USD/CNH staying in consolidation after strong China data, down trend in force

    China’s industrial production rose 7.0% yoy in November, up from October’s 6.9% yoy, matched expectations. Retail sales rose 5.0% yoy, up from October’s 4.3% yoy, but missed expectation of 5.1% yoy. Auto sales rose 11.8% yoy while household appliances sales rose 5.1% yoy. Communications equipment sales even jumped 43.6% yoy. Fixed asset investment rose 2.6% ytd yoy, up from October’s 1.8% ytd yoy, beat expectation of 2.6%. Private sector fixed-asset investment rose 0.2% ytd yoy, turned positive from October -0.7%.

    USD/CNH recovers mildly today as consolidation form 6.4960 extends. Downside momentum has been diminishing as seen in 4 hour MACD. But outlook stays bearish as long as 6.5968 resistance holds. The down trend from 7.1953 medium term top should still extend to 61.8% retracement of 6.0153 to 7.1953 at 6.4661. There we’d expect strong support to bring a sustainable corrective rebound.

    AUD/JPY retreats mildly but further rise expected with 77.09 support intact

      AUD/JPY dips mildly today as Australia Dollar pulls back broadly. This is in response to China’s new hostile trade action in banning Australian coals. Though, the retreat in AUD/JPY is shallow so far and doesn’t warrant a reversal yet. Further rise will remain in favor as long as 77.09 resistance turned support holds.

      Still, we’d emphasize that the real test lies in long term channel resistance (started back at 105.42 in 2013). Sustained break there will be a strong signal of an emerging bullish trend and pave the way to 61.8% projection of 59.89 to 78.46 from 73.13 at 84.60 in the medium term. However, rejection by the channel resistance, followed by break of 77.09 support, will retain long term bearishness and turn focus back to 73.13 support.

      Australia Birmingham: China is a significant coal market, but not our largest

        In response to news that China has blocked Australian coal imports, Trade Minister Simon Birmingham said he has not ruled out taking China to the WTO. Though, he emphasized, “we do have to make sure that we have the facts behind us when it comes to undertaking WTO challenges.”

        “In terms of coal exports, it is important to recognise that although China is a significant market, it is not our largest market,” he added. “We do have significant markets in Japan … with India, strong growth recently in relation to Vietnam.” “We continue to work in a range of other markets where our government has secured trade agreements to develop trade ties to make sure that all of those exporters can have as many choices available to them as possible.”

        Trade tensions between the two countries escalated in the past few months as China has recently increased tariffs on Australian wine and barley and blocked imports on lamb, beef, lobsters and other goods.
        Just two weeks a ago, the Inter-Parliamentary Alliance on China, an international cross-party group of legislators working to reform the approach of democratic countries to China, called on a global campaign to drink Australian wines in December in support for the country.

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        RBA Minutes: Recovery is underway but uneven and protracted

          In the minutes of December 1 monetary policy meeting, RBA said economic recovery in Australia was “under way” and and recent data had “generally been better than expected”. Employment rate was “likely to peak lower than the 8 per cent rate expected”. Though, recovery was still expected to be “uneven and protracted”, dependent on “significant policy support and favorable health outcomes”. High unemployment rate and excess capacity were expected to result in “subdued wages growth in inflation over coming years”.

          RBA reiterated, “the Bank remained prepared to purchase bonds in whatever quantity required to achieve the 3-year yield target”. The size of bond purchases is kept “under review” and it’s “prepared to do more if necessary. Also, RBA ” remains committed to not increasing the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range”. No increase in cash rate is expected for “at least 3 years”. Also, ” it would be appropriate to remove the yield target before the cash rate itself were increased.”

          Full minutes here.

          Gold attempting downside breakout, but no follow through selling yet

            Gold is attempting a downside breakout today and breached 1821.96 minor support briefly. There is no follow through selling yet. But sustained trading below this support should confirm that rebound from 1764.31 has completed at 1875.27. More importantly, rejection by 55 day EMA will retain near term bearishness. that is, correction from 2075.18 would resume through 1764.31 before completion.

            Nevertheless, break of 1850.11 minor resistance will turn bias back to the upside for 1875.27 and above, to resume the rebound from 17634.31.

            ECB Panetta: Ready to adjust monetary instruments if downside risks materialize

              ECB Executive Board member Fabio Panetta said “we can guarantee our commitment to support the recovery. For monetary policy, this means providing certainty about financing conditions well into the future. The PEPP envelope can be further expanded and extended, if warranted.”

              “We stand ready to adjust all our instruments if downside risks to the outlook materialise, including those stemming from exchange rate dynamics,” he added. “An appreciation of the euro could significantly affect euro area inflation. There should be no doubt here: the ECB will not accept inflation settling at levels that are inconsistent with its aim.”

              EU von der Leyen: We want a level playing field with UK

                European Commission President Ursula von der Leyen said today, “we are on the very last mile” on Brexit trade negotiations. “We want a level playing field, not only at the start but also over time … this is the architecture that we are building,” she said. “We’re fine about the architecture itself but the details, do they really fit?”

