London Forex Report: Central Banks Pre-Christmas Catalyst

London Forex Report: Central Banks Pre-Christmas Catalyst

London Forex Report: Risk appetite stayed buoyant with Wall Street major indices clocking record highs prints last week (ex-Nasdaq given the recent tech sell-off). Regardless, as we approach the end-year, do expect trading volumes to taper off, often supporting a drift higher known as the Santa Claus rally. Risk-taking spirits were likely led by news that the UK and EU had reached an agreement on the first part of the Brexit process, with May and Juncker agreeing to a deal that secured rights for four million citizens while the UK is to make payments of between €40bn and €60bn as part of the divorce bill. Market-watchers will wake up to a set of very strong Chinese centric trade data, led especially by strong import growth of copper, crude & processed oils and agriculture, suggesting that trade activities continue to stayed strong into year-end. Watch out for an eventful week ahead, with FOMC, BOE and ECB meeting in the later part of the week. Note that market-watchers are pricing in a rate hike in the upcoming FOMC meeting, with the implied rate hike probability at 98.3%.

NORTH AMERICA US nonfarm payrolls indicate continued robustness in jobs growth while other data suggest that outlook remains firm. There were 221k jobs added in Nov, more than the expected 195k though down from 247k in Oct. The Oct figure was also downwardly revised from 261k. Unemployment and participation rates did not budge in Nov, staying at 4.1% and 62.7% respectively. Inflation outlook improved albeit slightly as average hourly earnings grew quicker in Nov by 2.5%, up from 2.3% previously. However, consumer sentiment softened as indicated by University of Michigan’s survey; the corresponding index dipped to 96.8 in Dec estimate, down from 98.5

EUROPE UK churned out several data upsides last Friday, suggesting that growth prospect remains steady despite Brexit uncertainties. Industrial production accelerated in Oct, rising 3.6% YoY from 2.5% in Sept and beating estimates of 3.5% gain. Output at factories also picked up pace, gaining 3.9% in Oct from 2.7%. Output in the construction sector however, disappointed with a 0.2% dip in Oct after growing 1.1% previously. Economic growth remains steady; NIESR estimated that GDP expanded 0.5% QoQ in the 3 months ended Nov. Meanwhile, the visible trade deficit widened to £10.78bn in Oct, up from a shortfall of £10.45bn in Nov

ASIA After a better than expected 3Q GDP, Eco Watchers surveys reiterated a positive outlook in Japan. Respondents opine that current conditions have improved, lifted the corresponding index from 52.2 to 55.1 in Nov, highest since Jan 2014. The outlook index dipped to 53.8, a nonetheless strong level from 54.9, the highest since Dec 2013

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – Sustained push sub 1.1770 suggests further weakness to test critical 1.17 a reversal here encourages another run at 1.20, failure opens 1.16

1-3 Week View – 1.2130 the next upside objective. Weekly close below 1.16 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Neutral
Trading Take-away: Neutral

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – 1.3460 achieved, through here opens prior cycle highs at 1.3650 near term support sited at 1.3340 only below 1.3230 concerns bullish bias

1-3 Week View – 1.3263 achieved as this acts as support 1.3836 is the next upside objective only a close back below 1.30 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Near term resistance moves to 113.30/60, a breach of this level opens 114.70, below 11.73 opens 110.85 retest.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bearish
Trading Take-away: Long

EURJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Retest of 134 range resistance persists a closing breach opens 136 as the primary upside objective. Only failure below 130.66 concerns bullish bias and opens pivotal 127.50.

1-3 Week View – 136.10 is the principle upside objective as this area caps the current advance expect a retest of 131.50 to set a base for the next leg higher, a closing breach of 131 concerns the bullish basis.
Retail Sentiment: Bearish
Trading Take-away: Long

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