Europe Roundup: Euro FX bulls resume but EUROSTOXX edgy, Sterling prolongs consolidation over Brexit talks, DXY eases but Yen edgy ahead of BoJ - Wednesday, December 19th, 2017

Market Roundup

• EUR/USD 0.05% up, USD/JPY 0.24% up, GBP/USD up about 0.10%, EUR/GBP down by 0.03% 
• DXY flat, DAX -0.11%, FTSE -0.13%, Brent 0.03%, Gold 0.27%
• The Republican-led U.S. Senate approved sweeping tax legislation in the pre-dawn hours of Wednesday, sending the tax cut package back to the House of Representatives for a final vote later in the day.
• The dollar last stood at 113.01 yen, up 0.1 pct on the day, having pulled away from Friday's low of 112.035, with last week's high of 113.75 seen as its next target.
• The House of Representatives had already approved the biggest U.S. tax overhaul in 30 years on Tuesday, but another House vote is needed because of procedural issues.
• Gains in the dollar were limited as many market players looked to the Bank of Japan's two-day policy meeting ending on Thursday for clues to whether the BOJ will join the U.S. Federal Reserve and European central banks in winding back stimulus.
• A speech by BOJ Governor Haruhiko Kuroda in November sparked speculation of a stimulus taper when he mentioned the concept of a 'reversal rate' - a level at which low-interest rates start to have more harmful side-effects than benefits.
• The BOJ is widely expected at this week's meeting to keep its short-term interest rate target at minus 0.1 pct and pledge to guide 10-year bond yields around zero pct.
• Peter Dragicevich, G10 FX strategist for Nomura in Singapore, said, if anything, Kuroda may try to push back against some of the interpretations related to the issue of the 'reversal rate'.
• The U.S. 10-year Treasury yield stood at 2.455 pct today's Asian trade session. On Tuesday, it had set a seven-week high of 2.472 pct, nearing a seven-month peak of 2.477 pct hit in late October.
• Britain might need to raise tax revenues to fix deficit – IMF
• Sweden's c.bank keep rates unchanged, brings forward bond reinvestments
• Oil edges up on North Sea pipeline outage, lower US crude stocks
• Gold edges higher as dollar wilts ahead of US tax vote

Economic Data Ahead

• 13:30 CA Wholesale Trade MM Oct, 0.5% f’cast, -1.2% prev
• 14:00 US Existing Home Sales (Nov) (mkt 5.52 mn SAAR; prev 5.480 mn SAAR, +2.0% m/m)
• 14:30 US EIA Weekly Petroleum Status Report.
   

Key Events Ahead

• (13:00 GMT) Bundesbank’s Weidmann speaks about the challenges of the EZ economy

• (13:15 GMT) BOE’s Carney and other BOE officials to attend Treasury Select Committee Hearing –
 

• (13:45 GMT) FedTrade operation 30-year Ginnie Mae (max $1.295 bn)
 

• (14:00 GMT) BOE’s Angeloni speaks to Parliamentary Inquiry Committee
 

• (15:45 GMT) FedTrade operation 15-year Fannie Mae / Freddie Mac (max $370 mn)
 

• (21:30 GMT) BOE’s Hauser to attend NY Fed event
 

• Bank of Japan holds monetary policy meeting (to December 21)

FX Beat

DXY: Major trend line resistance- 94 (trend line joining 102.97 and 101.26). DXY is trading within the channel for the past 1-1/2 month. It has formed a bottom around 91.02 and shown a minor jump till 95.15 Nov 7th 2017. It is currently trading around 93.45.

Technically the pair has taken support near 100- day MA at 93.32 and shown a minor jump. The index should break below that level for minor decline till 92.90 (trend line joining 91 and 92.50).

The huge jump on the higher side is possible only above trend line resistance at 94.05. The index should close on the daily basis above 94.05 for further jump till 95.15. Short-term trend reversal only above 95.25 (38.2% retracement) and any violation above will take the pair to 96/97.50.