                “We’re of course aware that time is short. The more time that goes by the less likely it is that we will have a deal in place on the first of January, that’s just a statement of fact,” Commission spokesman Daniel Ferrie told a news briefing separately, “I cannot say what may or may not happen over these days. But what I can say, though, is that we are fully dedicated to trying to reach a deal with the UK.”

                Eurozone industrial production rose 2.1% mom in Oct, EU production up 1.9% mom

                  Eurozone industrial production rose 2.1% mom in October, slightly above expectation of 2.0% mom. Production of capital goods rose by 2.6% mom, intermediate goods by 2.1% mom, energy by 1.8% mom and durable consumer goods by 1.5% mom, while production of non-durable consumer goods remained unchanged.

                  EU industrial production rose 1.9% mom. Among Member States, for which data are available, the highest increases were registered in Belgium (+6.9%), Germany (+3.4%) and Slovenia (+3.1%). The largest decreases were observed in Denmark (-5.8%), Greece (-3.0%) and Lithuania (-1.7%).

                  Full release here.

                  EU Barnier: Two conditions aren’t met yet on Brexit trade talks

                    EU chief Brexit negotiator Michel Barnier told reporters today, “Two conditions aren’t met yet. Free and fair competition … and an agreement which guarantees reciprocal access to markets and waters. And it’s on these points that we haven’t found the right balance with the British. So we keep working,”

                    The comments came after EU and UK agreed to “go the extra mile” with the negotiations, which has already passed Sunday’s deadline.

                    CHF/JPY takes a breather ahead of key resistance, outlook stays bullish

                      Swiss Franc’s “relative” strength in the past few weeks was very clear, as seen is downside breakouts in EUR/CHF and USD/CHF, but range trading in USD/JPY and EUR/JPY. Though, CHF/JPY lost momentum just ahead of 117.86 key resistance last week.

                      For now, further rise is still expected as long as 116.43 support holds. Sustained break of 117.86/118.60 will indeed resume whole long term rebound from 101.71 (2016.06). That would pave the way to 100% projection of 101.71 to 118.60 from 106.73 at 123.62 in the medium term. That would solidify Franc’s leading role as a safe haven currency. Though, break of 116.43 support will, a least, turn near term outlook neutral first.

                      AUD/CAD edges higher, on track to 0.9696

                        AUD/CAD edged higher today as rise from 0.9247 is trying to continue towards 0.9696 high. Prior support from 55 day EMA was a clear sign of near term bullishness. We’re seeing corrective pull back from 0.9696 as completed at 0.9247. Decisive break there will resume whole rise from March’s low of 0.8066. Next near term target will be 61.8% projection of 0.8066 to 0.9696 from 0.9247 at 0.8870. Though, break of 0.9603 will delay the bullish case and bring some more consolidations first.

                        Bank of France revises down 2021 growth forecasts due to new restriction measures

                          Bank of France said in a report that “the rebound in the economy observed in the summer and early fall 2020 was very clear but it is temporarily interrupted by the resumption of the epidemic and the new health restriction measures put in place since October”. It also warned that at the start of 2021, “economic activity would be penalized by still constrained household consumption, with a gradual lifting of health measures”.

                          In it’s central forecasts, “the hypothesis is that the epidemic would not stop immediately and that the generalized deployment of vaccines would not be fully effective until the end of 2021. Still, the uncertainty is “high”. It projects French GDP to growth around 5% in 2021 and 2022, then easing to slightly more than 2% in 2023. 2021 growth projection was notably lower than September’s forecast of 7.4%.

                          Full report here.

                          Japan tankan large manufacturing rose to -10, non-manufacturing rose to -5

                            Japan Tankan large manufacturing index rose 17 points from -27 to -10 in Q4, above expectation of -15. Outlook also improvement to -8, up from -17, and beat expectation of -11. Non-manufacturing index rose 7 pts from -12 to -5, slightly above expectation of -6. Non-manufacturing outlook rose from -11 to -6, above expectation of -7. However, all industry capex dropped -1.2%, much worse than expectation of -0.1%.

                            The set of data would affirm BoJ’s decision to stand pat on interest rate and QE program later in the week. Though, extensions of the emergence lending programs would be extended, as Japan is currently in a “relatively” serious third wave of coronavirus infections.

                            Full release here.

                            UK and EU to go the extra mile in Brexit talks, GBP/CHF and EUR/GBP gapped but range bound

                              UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to “go the extra mile” and extend the Brexit trade negotiations beyond Sunday’s deadline. “Despite the exhaustion after almost a year of negotiations, despite the fact that deadlines have been missed over and over, we think it is responsible at this point to go the extra mile,” they said in a joint statement. “We have accordingly mandated our negotiators to continue the talks and to see whether an agreement can even at this late stage be reached,” they added. UK delegation are expected to stay in Brussels until at least Tuesday.

