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The euro bounced higher after the bloc’s Q3 GDP beat expectations. A previous rebound was capped by the 20-day moving average, suggesting that the bearish sentiment still prevails.

The RSI’s double top in the overbought area has prompted short-term buyers to take profit. The pair has met support above 1.1240. The bulls will need to lift offers around 1.1330 before they could attract momentum buyers.

A bearish breakout would send the price to the floor at 1.1190. Its breach would trigger a new round of sell-off.

Technical analysis

The RSI is below level 50.

The Stochastics is below level 50.

Most likely scenario – SELL

Target prices: 1,782.13 1,778.11

Alternative scenario – BUY

Target prices: 1,791.63 1,795.16

Key levels

Support 1,782.13 1,778.11

Resistance 1,791.63 1,795.16

Daily Pivots: (S1) 149.62; (P) 150.54; (R1) 150.96; More...

Intraday bias in GBP/JPY remains neutral for consolidation above 148.94 temporary low. On the downside, firm break of 148.93 key structural support will carry larger bearish implications. Next target is 161.8% projection of 158.19 to 152.35 from 154.70 at 145.25. On the upside, however, break of 152.35 support turned resistance will argue that the pull back from 158.19 is complete. Intraday bias will be turned back to the upside for retesting 158.19 high.

In the bigger picture, the break of medium term channel support, and bearish divergence condition in week MACD are raising the chance of medium term topping at 158.19. Firm break of 148.93 support will argue that GBP/JPY is at least correcting the whole rise from 123.94 (2020 low). In this case, deeper fall would be seen to 38.2% retracement of 123.94 to 158.19 at 145.10. Nevertheless, strong rebound from 148.93 will retain medium term bullishness for another rise through 158.19 at a later stage.

Daily Pivots: (S1) 127.56; (P) 128.02; (R1) 128.42; More....

Range trading continues in EUR/JPY and intraday bias remains neutral for the moment. On the upside, break of 128.77 will indicate short term bottoming and bring stronger rebound to 55 day EMA (now at 129.73). On the downside, below 127.36 will target 126.58 medium term fibonacci level. We'd look for some support from there to bring rebound. But sustained break of 126.58 will carry larger bearish implications.

In the bigger picture, as long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of medium term bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.

Markets

Equity markets were nothing but ecstatic yesterday. Lacking guidance from the economic calendar, investors simply held on to anecdotical evidence about omicron’s limited impact on public health and therefore on the economy. Both European and US shares swung 1.5-3%+ higher. Core bonds lost ground with US Treasuries hugely underperforming the German Bund. The yield curve in the US bear flattened with changes at the short end ranging from 4.9 bps (5y) to 5.9 bps (2y). A $54bn 3y auction yesterday showed mixed results with a higher bid-to-cover (benefiting from a recent sharp yield increase) but increased primary dealer award at the expense of indirect award. The 3y tenor closed 5.8 bps higher. The long end of the curve (10 to 30y) added 1.9 bps to 4bps. The German bear flattened too but changes were limited to 2.5 bps (2y) to 1.3 bps (10y). The resulting US/EMU yield differential kept EUR/USD under pressure. The pair slipped to an intraday low of 1.1228 but managed to finish at 1.1267 after all. It is striking to see the euro struggle this much in such an upbeat trading session. The common currency is not at all preparing for a major shift by the ECB next week. Sterling also remained in the defensive, which was unusual as well. Central bank uncertainty may be the common factor here. Unlike in the US where Fed chair Powell downplayed the impact of omicron, both the ECB and BoE expressed more caution. This may have implications for monetary policy. EUR/GBP briefly dipped below 0.85 but in the end closed unchanged at 0.8508. A surge in commodity prices lifted the likes of the NOK, CAD, AUD and NZD.

