eFXplus DATA

Credit Agricole discusses CHF outlook and maintains a bearish bias expressing that via holding a long EUR/CHF position* targeting a move towards 1.1950. 

"In the coming two weeks it will be quiet in terms of top-tier data, with the exception of the KOF leading indicator in two weeks’ time. We see a low risk of the release implying an improving growth outlook. Hence, incoming data should keep SNB monetary-policy expectations capped. Just this week, the central bank lowered growth and inflation projections, suggesting that the SNB is likely to keep rates low for longer. In the grand scheme of things it will be left to diverging central-bank rate expectations, as driven by the ECB and/or weaker CHF-related capital flows, to drive crosses such as EUR/CHF higher," CACIB argues. 

"This remains our base case for the coming year, and portfolio flows, in particular, may be an important source of strength in the first quarter of 2019. We stay long EUR/CHF as a trade recommendation," CACIB adds. 

--

*Recorded in eFXplus Orders

• 10-DMA caps the latest rally, pair lingers nearby for most of NY
• Slide ensues as oil & copper futures see sharp falls, oil hits new low
• Commodity dives highlight global growth concerns which highly affect AUD
• AUD/USD slides back below the 55-DMA & daily cloud top, RSIs turn down
• Market awaits Fed, market leaning now towards a dovish hike
• If Fed suggest hike cycle will continue AUD/USD should sink nL1N1YN12T

AUD/USD is struggling to escape the pull of last week's short-term, making tomorrow's Fed decision and presser pivotal.
Today's rise halted at the 10-DMA, and the subsequent drop brought AUD/USD below the 55-DMA and back into the daily cloud.
RSIs have turned down again, providing help to bears.
The break to a new trend low in oil futures and today's sharp fall in copper futures have intensified the bearish pressures.
AUD/USD needs help on a number of fronts to change the oultook.
Indications from the Fed that their rate hike cycle is complete after tomorrow, progress on U.S.-Sino trade relations and improved sentiment regarding global growth could all help ease downward pressure on AUD/USD.
A dovish Fed hike tomorrow would be the first step.
Should the Fed hold on its current course of projected rate hikes, AUD/USD is likely to take out the 0.7150 level.
Bears will then target 2018's 0.7021 low.
A break there puts the June 2016 low in play.

TD Research discusses its tactical views on USD, EUR, JPY, and CAD.

"We expect recent ranges to hold but like holding short USD exposure into the Fed.

The EUR's runway looks clear to 1.145 while a break of 112 opens up a path to 110 in USDJPY.

We lean short CAD on the crosses ahead of this week's data dump, noting that CADJPY sits about 2% overvalued on short-term model," TD argues. 

USD/JPY has suffered a collapse in confidence during the waning weeks of 2019 that only the Fed can halt. Markets are pressuring the FOMC to scale back future tightening plans with tumbling stocks, expanding credit spreads and rising volatility.
As policy makers deliberate, this tumult finds USD/JPY requiring a close above December's 112.23-25 lows, while S&Ps must hold above the 2,532 February nadir and 10-year Treasury yields should avoid a fall below July and August lows near 280bp to stabilize.
The implied probability of a rate hike tomorrow is 68.6 percent, versus recent highs above 80 percent.
Fed fund futures foresee no hikes next year and 10bp of easing in 2020.
At the Fed's last meeting their average expectation included a December hike, three more next year and one in 2020. Given USD/JPY's sensitivity to rates and stocks, the window for a bullish FOMC tomorrow is limited because even dot plot averages of one to two hikes in 2019 and none in 2020 could spur market risk aversion. But, Powell could make further hikes so data-dependent and delayed it revives risk sentiment.
A post-FOMC USD/JPY close below 112 would target the 200-DMA at 110.83.
A close above the 100-DMA at 112.40 could trigger a limited year-end bounce.

Societe Generale Research discusses the market conditions into tomorrow's FOMC December policy meeting.

"The FOMC meeting will continue to loom large, and there's sure to be speculation about how dovish they can sound while still hiking, or that they'll bow to market pressure (and hope we don't conclude it was political pressure that did the trick). we can't see how bond bears get any joy from that, and so we can't see how yen bulls suffer, even if, as has been the case for ages, the extent of yen rallies on risk sell-offs is miserably small," SocGen notes. 

"The question to ponder is what to make of central bank sales of Treasuries in the TIC data, with Chinese sales making the most headlines, They’re obviously selling into willing short-coverers, so far. 