EUR/USD: The pair jumped almost 80 pips from the low of 1.17765 made yesterday. US Senate passed the major tax reform today but doesn’t have much impact on the price of US dollar. Consequently, surged till 1.18580 at the time of writing and is currently trading around 1.17992. Euro rallied sharply on account of rise in 10-year German bund yield. The yield rose 7 pts yesterday from 0.30 to 0.37%.

Technically, the pair is facing strong resistance at 1.1860 (trend line joining 1.19612 and 1.19404) and any minor bullishness can be seen only above that level. Any convincing break above 1.1860 will take the pair to next level until 1.1900/19612 (Nov 27th 2017 high).

On the lower side, major support is around 1.1700 and any break below will drag the pair to next level until 1.1660/1.1600. The minor support is around 1.1755.

USD/JPY: This pair has recovered almost 100 pips after hitting low of 112.03 on Dec 15th 2017. The pair hits high of 113.18 and is currently trading around 113.14.

On the lower side, any close below 111 confirms minor weakness, a decline till 110/108.15 likely. The minor support is around 112.90 (55- 4H EMA).

Any convincing close above 114 will take the pair to next level till 114.73/115.

GBP/USD: Cable is consolidating in the narrow range between 1.35194 and 1.33029 for the past 7 trading session. The UK and EU have reached the deal for the first phase on Friday and next phase on trade negotiations is expected to happen very soon. The pair has recovered almost 100 pips from the low of 1.33029 made on Dec 15th 2017 and is currently trading around 1.3380.

The UK full cabinet discussion on the trading relationship is expected to happen today in continuation with preliminary discussion happened yesterday. Any positive move on the next phase will take the pair to the year high at 1.35498.

On the lower side, near-term support is around 1.3300 and any break below will drag the pair to next level until 1.3225/1.3175. Short term bullish invalidation only below 1.30280.

The near-term resistance is around 1.3420 (trend line joining 1.35204 and 1.34654) and any break above will take the pair to next level till 1.3470/1.3520. Bullish continuation only above 1.3550.

USD/CHF: USD/CHF was trading flat and declined almost 40 pips from the yesterday high of 0.98787. The pair is consolidating below 78.6% retracement at 0.9975. The pair was trading low due to the slight weakness in US dollar index. The Senate passed a landmark US tax bill early Wednesday and the bill now needs approval from House of Representatives later Wednesday before signing by US president Donald Trump. US housing starts came at better than expected. It came at 1.297 million in Nov compared to the forecast of 1.25 million. The pair hits low of 0.98348 yesterday and is currently trading around 0.98536.

On the higher side, near-term resistance is around 0.99220 (trend line joining 0.9977 and 0.99345) and any break above will take the pair to next level till 0.9977 (Dec 8th 2017 high)/1.000. It should break above 1.0040 for short-term bullishness. The near-term support is around 0.9835 and any violation below that level will drag the pair to next level till 0.9810 (200 – day EMA)/0.9770/0.9735.

AUD/USD: Aussie is consolidating after hitting high of 0.76946 on Dec 15th 2017. The pair is trading flat only 40 pips for the past three trading session. It is currently trading around 0.76734 0.15% higher. On the lower side, the pair’s near-term support is around 0.7500 and any convincing break below will drag the pair till 0.7435/0.7380. The near-term support is around 0.76788.

The pair’s near-term resistance is around 0.7681 (233- day MA) and any convincing break above targets 0.7730/0.7780.

Equities Recap

European stocks slid by 0.38%, losing its multi-week highs, while the greenback edged down 0.2 percent to 113.11 yen, while the euro was a touch firmer at $1.1850.

The pan-European STOXX 50 index declined to 14.68 points.

Britain's FTSE 100 trades 0.18 pct down at 7,530.25 points on bouncing back after heavy losses in the previous session due to resurfacing political worries, Germany's DAX eased 0.19 pct at 13,190.20 points; France's CAC40 trades 0.31 pct down at 5,366.36 points.