The optimistic mood in Europe and on WS again spills over into Asian-Pacific dealings this morning. Almost a vicious cycle developed in recent days. Stocks add about 1% in a slow news day. New Zealand (+2%) outperforms. Core bonds trade somewhat higher. US yields are down 1 bp across the curve. The US dollar goes south while the euro tries to build on yesterday’s intraday turnaround. EUR/USD trades around 1.129. China’s yuan hits the strongest level since 2018 (USD/CNY 6.35) as improved growth prospects trump easier PBOC monetary policy (in theory a CNY-negative).

It’s yet again vast emptiness on today’s economic calendar. Tonight’s $36bn 10y auction is worth mentioning though. Unlike the short-to-middle end of the curve, long bond yields have not rallied as much, on the contrary. We’re keen to see if and how it impacts demand. The Bank of Canada holds its final policy meeting of the year. It has a stellar payrolls report from last Friday to take into account while assessing the potential economic impact of the omicron strain. For European and US markets, sentiment remains key. We may see a slowdown from the equity and the core bond yield boost yesterday. Since the euro recently behaves more JPY-like, we expect the EUR/USD decline to ease as well. First resistance situates near 1.135 (downward trendline connecting June-Oct lows), followed by 1.1422 (Aug 2020 correction high).

News headlines

The US House passed a bill (222-212) which sets up a procedure for raising the debt limit by a simple majority in the 50-50 split Senate instead of by the 60 votes needed now. A higher debt limit allows the government to issue new debt to pay for existing obligations. Under the deal reached by Senate majority leader Schumer and minority leader McConnell, Democrats will raise the debt limit by a dollar amount, instead of just suspending it for a certain amount of time. Democrats are still discussing the exact size with a vote scheduled in Senate on Thursday.

The Reserve Bank of India (RBI) kept its policy rate unchanged at 4% in a 5-1 vote. The monetary policy committee still prefers to err on the side of caution given the slack in the economy. Private consumption remains below its pre-pandemic level with the omicron variant threatening to delay a durable and broad-based recovery. The RBI expects the Indian economy to grow by 9.5% in the year ending in March with an inflation forecast of 5.3% for the full year. The RBI uses a 4% inflation target with a 2% tolerance band. USD/INR stands its ground near this year’s highs around 75.65.

Daily Pivots: (S1) 0.8494; (P) 0.8505; (R1) 0.8520; More...

Intraday bias in EUR/GBP remains neutral at this point as range trading continues. On the upside, above 0.8549 temporary top will target 0.8593 structural resistance. Sustained break there will be the first sign of larger bullish reversal and target 0.8656 resistance next. On the downside, break of 0.8487 minor support will turn bias back to the downside for 0.8379 low instead.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8593 resistance holds, towards long term support at 0.8276. We'd look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8593 will now be an early sign of medium term bottoming. Further break of 0.8656 will pave the way to 38.2% retracement of 0.9499 to 0.8379 at 0.8807.

Nasdaq soared 3% on Tuesday, the S&P500 gained 2% and the Dow, which was benefiting from a reflation divergence over the past couple of days added another 1.40%.

The major catalyzers are obviously the fading worries that the omicron strain will be another tough hit on the economies, plus the announcement that Glaxo’s antibody treatment is effective against the full combination of omicron mutations, that the US passed legislation to pave the way for a debt ceiling increase and the Senate will be able to raise the debt ceiling on a simple majority vote avoiding a Republican opposition, that the Chinese Evergrande’s almost certain fall shouldn’t send a shock wave to shake the broader market, and that the Federal Reserve’s (Fed) hawkish shift has certainly been digested and priced in by now. Those who have reduced risk over the past weeks are now looking to come back on the idea that even with a faster QE tapering in the Q1 of next year, the Fed will be easing the market conditions.

In summary, the news is not all rosy, but the perception is very optimistic, and that supports the back-to-back strong gains. In theory, such strong gains are sign of instability and should be taken with caution, however, the good news is that the volatility is easing, and the VIX index dropped 20% yesterday, meaning that the latest fears could slowly begin fading. Yet, the US inflation data due Friday remains an important threat to the market mood and could encourage some consolidation and perhaps some profit-taking into the critical data.

