citing due diligence and a US probe into the exchange.

FTT lost another 71% yesterday, and FTX could go bankrupt if they don’t find a $8 bn cash injection.

Watching, what used to be the world’s 4th biggest crypto exchange go under the water, triggered panic across the sector, getting investors to question, whether FTX is an isolated case, or this is just the tip of the iceberg, and if and how many of the cryptocurrency exchanges may haves similar insolvency problems, that are only waiting to get revealed.

Bitcoin slumped another 15% yesterday, and traded below the $16000 for the first time in two years, while Ethereum dumped another 17.50%, and broke the October support to the downside.

No one can tell you exactly what will happen from here, but the downside risks prevail, with the risk of FTX not being saved by investors.

Beyond that, the contagion will likely remain limited. However, we may not see Bitcoin take back the $20’000 for a long time, not because of the industry-wide drama, but also because market conditions beyond cryptocurrencies is not necessarily ideal for risk-taking, and hence may not support a full recovery from here.

US inflation

Investors hold their breath before the US inflation data due today. Headline inflation in the US is expected to have eased from 8.2%, to 8% in October, and core inflation is seen softer at 6.5%, compared to 6.6% printed a month earlier.

Data in line with expectations, or ideally softer than expected, should help keeping the Federal Reserve (Fed) hawks at bay, and contain the market selloff, whereas figures above expectations would be another hit to the investor sentiment, and send equities lower, yields, and the US dollar higher.

PS: in six of the prior seven months, inflation exceeded expectations. So, there is a good chance that it’s the case this time around as well.

In the FX & Commodities

The US dollar rebounded yesterday on the back of a better-than-expected Democrat results, and some repositioning before today’s inflation data. The EURUSD held ground above parity, as the euro-area inflation expectations for the next twelve months rose from 5% to 5.1% in September. Not a big change really, but enough to remind investors that the European Central Bank (ECB) will continue fighting inflation in the coming months (even if it doesn’t really reflect in the euro’s valuation, which almost fully depends on what the Fed does).

In commodities, gold held ground above the $1700 mark. Whether the yellow metal could sustainably move above the 100-DMA, near $1715 per ounce, depends on the broad-based US dollar strength.

Oil fell another 3.5% yesterday, partly on news that Covid cases in China are rising – which may mean more restrictive measures, and partly on the EIA data, which confirmed that the US oil inventories increased by 3.9 million barrels last week, compared to only 300’000 barrel build expected by analysts.

On the geopolitical front, Russia pulled troops out of Kherson. Kherson was one of the first Ukrainian cities to be occupied when Russians invaded the country, and had a symbolic importance. Therefore, the announcement that Russians are pulling out has been described as a ‘humiliating defeat’ for Russia.

We don’t know yet if the Ukrainian conflict enters a new phase, and what Russia plans to do next. European stocks briefly gained as the news broke in yesterday, but enthusiasm remained short-lived.

Market movers today

Today, all eyes will be on US October CPI print. We are looking for another high print at +0.7% m/m / +8.0% y/y.

October inflation data is also due in Norway and Denmark. We expect a decline in Danish CPI inflation in October to 9.2% from 10.0% in September. Electricity and natural gas prices have declined significantly, and fuel prices will likely pull inflation down as well. In Norway, inflation surprised to the upside once again in September. We reckon that inflationary pressures are still relatively strong as the economy continues to run above potential and firms are passing on large parts of their cost increases to customers.

On the central bank front, we have a bunch of policymakers both from the ECB and the Fed on the wires.

The 60 second overview

US politics: President Biden is said to announce his candidacy for the 2024 presidential election early next year. At the time of writing, the US mid-term elections are still undecided. The republicans have 206 seats of 218 needed for a majority in the House and leads for another 14. As regards the Senate, it's a very close call as well. Both parties need to win two of three key states to win the majority.

Ukraine: Russian defence minister Shoigu ordered Russian troops to retreat from the Kherson city back to the Dnipro river, as the supply routes to the troops were difficult to sustain. This is yet an important milestone for the Ukrainians who have seen solid advancements since September.

EU fiscal: The EU Commission published a first proposal for overhauling the EU's fiscal rules, which have over the years become ever more complex, poorly understood and patchily enforced. The overarching idea of the reform proposal is to allow countries to agree on more realistic debt-reduction paths with Brussels, while creating extra space for public investment, but also tighten enforcement of the rules. In detail the blueprint foresees: (1) a 4-year individual debt reduction plan for each country (2) EU countries can request a more gradual adjustment path lasting up to 7-years if needed for investments and reforms (3) countries would need to stick to annual ceilings for net primary public expenditure or face penalties; (4) fines would be set at more realistic levels and 'reputational' sanctions enhanced; (5) if countries fail to cure excessive deficits, their EU funding could be withheld.

Equities: Equities retreated lower on Tuesday. US equities sold off sharply throughout the session: S&P500 -2.1%, Dow -2%, Nasdaq -2.5% and Russell 2000 -2.7%. Huge sector dispersion with energy underperforming utilities by 4p.p. Growth cyclicals led the declines, but note that value cyclicals sold off sharply too. In other words, it was a risk-off session and not just positioning ahead of the CPI figure. VIX broke the downward decline and rose for a second day. US futures are slightly higher today.

FI: European rates staged a significant rally late in the afternoon amid geopolitical headlines of Russia leaving the Kherson region. While it is difficult to see such headline explaining the entire move there was no other market moving headlines that initialled the 10y German yield's gradual decline of 10bp into the close. Spreads were virtually unchanged on the day, in a bullish flattening move. After the European close, the 10y US supply was not well received and 10y UST jumped 5bp. ECB market pricing now points to more likelihood of a 75bp rate hike in December.

