•Fed holds a meeting “under expedited procedures” The Fed announced late last week that it will meet today “under expedited procedures” for a review and determination of the advance and discount rates to be charged. There have been other Monday meetings previously and this could well be just part of the decision making process and not necessarily a major market moving event. However, given that we are just few weeks before the December meeting, the market remains sensitive on any speeches or releases coming from the Fed. As a result, a raise in the discount rate could send a fresh signal that the Fed is ready to begin its normalization process in December and strengthen USD further.
• Elsewhere, the US crude oil December futures that expired on Friday dipped sharply below 40 on concerns over global supply surplus. Venezuela's oil minister said on Sunday that OPEC cannot allow an oil price war and must take action to stabilize the crude market soon. In a question on how low oil prices could go in 2016 if OPEC doesn't change its policy, he said: "Mid-20s." With the dollar index poised to move higher given Fed rate hike expectations, we see more risks to the downside than up for oil prices.
• Today is a PMI day: During the European trading day, we get the preliminary manufacturing and service-sector PMI data for November from several European countries and the Eurozone as a whole. All the indices are forecast to have declined with the only exception being the French manufacturing PMI, where expectations are for a slight increase. A decline in most preliminary PMI indices could hurt the bloc’s common currency and could be the trigger for the next leg down on EUR/USD.
• The US preliminary Markit manufacturing PMI for the same month is also coming out. We expect the market reaction to be limited on this release as the market generally pays more attention to the ISM manufacturing index, which is to be released on the 1st of December. Existing home sales for October are also coming out and expectations are for a decline. However, housing starts and building permits for the same month came out relatively strong, confirming the overall strength of the housing sector. Therefore, I would not expect a modest fall in existing home sales to weigh much on USD.
• We have one speaker on Monday’s agenda: ECB Governing Council member Jens Weidmann.
• As for the rest of the week, on Tuesday, the German Ifo survey for November is being released. Expectations are for all three indices to decline. However, both the ZEW indices have recovered as the effects of the Volkswagen (OTC:VLKPY) scandal started to fade away and therefore, we may see a positive surprise in the Ifo indices as well. We also get Germany’s final GDP data for Q3 and expectations are for the growth rate to confirm the initial estimate. As a result, the market reaction could be muted at this release.
• From the US, we get the 2nd estimate of the Q3 GDP. The forecast is for the growth rate to be revised up to +2.0% qoq from +1.5% qoq. Although this will still point to a slowdown compared to the astonishing print of 3.9% qoq in Q2, given the positive data coming out from the US, we still believe that the economic recovery remains on track. After all, these encouraging data are one of the main reasons the Fed is considering December as an appropriate time for a Fed fund rate hike.
• On Wednesday, we get the US durable goods orders for October. Surprisingly, after falling or stagnating for two consecutive months, both figures are expected to have increased. The headline figure is forecast to have risen 1.5% mom, a turnaround from -1.2% mom in September, while durable goods excluding transportation equipment are estimated to be up 0.3% mom, a rebound from -0.3% mom previously. The focus is usually on the core figure, where a possible improvement could boost the greenback.
• The US personal income and personal spending for October are also being released. Both are expected to have risen at a faster pace than in September. Improvement in consumption for the first month of the year’s final quarter could be a sign for a rebound in the US growth rate following the slowdown in Q3. This could add to the growing body of evidence that the US economy is gaining momentum and may support USD. The yoy rates of the PCE deflator and core PCE for October are also coming out.
• On Thursday, we have a relatively light calendar day with no major indicators or events on the schedule.
• Finally on Friday, the main event will be the 2nd estimate of the UK’s Q3 GDP. The forecast is for the revision to confirm the first estimate. The slowdown from Q2 shown in the first estimate was primarily driven by weakness in the construction and the manufacturing sectors. However, unlike the first estimate, here we will get details on the expenditure subcomponents, which we expect to show that growth was mainly driven by domestic demand, especially private consumption. The employment report for September showed strong accelerating wages which may have boosted consumption more than expected. Therefore, I see the possibility for an upward revision, something that could strengthen the pound.