The Brexit shambles goes on, the price of oil is tumbling (again) and the FOMC isn't til tomorrow. Lower bond yields, frightened equities, and a stronger yen probably sum the day up," SocGen adds. 

EUR/USD traders remain short going into the Federal Reserve decision on Wednesday, meaning a squeeze higher is likely if the expected rate increase comes with a dovish tone.
IMM data for the week ending Dec.
11 showed a futures market short an equivalent EUR/USD cash position of 7.0 billion euros, down from 7.6 billion the previous week, but EBS flow data since Dec.
11 shows many of the euro shorts may have been re-established.
The market continues to trade well ahead of the major 1.1187 Fibonacci level, a 61.8 percent retrace of the 1.0340 to 1.2556 (2017-2018) rise, after November's 1.1216 (EBS) low was left.
That increases the chance of eventual gains to the 1.1516 Fibonacci level, a 50 percent retrace of the 1.1815 to 1.1216 (September to November) drop.
EUR/USD bears will be hoping Fed Chair Jerome Powell remains upbeat while expressing caution over some negative cross-currents.
The market would probably respond by buying dollars at the expense of the euro nL3N1YM030.

• USD/JPY bulls seem to be faltering as we head into 2019
• Risk is growing for weakness below the October 26 111.38 low
• That would in turn increase the odds for further losses to 110.73 Fibo
• 110.73 Fibo is a 38.2% retrace of the 104.56 to 114.55 2018 (EBS) rise
• USD/JPY's gains were hampered by the key 113.75 Fibo nL1N1YM04S

Sterling could gain if Jeremy Corbyn, the leader of UK opposition Labour Party, pushes for a no-confidence vote in the government before Friday (the Commons is in recess from Friday until Jan.
7).
On Monday, Corbyn called for a non-binding no-confidence vote in Conservative PM Theresa May -- but a government source said Downing Street would not allow time in parliament for "a stunt", and if Labour was serious it should attempt a full vote of confidence in the government nL8N1YM1ZO.
If Corbyn accepts the challenge and the government wins the vote -- as would be expected -- it could push the Labour leadership into demanding a second Brexit referendum.
That might tip the scales in favour of Britons getting the chance to reverse Brexit, which could open the door to GBP gains.
Related comment: nL1N1YM05E

• Cable up to 1.2652 since the European open, highest level since Friday
• 1.2611-1.2632 was the Asian session range. 1.2646 was Monday's high
• Ascent to 1.2652 aided by expectation of a dovish hike from Fed Wednesday
• Trump and Navarro ratchet up their criticism of Fed tightening nL1N1YM0S1
• Mooted offers near 1.2687 (Dec 13 high) may cap GBP/USD if it extends north
• 1.2687 marks cable's high since last week's 20-month low of 1.2477 (Dec 12)

• Bearish consolidation just below the 10DMA line, 1.2640
• Taking our bearish lead from the weeklies, which look ugly
• Weekly Bolli just stalling the fall but weight still with the bears
• Low 1.20s calling, fade opportunities to 1.2687 Dec 13 high and 1.2717 21DMA
• Relief for sterling only above 1.2840, Dec 4 high
• Only a major squeeze above the 1.2928 Nov 22 high

• EUR/USD traded in a 1.1344/60 range in a quiet morning session
• Price action continues to be drawn to 10 & 21-day MAs around 1.1350
• Consolidating price action could continue until FOMC decision Wednesday
• Dovish turn in Fed expectations limiting downside for now
• Support at triple bottom formed at 1.1260/70
• Resistance at 55-day MA around 1.1400

Danke Research discusses EUR/GBP outlook and maintains a cautious bias in the near term, and a bearish view in the long term.

"In our main scenario, we still expect a ‘decent’ Brexit and maintain our long-held view that EUR/GBP will break lower if/when the deal is passed by parliament.

We target 0.83 in 6-12M. However, the UK House of Commons remains divided on Brexit and while all options are still on the table in relation to the outcome of negotiations, uncertainty is expected to remain high in coming months as clarifications about Brexit drag on," Danske notes. 

"Hence, we expect EUR/GBP to remain volatile and within its recent (wide) trading range near term, targeting 0.88 in 1M and 0.87 in 3M," Danske adds.

