Fed Flop

Good morning,

- EUR ESM's Regling: ESM to disburse EU 2B to Greece Tuesday morning; he expects bank aid request in next 2 weeks from Greece.

- EUR Eurogroup's Dijsselbloem: Greek bank process better than expected; