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Daily Pivots: (S1) 113.22; (P) 113.52; (R1) 113.75; More...

Intraday bias in USD/JPY remains neutral at this point. On the downside, sustained break of 112.71 will argue that it's already correcting whole rise from 102.58. Deeper fall would be seen to 38.2% retracement of 102.58 to 115.51 at 110.57. On the upside, break of 113.94 minor resistance will turn bias back to the upside for retesting 115.51 high instead.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high) on resumption. However, firm break of 109.11 structural support will argue that the trend might have reversed and bring deeper fall to 107.47 support and possibly below.

Daily Pivots: (S1) 1.3153; (P) 1.3207; (R1) 1.3248; More...

Intraday bias in GBP/USD stays neutral as it's still defending 1.3164 medium term fibonacci level. Sustained break there will carry larger bearish implication, and target 161.8% projection of 1.4248 to 1.3570 from 1.3833 at 1.2736. On the upside, though, break of 1.3351 support turned resistance will indicate short term bottoming, and turn bias back to the upside for 1.3512 resistance next.

In the bigger picture, immediate focus is now on 38.2% retracement of 1.1409 to 1.4248 at 1.3164. Sustained break there will argue that whole rise from 1.1409 has completed at 1.4248, ahead rejection by 1.4376 long term resistance. That will revive some medium term bearishness and and target 61.8% retracement at 1.2493.

Technical analysis

The RSI is at the oversold zone.

The Stochastics is below level 50.

Most likely scenario – SELL

Target prices: 1,768.64 1,766.80

Alternative scenario – BUY

Target prices: 1,777.63 1,780.58

Key levels

Support 1,768.64 1,766.80

Resistance 1,777.63 1,780.58

It may be a challenging day with the US inflation data looming, but I will start with this: JP Morgan research says that ‘2022 will be the year of a FULL global recovery, an end of the global pandemic, and a return to normal conditions we had prior to the Covid-19 outbreak’. That’s optimistic! It sounds like the end of a fairy tale where they lived happily ever after, married, and had plenty of children. But the chances are, we will see the new strains, though less deadly, continue weighing on the economic recovery and the central banks will have a less extensive set of options to deal with it.

The major event of the week is today’s US inflation data. Consolidation and profit-taking are in play across the US markets. The Dow Jones ended Thursday’s session flat, but the S&P500 lost 0.72% and Nasdaq dropped 1.71%.

Plus, the mood in Asian session was sourish, as Evergrande has officially been labeled as a defaulter. The news came as no shocker and the losses in the Asian session were moderate. Investors expect the People’s Bank of China to take all precautions to avoid a broader shockwave to other sectors. And a monetary boost from the PBoC is soothing news given that the Fed will not come with Xmas gifts when it meets next week: the expectation is the announcement of a faster QE taper to tame the rising inflation. But how fast the US will get the QE program done will depend on how bad the inflation got.

Inflation is the new NFP

Today’s data is important, as the US inflation data is the new NFP. It is what will influence the Fed expectations for the next couple of months.

The US consumer inflation may have accelerated to 6.7% last month. If this is the case, it would be the highest level since the beginning of the ‘80s. And given that the recovery in the US labour market has progressed well with the latest unemployment rate showing an improvement to 4.2%, the Fed will do what it’s got to do to deal with the rising US inflation: tighten the policy.

Nonetheless, it feels like the inflationary pressures are now approaching a cycle peak, and that there is a chance that we see a softer than expected number as soon as at today’s read. If nothing, US crude tank almost 30% last month.

If we see softer-than-expected inflation data, the equity markets should close the week in quite a cheerful mood. If, however, we see a stronger number, than the Fed hawks will have little pity, and the early-week gains could melt like snow in the sun.

Market movers today

• All eyes will be on US inflation for November. Core CPI surprised to the upside in October rising 0.6% m/m adding to inflation concerns. Consensus for November is 0.5% m/m on core CPI so another high print is built into expectations. The average of the past three months has been 0.3% m/m. On headline, CPI consensus looks for a rise to 6.8% y/y, which would be the highest inflation rate since 1982.
• We also get inflation in Norway, where we look for a rise in core inflation to 1.2% y/y in November from 0.9% y/y in October (in line with consensus), see more below.