Commodities Recap:

Energy: Crude oil price inches up on North Sea pipeline outage, lower US crude stocks 

• North Sea Forties pipeline shut due to crack
• U.S. crude oil inventories expected to fall further but soaring U.S. crude output caps Brent

Crude oil prices edged up, extending previous session gains, as the Forties pipeline outage in the North Sea and OPEC-led supply cuts supported prices. International benchmark Brent crude was trading a tad below 0.04 pct at $63.76 per barrel while articulating (at 11:06 GMT), having hit a high of $65.80 last week, its highest since Jul. 2015. U.S. West Texas Intermediate was trading 0.3 pct higher at $57.73 a barrel, after rising as high as $58.53 last week, its highest since Dec. 1.

Bullion prices: Gold prices edge up in range-bound trade 

• Dollar supported by tax overhaul hopes
• Gold has resistance at $1,265/oz

Gold prices inched higher in range-bound trade on Wednesday as the dollar held steady on expectations the U.S. government would pass the country's biggest tax overhaul in 30 years. Outgoing Federal Reserve Chair Janet Yellen last week said while a short-term economic bump from the plan is likely, a longer-term boost is not.

Treasuries Recap

The U.S. Treasuries gained Wednesday as investors wait to watch the final House tax reform bill vote, teeing it up to receive the President’s signature by Christmas. Data-wise, it will be a quiet day with just November’s existing home sales figures, which are expected to post a third successive monthly increase to move back within the range seen throughout the first half of the year. The yield on the benchmark 10-year Treasuries fell 1 basis point to 2.45 pct, the super-long 30-year bond yields slid 1/2 basis point to 2.81 pct while the yield on the short-term 2-year hovered around 1.85 pct.

Japanese government bonds (JGBs) fell on Wednesday after the Bank of Japan reduces the size of bonds purchases in its daily market operation. Also, investors await the last monetary policy meeting of 2017, which is scheduled to be held on Thursday. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, climbed 1 basis point to 0.049 pct, the yield on new long-term 40-year also rose nearly 1 basis point to 0.967 pct and the yield on short-term 2-year gained 1/2 basis point at -0.144 pct.

The UK gilts traded flat Wednesday as investors wait to watch Bank of England (BoE) Governor Mark Carney’s speech, scheduled to be held later today. Also, the country’s third-quarter gross domestic product (GDP), due on the last trading day of this week prior to Christmas and New Year holidays, will provide further direction to the debt market. The yield on the benchmark 10-year gilts, jumped nearly 2-1/2 basis points to 1.22 pct, the super-long 30-year bond yields climbed 2 basis points to 1.80 pct and the yield on the short-term 2-year too traded 1-1/2 basis points higher at 0.47 pct.

The German bunds remained narrowly mixed Wednesday as investors remained silent in a muted trading session and following the tad deterioration in the country’s producer price-led inflation index for the month of November. The German 10-year bond yields, which move inversely to its price, remained tad higher at 0.38 pct, the yield on 30-year note hovered around 1.19 pct and the yield on short-term 2-year traded nearly 2 basis points higher at -0.67 pct.

New Zealand government bonds closed on the upside Wednesday after the country’s Global Dairy Trade (GDT) price auction disappointed market participants. Also, investors are expecting a decline in the third-quarter gross domestic product (GDP) data, due today at 21:45GMT which weighed on the debt market. At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 2.74 pct, the yield on 20-year also slipped 1 basis point to 3.28 pct and the yield on short-term 2-year too ended 1 basis point lower at 1.91 pct.

Australian government bonds plunged on Wednesday as a surge in German long-dated yields sparked a rally in the common currency, a move that also pushed local bond yields higher. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 5-1/2 basis points to 2.638 pct, the yield on the long-term 30-year note surged 6 basis points to 3.364 pct and the yield on short-term 2-year climbed over 2 basis points to 1.968 pct.