The Market
EUR/USD falls below 1.0630
• EUR/USD traded lower on Friday, breaking below the support (now turned into resistance) hurdle of 1.0630 (R1). That move confirmed a forthcoming lower low on the 4-hour chart, something that keeps the short-term bias negative in my view. I would expect the bearish move to continue and perhaps challenge the 1.0570 (S1) zone, defined by the low of the 15th of April. Our momentum studies reveal downside speed and support that EUR/USD is poised to continue trading lower. The RSI fell below its 50 line and is now headed towards its 30 line, while the MACD, already negative, has topped and fallen below its trigger line. In the bigger picture, as long as the pair is trading below 1.0800, the lower bound of the range it had been trading since the last days of April, I would consider the longer-term outlook to stay negative. I would treat any rebound or any possible extensions in the next few days a corrective move before sellers decide to shoot again. • Support: 1.0570 (S1), 1.0530 (S2), 1.0500 (S3) • Resistance: 1.0630 (R1), 1.0710 (R2), 1.0760 (R3)
EUR/GBP trades in a consolidative manner
• EUR/GBP traded in a consolidative manner on Friday, staying between the support of 0.6980 (S1) and the resistance of 0.7025 (R1). As a result I would consider the intraday bias to be neutral for now. A clear move below 0.6980 (S1) is needed to confirm a forthcoming lower low on the 4-hour chart and signal the resumption of the prevailing downtrend. Such a move is likely to set the stage for extensions towards our next support obstacle of 0.6950 (S2). Our momentum studies give evidence that we are likely to experience that break soon. The RSI hit twice resistance near its 50 line and edged down, while the MACD, already negative, has topped and looks able to move below its trigger line. Switching to the daily chart, I see that the dip below the 0.7200 hurdle on the 28th of October has confirmed the negative divergence between the daily oscillators and the price action, and has also turned the longer-term outlook back negative. This increases the possibilities for EUR/GBP to continue trading lower in the not-too-distant future. • Support: 0.6980 (S1), 0.6950 (S2), 0.6920 (S3) • Resistance: 0.7025 (R1), 0.7070 (R2), 0.7100 (R3)
USD/JPY moves back above 123.00
• USD/JPY found support at 122.70 (S2) on Friday and then it rebounded to emerge back above the 123.00 (S1) level. Today, during the early European morning, the rate is trying to break above the 123.20 (R1) line, where a break is likely to open the way for the next resistance of 123.75 (R2), marked by the peak of the 18th of November. Our momentum studies support somewhat the notion. The RSI emerged back above its 50 line, while the MACD, although negative, has bottomed and looks able to move above both its trigger and zero lines any time soon. Nevertheless, there is still negative divergence between these indicators and the price action, something that keeps alive the risk for a downside corrective move. As for the broader trend, the break above 121.60 signaled the upside exit of the sideways range the pair had been trading since the last days of August and turned the longer-term picture back positive. This supports that USD/JPY could continue higher in the not-too-distant future and thus, I would treat any possible future near-term declines that stay limited above that area as a corrective phase of that longer-term uptrend. • Support: 123.00 (S1), 122.70 (S2), 122.35 (S3) • Resistance: 123.20 (R1), 123.75 (R2), 124.00 (R3)
Gold hits resistance at 1088 and slides
• Gold tumbled on Friday, after it hit resistance near the 1088 (R2) hurdle. Subsequently, the metal fell below the 1073 (R1) line and now looks to be headed towards the key support zone of 1065 (S1). The short-term trend remains negative in my view. The metal still trades within a short-term downside channel that has been containing the price action since the 4th of November. As a result, I would expect a clear move below 1065 (S1) to open the way for our next support hurdle of 1055 (S2). Looking at our short-term oscillators, I see that the RSI crossed below its 50 line, while the MACD, already negative, has topped and fallen below its trigger line. These signs show negative momentum and amplify the case for further near-term declines. On the daily chart, I see that the plunge below the upside support line taken from the low of the 20th of July has shifted the medium-term outlook to the downside. As a result, I believe that the metal is poised to continue its down road in the foreseeable future. • Support: 1065 (S1), 1055 (S2), 1050 (S3) • Resistance: 1073 (R1), 1088 (R2), 1098 (R3)
DAX futures look ready to pull back
• DAX futures traded in a consolidative manner on Friday, staying between the support of 11060 (S1) and the resistance of 11160 (R1). A clear move above 11160 (R1) is likely to open the way for the next resistance of 11260 (R2). Although I still see a positive near-term picture, I see the likelihood of a setback before the bulls decide to take the reins again. A dip below 11060 (S1) is possible to confirm the case and could initially aim for the 10970 (S2) zone. Our short-term oscillators support the notion as well. The RSI edged lower after it hit resistance near its 70 line, while the MACD, although positive, has topped and could fall below its trigger line. There is also negative divergence between the RSI and the price action. On the daily chart, the break above the psychological zone of 10500 on the 22nd of October signalled the completion of a double bottom formation. What is more, the rebound on the 16th of November from that psychological area adds to my view that the medium-term path remains positive and that the retreat started on the 6th of November was just a corrective phase. • Support: 11060 (S1), 10970 (S2), 10870 (S3) • Resistance: 11160 (R1), 11260 (R2), 11420 (R3)
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