The 60 second overview

The main event today is the US CPI data, where headline CPI is expected to increase to 6.8% y/y in November and core CPI is expected at 4.8% y/y. The comments from Fed Chairman Powell that inflation may not be as transitory as the Federal Reserve thought highlight the risk ahead of the FOMC meeting next week. The 30Y US Treasury auction also saw a modest demand at yesterday's auction, where the bid-to-cover was 2.2, which is in the lower part of the range seen over the last five years.

However, on the other hand we have new variant of the coronavirus and the uncertainty regarding the efficiency of the vaccines as well as the uncertainty in the Chinese property sector where Evergrande and Kaisa real estate companies officially defaulted on their dollar debt. This has led to losses in Asian equity markets this morning across the region.

Equities: Equities fluctuated from gains to losses yesterday before ending close to day low for most indices. Underlying rotation very much risk-off alike with defensives outperforming cyclical, large-cap outperforming small and low vol stocks doing good. Consumer staples and health care the only two sectors higher while consumer discretionary and tech leading the sell-off. In the US; Dow 0.00%, S&P 500 -0.7%, Nasdaq -1.7% and Russell 2000 -2.3%. The negative sentiment continues this morning in Asia with all major indices lower. European futures also lower this morning while US futures are flat.

FI: There was a decent rally in the European fixed income markets yesterday driven by the 5Y to 10Y segments with German government bond yields declining some 4-5bp in the 10Y segment. 10Y Treasuries range-traded around the 1.5% level ahead of the US CPI data that will be released today.

FX: JPY, USD, GBP were top movers in G10 yesterday, where the NOK rebound also came to a halt. EUR/USD dropped back below 1.13 again, while EUR/NOK bounced above 10.10.

Credit: CDS indices performed decently yesterday while cash bonds were more stable. iTraxx Xover tightened 2bp (to 262bp) and Main 0.5bp (to 52.8bp). HY bonds closed 1bp wider and IG was unchanged.

Nordic macro

Denmark. We expect November CPI inflation increased further to 3.2% as energy prices have continued to increase. We expect fuel and natural gas prices in particular will pull inflation higher, driven by a stronger dollar. Some district heating plants have announced price increases as well but usually, the bulk of it hits prices in January. The underlying price pressure has remained modest so far but we see businesses screaming for labour and supplies and thus it will be very interesting to see whether we finally begin to see core consumer prices move higher as well, like we have seen recently in the euro area. There is also an upside risk from the global surge in food prices over the summer, which has had limited impact on Danish food prices this far.

Norway. Inflation has slowed considerably since summer last year, driven by a stronger NOK and base effects. We believe that (core) inflation will now bottom out as both of these drivers fade or reverse. In line with consensus, we, therefore, expect core inflation to climb from 0.9% y/y in October to 1.2% y/y in November. The risk is increasing to the upside, because the strong growth in commodity and energy prices and freight costs will probably also push up consumer prices in Norway at some point.

General trend

• Will China announce additional FX measures?
• USD index trades slightly lower.
• South Korea 3-yr yields continued to decline amid recent BOK comments on omicron.
• Japan’s PPI remained at 1981 highs.
• US equity FUTS have remained slightly higher in Asia.
• Oracle rose >10% after results/guidance; Musk continues to sell Tesla shares.
• Japan Ruling Parties expected to complete tax plan by Dec 10th (Fri).
• Japan Q4 Tankan survey is due on Dec 13th (Mon).
• China is due to hold its Central Economic Work Conference later in mid-December.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.4%.
• (NZ) New Zealand Nov Total Card Spending M/M: 9.1% v 9.5% prior; Retail Card Spending M/M: 9.6% v 10.1% prior.
• (NZ) New Zealand Nov Manufacturing PMI: 50.6 v 54.3 prior (3rd month of expansion.