The AUD/USD is showing resilience considering Monday's large sell-off in global equities, easing commodity prices and wobbly emerging markets, thanks to a dovish turn in Fed expectations that is weighing on U.S. yields and the USD.
Given the growing consensus that the Fed will deliver a 'dovish hike' on Wednesday, the risk is now for disappointment – even if there is a dovish tweak to the statement, dot plots and Chair Powell's press conference.
With the market pricing in less than one hike in 2019 versus the Fed's September projection of three, it seems highly unlikely the Fed will meet expectations.
The recent run of top-tier U.S. data has been solid, so it will be difficult for the Fed to pivot sharply from their previously upbeat assessment of the economy.
Anything short of the Fed capitulating to pressure from the White House nL1N1YM0S1 and some market heavyweights nL1N1YM156, and clearly signalling a pause to the tightening cycle will likely lead to a higher USD and renewed selling of equities and other risk assets.
This scenario leaves the AUD/USD especially vulnerable.
Support has formed at 0.7150 and a clear break below that level targets the 2018 low at 0.7021.

• AUD/USD moved above 0.7185 after the release of the RBA Minutes
• Minutes barley changed and left in "next move likely higher" line
• RBA showed concern over low wages, high household debt & falling home prices
• AUD/USD resistance at 10-day MA at 0.7206 with sellers tipped above 0.7200

• Tight early, but opened -0.5% with lower Wall Street and UST yields
• Risk off saw JPY crosses sold, AUD/JPY -0.5%, NZD/JPY -0.3% & EUR/JPY -0.1%
• Focus today will be on how the Nikkei responds after yesterday's bounce
• In a 112.23/114.03 range for a month - major news needed for a break out
• USD/JPY is in the horizontal daily cloud - parameters today 112.46/113.09
• 112.40-55 1BLN & 112.90-113.10 1BLN strikes to contain if it's quiet

Bank of America Merrill Lynch discusses the USD technical outlook and flags 2 recent topping signals.

"On December 11 the BBDXY rallied into a resistance pocket for the third time and failed to break the 1215 threshold that we've defined as the peak in the USD for 2018.

This level, which is the 61.8% Fibonacci retracement of the 2017-2018 downtrend, is a big level to hold for a USD top to form and correction to follow in early 2019, which is our base case. On December 12 another sell signal occurred, the second of its kind, from the TD Sequential indicator.

With no bullish breakout, two sell signals and a triple top (range top) forming, the USD is still vulnerable to a decline (countertrend)," BofAML notes. 

• GBP/USD ends NorAm 1.2620, +0.29%; reduced Fed rate outlook trumps Brexit
• Parliament vote exp'd week of Jan 14, 2nd ref talk perks up nL3N1YM3SX
• UK short-stg rates rise 2020 and out, aids GBP rise, amid flattening US YC
• EUR/GBP +0.12% to 0.8995 as US-EZ spreads narrow, Brexit weighs on GBP leg

USD/JPY will be in trouble if the Fed doesn't diminish the gloom around stocks this week. The pair is retreating from last week's failed attempt to test the top of the shrinking price range since October.
Spec longs worry that a U.S.-China trade war truce and a sizeable retreat in Fed hike pricing and Treasury yields haven't stopped the bleeding in U.S. stocks that USD/JPY is positively correlated to.
USD/JPY remains more positively correlated to 10-year Treasury-JGB spreads, but those spreads are 27bp lower than they were on November 8, last at 283bp.
The problem for the IMM net spec longs worth $10.7bln is that there remain real doubts about the U.S. and China reaching a structural trade agreement by March and any rebounds in U.S. yields on good news or Fed rate hike expectations are taken badly by global equity markets worried about slowing global economic growth and weaker net profits in the U.S. as the 2018 tax windfall ends.
At this week's FOMC there is greater risk of lowered average dot plots still being well above the 1-2 hikes, including Wednesday's, priced in by money markets.
Unless Powell can convince nervous investors data-dependent rate hikes aren't a threat, USD/JPY will fall to 100-DMA, now at 112.40.

TD Research discusses the market's conditions into year-end and flags a scope for some action left into year-end.

"Markets are heading into the home stretch, looking like they have already shifted into holiday mode. We could still get some fireworks before yearend, as four major central banks meet this week.

 We doubt that investors will look for the hero trade into yearend, which in turn probably caps the ranges. Indeed, liquidity, valuation and positioning arguably all matter more the next 10 days, though we think this week's Fed meeting could shape the contours of the FX market to start 2019," TD notes. 

"EUR has consolidated off the lows and the next key level to watch is 1.1450. The BoE is a sideshow compared to Brexit headlines, although GBPUSD should be trading north of 1.27. Against this week's risk events, GBPSEK upside looks attractive and we remain USDJPY sellers at 114," TD adds.