FX: The setback to risk and not least the sharp drop in energy prices took its toll on NOK in yesterday's session with EUR/NOK spiking back above 10.40. Some commentators indicate the large reversal in US equities (SPX -2% on the day) was also affected by a major sell-off in cryptocurrencies.

Credit: Credit markets were a little soft yesterday following two positive trading days. iTraxx Main was 2bp wider to 107.2bp while iTraxx Crossover was 7.5bp wider to 523.1bp. The new issue activity across the Eurobond market is still high, underpinned by Credit Suisse raising EUR3bn of new debt that was heavily oversubscribed.

Nordic macro

In Norway, inflation surprised to the upside once again in September, and we reckon that inflationary pressures are still relatively strong. The economy is still running above potential, and firms are passing on large parts of their cost increases to customers, as is being seen in supermarkets. Much of the remaining retail trade, on the other hand, is battling with much weaker demand and abnormally high stock levels. We reckon that core inflation will rise to 5.4% y/y, well below consensus of 5.6 %.

Daily Pivots: (S1) 0.6390; (P) 0.6456; (R1) 0.6497; More...

AUD/USD is retreating further away from 0.6550 and intraday bias stays neutral first. Above 0.6550 will resume the corrective rise from 0.6169 towards 0.6680 support turned resistance. On the downside, though, break of 0.6271 support will indicate that the corrective rise has completed, after rejection by 55 day EMA. Intraday bias will be back on the downside through 0.6169 low to resume larger down trend.

In the bigger picture, down trend from 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Medium term momentum remains strong and retest of 0.5506 (2020 low) cannot be ruled out. But firm break of 0.6680 will be the first sign of reversal, and bring stronger rebound back to 0.7135 resistance.

The selloff in cryptocurrencies spread to global stocks. Commodity currencies tumbled broadly following risk-off sentiment. Swiss Franc and Euro are currently the biggest winner from market sentiment, while Sterling softened notably against European peers. Dollar and Yen are mixed for now. Focuses will turn to US inflation today, which has the potential to trigger further selloff in risk markets, and help the greenback.

Technically, the decline in USD/CAD didn't really take off and it recovered after dipping to 1.3386. Sustained break of 4 hour 55 EMA (now at 1.3559) will argue that it's a failed head and shoulder top pattern. More importantly, that would suggest that correction from 1.3976 has completed, and stronger rally would be seen back to 1.3807 and above. We'll know how it goes very soon.

In Asia, Nikkei dropped -0.98%. Hong Kong HSI is down -2.17%. China Shanghai SSE is down -0.54%. Singapore Strait Times is up 0.35%. Japan 10-year JGB yield is down -0.0037 at 0.255. Overnight, DOW dropped -1.95%. S&P 500 dropped -2.08%. NASDAQ dropped -2.48%. 10-year yield rose 0.025 to 4.151.

Fed Kashkari: Any talk of a pivot is entirely premature

Minneapolis Federal Reserve Bank President Neel Kashkari said, "at the next meeting, which is mid-December, I don't know what we are going to do."

"There's a lot of talk in the public about might we raise rates by 50 basis points, might we raise rates by 75 basis points - those are certainly going to be on the table, but could it be something beyond that? It's possible too," he added.

Fed's dual mandate, price stability and maximum employment could come into tension at a certain point. However, Kashkari said, "we are a long, long, long way away from that right now, so that's why any talk of a pivot is entirely premature."

Fed Evans: There's benefits to adjusting tightening pace soon

Chicago Fed President Charles Evans said yesterday, "there's benefits to adjusting the pace (of tightening) as soon as we can."

"I'm hopeful that we're getting to a point where the dynamics for inflation turning over and returning towards our 2% objective will be put in place, if not very soon, soon, and we'll actually see it in inflation," he said.

"If you don't begin to think about adjusting the pace, taking account of lags, and you just keep increasing rates by a large amount every time you get a disappointing report," then "next thing you know, you're at a very high federal funds rate."

"I'm going to continue to be nervous that, as we go higher than that, it could be that the economy is going to face more challenges, and that that could present risks on the 'real' side, the full employment mandate," he said. "It's a risk."

BoJ Kuroda: Premature to lay out details of exit strategy

BoJ Governor Haruhiko Kuroda told the parliament, "it's premature to lay out details of an exit strategy. But one major factor of debate will be the pace of increase in the BoJ's short-term policy rate, now set at -0.1%."

"Another factor would be how to adjust its balance sheet," he said, noting that other major central banks adopted the sequence of interest rate hike first, then shrinking balance sheet.

"It's extremely important for the BOJ to underpin the economy with ultra-loose monetary policy and ensure the necessary environment is falling into place for companies to hike wages," Kuroda emphasized.

Looking ahead

ECB will publish monthly economic bulletin. But main focus will be on US CPI, while jobless claims will also be released.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6390; (P) 0.6456; (R1) 0.6497; More...

AUD/USD is retreating further away from 0.6550 and intraday bias stays neutral first. Above 0.6550 will resume the corrective rise from 0.6169 towards 0.6680 support turned resistance. On the downside, though, break of 0.6271 support will indicate that the corrective rise has completed, after rejection by 55 day EMA. Intraday bias will be back on the downside through 0.6169 low to resume larger down trend.

In the bigger picture, down trend from 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Medium term momentum remains strong and retest of 0.5506 (2020 low) cannot be ruled out. But firm break of 0.6680 will be the first sign of reversal, and bring stronger rebound back to 0.7135 resistance.

Economic Indicators Update