                              GBP/CHF opens notably higher today but it’s kept well below 55 day EMA, staying on the lower half of the medium term range. Bias is turned neutral for now. We’d maintain that firm break of 1.2203 resistance is needed to confirm underlying bullish development in the cross. Meanwhile, firm break of 1.1598 support is needed to confirm bearish development, probably due to confirmation of no-deal Brexit. Otherwise, we’ll just wait-and see what’s next.

                              Similarly, EUR/GBP opens lower but it’s held well above 55 day EMA, in the upper side of recent range. Break of 0.8861 support is needed to confirm completion of the choppy rebound from 0.8670. Otherwise, another rise through 0.9229 and 0.9291 resistance zone is expected, at a later stage.

                              US PPI at 0.1% mom , 0.8% yoy, core CPI at 0.2% mom, 0.8% yoy

                                US PPI came in at 0.1% mom, 0.8% yoy, versus expectation of 0.2% mom, 0.8% yoy. PPI core came in at 0.1% mom, 1.4% yoy, versus expectation of 0.2% mom, 1.5% yoy.

                                Canada capacity utilization rose to 76.5% in Q3, below expectation of 77.8%.

                                Johnson: UK looks very, very likely to leave EU on World Trade terms

                                  UK Prime Minister Boris Johnson told reporters today that there are “two key things” stuck in the Brexit trade negotiations with the EU. The UK is now “very very likely ” to come out of the EU “on World Trade terms”, i.e., no-deal Brexit.

                                  “There are two key things where we just can’t seem to make progress and that’s this kind of ratchet clause they’ve got in to keep the UK locked in to whatever they want to do in terms of legislation, which obviously doesn’t work,” Johnson said. “And then there is the whole issue of fish where we’ve got to be able to take back control of our waters.”

                                  “It is looking very, very likely that we will have to go for a solution that I think would be wonderful for the UK, and we’d be able to do exactly what we want from January 1 – it obviously would be different from what we’d set out to achieve but I have no doubt this country can get ready and, as I say, come out on World Trade terms,” he added.

                                  ECB Vasiliauskas doesn’t prefer shooting out stimulus with a machine gun

                                    ECB Governing Council member Vitas Vasiliauskas said he has reservation about the new easing package, which could provide too much extra stimulus for the economy. Though, he considered the decision good and positive yesterday. He added, “my position was that we need to shoot selectively rather than with a machine gun, without care.”

                                    Another Governing Council member Robert Holzman said the PEPP limit “can be used up but the expectation is that it will not be fully used.”. He emphasized, “PEPP limit is a backstop, we do not want to pump more into the market than necessary.”

                                    EU von der Leyen: Positions remain apart on fundamental issues with UK

                                      European Commission President Ursula von der Leyen said after the EU summit “positions remain apart on fundamental issues” in the the post-Brexit trade negotiations with the UK. They would decide on Sunday “whether we have conditions for an agreement, or not”. But, “one way or the other, in less than three weeks, it will be new beginnings for old friends”.

                                      She insisted that EU’s proposals would not undermine UK’s sovereignty. On the level playing field, “this is not to say that we would require the UK to follow us every time we decide to raise our level of ambition, for example, in the environmental field,” she added. “They would remain free – sovereign if you wish – to decide what they want to do. We would simply adapt the conditions for access to our market accordingly the decision of the United Kingdom, and this would apply vice versa.”

                                      GBP/CHF heads to 1.1598 support as no-deal Brexit fear intensifies

                                        Sterling is back under heavy selling pressure today, as Reuters reported the European Commission President Ursula von der Leyen told the 27 EU leaders that the probability of a no-deal Brexit is higher than of a deal. UK Prime Minister Boris Johnson also said openly yesterday that there is a “strong possibility” of a no-deal.

                                        The Pound is breaking some near term technical levels everywhere, including 1.3223 support in GBP/USD, 137.90 support in GBP/JPY and 0.9142 resistance in EUR/GBP. GBP/CHF also drops through 1.1797 support decisively today, confirm that the rebound from 1.1598 has completed at 1.2003. Further fall should now be seen as long as 1.1977 resistance holds, towards 1.1598 support.

                                        For the moment, we’re seeing price actions from 1.2259 as a sideway pattern. Thus, strong support could be seen around 1.1598 to bring rebound. However, it should be noted that GBP/CHF has been clearly capped by 55 week EMA, maintaining medium term bearishness. Hence, sustained break of 1.1598 would raise the chance that it’s actually resuming long term down trend through 1.1102 low.

                                        Bundesbank: Exports to be a solid pillar of German economic recovery

                                          Germany’s Bundesbank said economy recovery is “likely to b e interrupted for the time being as the coronavirus pandemic “flared up again in autumn”. Though, a “similarly severe impairment” as in Spring is “not to be expected.

                                          It projects GDP to dropped -5.5% this year. For 2021 and 2022, strong economic growth of 3% and 4.5% is expected, then slow down to 1.8% in 2023. “GDP will already reach its pre-crisis level again in early 2022”.

                                          “Due to the economic upturn in key partner countries, German exports should be a solid pillar of the economic recovery,” Bundesbank added.

                                          Full report here.