London Forex Report: Eyes On ECB Panel Event

London Forex Report: Eyes On ECB Panel Event

London Forex Report: With the US tax plan concerns, Brexit negotiations and a slew of central bank rhetoric from the ECB panel later today, risk-taking appetite will likely stay pressured into the event. While Wall Street prints edged marginally higher overnight, the VIX (or known as the fear index) continued to point north for its third consecutive trading day to 11.50. Regarding the tax cut proposal plans that may be voted on as early as Thursday this week, chief House tax writer Kevin Brady commented that he is confident that the chamber will have enough Republican votes to pass the legislation. Elsewhere, Brexit Secretary David Davis commented that the UK will leave the EU without consulting the parliament if the negotiations fail to reach a deal, even as UK PM Theresa May explicitly hinted at wanting to extend the Brexit date by two years to 2021. Lastly, market will listen closely especially from US Fed Chair Yellen at the ECB panel today, where any hints on her staying on after stepping down as Fed Chair on Feb 2018 will likely be market-moving.

NORTH AMERICA The US yield curve conundrum continued as the 10 year vs 2 year US Treasuries yield spread remained flat. This after 2 year US Treasury yield rose further to 1.68%, while 10 year US Treasury yield remained relatively static at 2.40%. Consequently, the 10 year vs 2 year US Treasuries yield spread was soft at just above 70 bps, having fallen from its high of 130 bps at the start of the year. The ongoing flattening of the US yield curve has raised concerns that the US economy will go through a rough patch next year, as curve flattening historically precedes periods of weak growth or even recession. Others argue that this time round is different as front end of the US Treasuries yield curve was pushed up for various idiosyncratic reasons, including increasing supply ahead of the anticipated FED rate hike in Dec.

EUROPE look potentially towards a slew of headlines from the ECB Conference in Frankfurt, with Yellen, Draghi, Carney, and Kuroda scheduled for a joint appearance at 1000 GMT. The Fed’s Evans (0805 GMT) also speaks in Frankfurt, while Bullard, (1315 GMT) and Bostic (1805 GMT) are also penciled in. Meanwhile, the ECB’s Lautenschlaeger (0900 GMT), Nouy (0900 GMT), Galhau (1245 GMT), and Coeure (1530 GMT) are also due to hit investors’ screens. On the BOE front, Cunliffe is also expected at 1730 GMT. With core global central banks taking their foot off the hawkish pedal in recent weeks in an almost orchestrated manner, the balance of potential rhetoric may leave the dollar looking none the worse for wear. Economic releases were scant and markets were somewhat unnerved by political news flows surrounding UK PM Theresa May’s leadership and Brexit. UK house prices as measured by Rightmove grew at a faster pace of 1.8% YoY in November but it fell 0.8% on a MoM basis, reinforcing lingering softness in the UK housing market.

ASIA Japan PPI accelerated more than expected to 3.4% YOY in October, its quickest in three years as a result of broadly higher price gains across the key sectors from manufacturing to agriculture and mining. This bolstered hopes that higher costs will translate into higher consumer prices ahead, and suggesting inflation is finally slowly on the mend. BOJ Governor Kuroda said in an event in Zurich that BOJ will maintain its “powerful monetary easing” to ensure inflation will return to its 2% long term target.

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

Technical: 1-3 Day View – Breach of 1.1685 delays the 1.1471 downside objective bears look to 1.1750 a daily close north of 1.1750 reasserts upside objectives opening 1.1880

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 – Retest of 1.3330 sees a sharp reversal and price now testing broader range support at 1.3030 a failure here opens 1.2750 as the next downside objective, near term resistance is sited at 1.3185

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): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 114.50 achieved as pivotal support at 113.30/10 caps corrective downside expect a test of 115, a closing breach of 113 concerns the bullish bias

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): Neutral

Technical: 1-3 Day View – The breach of range support at 132 concerns the broader bullish bias, however without sustained daily closes below this level the risk remains a return to middle of the 134.50 /131.50 range, below 131.50 opens 130.66

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 basissis.
Retail Sentiment: Bearish
Trading Take-away: Long

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