Japan

• Nikkei 225 opened -0.6%.
• (JP) Bank of Japan (BOJ) announced review of the benchmark ratio used to calculate the macro add-on balance in current account balances at the BOJ to which a zero interest rate is applied: set the ratio at 10.0% (prior 9.0%) for the Dec reserve maintenance period.
• (JP) Japan Nov PPI (CGPI) M/M: 0.6% v 0.4%e; Y/Y: 9.0% v 8.5%e [Highest since comparable data began in Jan 1981].
• (JP) Bank of Japan (BOJ) Official: Steelmakers voicing optimism that production will rebound during Dec, but still concerned on uncertainty of omicron.
• (JP) Japan PM Kishida: Restart of travel subsidies dependent on coronavirus situation.

Korea

• Kospi opened -0.6%.
• (KR) South Korea to shorten the interval related to 3rd COVID shots to 3 months - South Korea press.
• (KR) South Korea sells KRW350B in 50-year bonds: Avg Yield: 2.220% v 2.320% prior.

China/Hong Kong

• Hang Seng Opened -0.8%; Shanghai Composite Opened -0.5%.
• (CN) China PBOC raises Forex RRR by 200bps to 9.00%; Effective from Dec 15th - press.
• (CN) State of China CNY appreciation will gradually recede, Will stabilize around equilibrium level - State Media Front Page.
• (CN) China PBOC Open Market Operation (OMO): Sells CNY10B in 7-day reverse repos v CNY10B prior; Net CNY0B v Net CNY0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.3702 v 6.3498 prior (Expected at 6.3499).
• (CN) Nicaragua Foreign Min statement: There is 'only one China'; We break diplomatic relations with Taiwan as of today to recognize China.
• (CN) China Banking and Insurance Regulator (CBIRC): Releases draft rules on Insurance Asset management aimed at improving management and prevention of financial risks.
• (CN) CICC: China PBOC may launch additional FX intervention measures, may reintroduce the counter-cyclical factor in setting the daily reference rate for the yuan (CNY), might also seek to slow capital inflows - US financial press.
• (CN) China Sensetime discussing options of $767M Hong Kong IPO due to blacklist in US.
• 981.HK [SMIC] Said that the US is considering banning key exports to China chipmaker SMIC - Press.
• (CN) China NAFMII (Interbank Bond Regulator) has held meeting with real estate developers - China media.

North America

• (US) US Senator Wyden (D-OR) said the billionaires tax has not been included in the Finance Committee's text; Separate report said Democrats will remove the vaping tax from the Senate plan amid negotiations related to the details of the bill.
• (US) Senate has votes to pass fast track plan on raising the debt ceiling; the final vote was 59 to 35; President Biden is now expected to sign the measure.
• (US) Senate Majority Leader Schumer (D-NY): Debt limit increase will be passed before Dec 15th.
• (US) INITIAL JOBLESS CLAIMS: 184K V 220KE (lowest since 1969); CONTINUING CLAIMS: 1.99M V 1.91ME.
• (US) Q3 FINANCIAL ACCOUNT HOUSEHOLD CHANGE IN NET WORTH: $2.362T V $5.849T PRIOR.

Europe

• (EU) Reportedly EU countries expecting to agree on 9-month COVID-19 travel pass - press.
• (PH) Philippines bans incoming travelers from Portugal to prevent spread of omicron variant.
• (RU) Russia Central Bank (CBR) Gov Nabiullina: It is unlikely the bank will hold the key rate or raise it by just 25bps on Dec 17th.

Levels as of 00:20 ET

• Nikkei 225, -0.7%, ASX 200 -0.4% , Hang Seng -0.7%; Shanghai Composite -0.2% ; Kospi -0.8%.
• Equity S&P500 Futures: flat; Nasdaq100 +0.1%, Dax -0.1%; FTSE100 -0.3%.
• EUR 1.1301-1.1287 ; JPY 113.57-113.33 ; AUD 0.7163-0.7131 ;NZD 0.6808-0.6781.
• Gold +0.1% at $1,778/oz; Crude Oil -0.3% at $70.75/brl; Copper -0.1% at $4.3117/lb.