Oil: Risks tilted to the upside

The strong risk rally, the easing omicron worries, and the news that the air travel is doing fine despite the virus concerns are giving a boost to oil prices. US crude consolidates above the $70 pb, and the rising tensions around the Russian and Ukrainian border threaten the good relationship with Russia.

Also, the US will push Germany to agree to stop the contested Nord Stream 2 gas pipeline if Russia invades Ukraine. We see no particular stress on natural gas prices for now, but if we start seeing so, that could be a positive catalyzer for oil prices as well.

On the data front, the latest API data showed that the US crude inventories fell more than 3 million barrels last week, which is also adding a positive pressure on crude. The more official EIA data is due today, the expectation is a 1.5-million-barrel decline, and a bigger decline should add to the positive pressure on crude prices. Therefore, risks in energy prices remain tilted to the upside, for both positive demand, and potentially tighter supply perspectives.

Bitcoin, timid

Interestingly, the actual positive mood doesn’t fully reflect in cryptocurrencies. I believe that’s because the latest 20% dive has wiped out a good amount of leveraged positions and it will take a bit more time to restore the risk appetite. But Bitcoin is consolidating above the $50K mark, and the downside risks have reduced after a large amount of leverage positions have been cleared.

EUR/USD

Current level - 1.1288

The situation with the currency pair remains unchanged as the downward movement during yesterday's session was limited above the support zone at 1.1200. At the time of writing, the single European currency continues to rise in value against the U.S. dollar, with the most likely scenario remaining for a test of the resistance at 1.1300. However, the market sentiment remains neutral for the moment and the movement of the currency pair is very likely to remain bound within the range of 1.1260 - 1.1360. There is no planned economic news today that would affect investors’ sentiment.

USD/JPY

Current level - 113.45

The U.S. dollar managed to recover some of its recent losses against the Japanese yen, but in yesterday's session, the bears limited the appreciation below the 113.80 resistance level. It is possible that we will witness a range move in the range between 112.75 - 113.80. The data on the gross domestic product for Japan failed to stir any significant action on the market and investors are now turning their attention towards the announcement of the data on the consumer price index for the U.S. (Friday; 13:30 GMT).

GBP/USD

Current level - 1.3255

The sell-off was limited down to the support level at 1.3200, followed by a partial recovery towards the zone of the first significant resistance at 1.3296, which is projected to be the first goal for the bulls in today's session. On the other hand, if investors fail to gain enough momentum, we may witness another breach attempt of the mentioned support zone. If the second test is successful, we may expect another reduction in the price towards the next significant support areas at 1.3100 and 1.2800.

Daily Pivots: (S1) 1.5738; (P) 1.5883; (R1) 1.5974; More...

Intraday bias in EUR/AUD stays neutral first despite the sharp fall. Another rise would be mildly in favor as long as 1.5743 resistance turned support holds. Break of 1.6168 will resume the rise from 1.5354 to 1.6434 high. However, firm break of 1.5743 will indicate that such rebound is over and bring deeper fall back to 1.5250/5354 support zone.

In the bigger picture, medium term outlook is neutral for the moment. Rise from 1.5354 is seen as the third leg of the corrective pattern from 1.5250 low first. Further rise could be seen through 1.6434 towards 38.2% retracement of 1.9799 to 1.5250 at 1.6988. On the downside, however, sustained trading below 55 day EMA (now at 1.5759) will turn focus back to 1.5250 low instead.

Daily Pivots: (S1) 1.0400; (P) 1.0424; (R1) 1.0445; More....

Intraday bias in EUR/CHF remains neutral for the moment, but further fall is still expected as long as 1.0511 resistance holds. On the downside, break of 1.0365 will resume larger down trend to 161.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0200 next. Nevertheless, firm break of 1.0511 will confirm short term bottoming, and bring stronger rebound to 55 day EMA (now at 1.0577) and possibly above.

In the bigger picture, long term down trend from 1.2004 (2018 high) is now extending. Next target is 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. On the upside, break of 1.0694 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish even in case of rebound.