Daily Pivots: (S1) 1.1265; (P) 1.1306; (R1) 1.1333; More...

Range trading continues in EUR/USD and intraday bias remains neutral. Downside breakout is mildly in favor with 1.1382 minor resistance intact. On the downside, break of 1.1185 will resume larger fall from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934. On the upside, however, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1462).

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

The markets generally turn quiet in Asian session as markets are look forward to consumer inflation data from US. Before that UK GDP will also be a major focus. Commodity currencies, in particular Canadian Dollar, are losing much upside momentum even though they're still the strongest ones. Yen's earlier selloff also lost steam while Dollar is stabilizing. European majors are mixed with Sterling recovering some losses. We'll see how today's data would prompt the next move.

Technically, it should be about time for EUR/USD and USD/JPY to break out from their near term range. To be specific, we're taking about 1.1185/1.1382 in EUR/USD and 112.52/113.94 in USD/JPY. We're prefer to see synchronized breakout in both pairs to confirm that Dollar is taking a direction.

In Asia, at the time of writing, Nikkei is down -0.53%. Hong Kong HSI is down -0.55%. China Shanghai SSE is down -0.14%. Singapore Strait Times is down -0.22%. Japan 10-year JGB yield is up 0.0053 at 0.056. Overnight DOW closed flat. S&P 500 dropped -0.72%. NASDAQ dropped -1.71%. 10-year yield dropped -0.022 to 1.487.

BoC Gravelle: Supply chain disruptions remains an important upside risk

BoC Deputy Governor Toni Gravelle said in a speech that in the near term, Omicron triggered a sharp drop in oil prices. But further out, "given its potential to restrain the transition to more balanced consumption patterns between goods and services, it could exacerbate upward price pressure on the goods that are experiencing supply constraints."

"Supply chain disruptions and related cost pressures continue to be an important upside risk," he added. BoC will "conduct a full assessment of this risk in January when we update our projection for the economy and inflation."

New Zealand BusinessNZ manufacturing dropped to 50.6, soft growth and rising inflation

New Zealand BusinessNZ Performance of Manufacturing index dropped from 54.3 to 50.6 in November. Looking at some details, production dropped from 53.2 to 52.2. Employment dropped from 51.7 to 48.2. New orders rose from 54.2 to 54.7. Finished stocks dropped from 54.6 to 48.3. Deliveries dropped from 59.9 to 42.9.

BNZ Senior Economist, Doug Steel stated that "the PMI implications for economic (and employment) growth seem clear – soft.  But with obvious difficulties remaining on the supply side, we'd suggest that inflation is still rising."

Looking ahead

UK GDP, production and trade balance are the main focuses in European session. Germany will release CPI final. Later in the day, US CPI will take center stage while U of Michigan consumer sentiment will also be released.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1265; (P) 1.1306; (R1) 1.1333; More...

Range trading continues in EUR/USD and intraday bias remains neutral. Downside breakout is mildly in favor with 1.1382 minor resistance intact. On the downside, break of 1.1185 will resume larger fall from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934. On the upside, however, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1462).

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Economic Indicators Update

New Zealand BusinessNZ Performance of Manufacturing index dropped from 54.3 to 50.6 in November. Looking at some details, production dropped from 53.2 to 52.2. Employment dropped from 51.7 to 48.2. New orders rose from 54.2 to 54.7. Finished stocks dropped from 54.6 to 48.3. Deliveries dropped from 59.9 to 42.9.

BNZ Senior Economist, Doug Steel stated that "the PMI implications for economic (and employment) growth seem clear – soft.  But with obvious difficulties remaining on the supply side, we'd suggest that inflation is still rising."

Full release here.

BoC Deputy Governor Toni Gravelle said in a speech that in the near term, Omicron triggered a sharp drop in oil prices. But further out, "given its potential to restrain the transition to more balanced consumption patterns between goods and services, it could exacerbate upward price pressure on the goods that are experiencing supply constraints."

"Supply chain disruptions and related cost pressures continue to be an important upside risk," he added. BoC will "conduct a full assessment of this risk in January when we update our projection for the economy and inflation."

Full speech here.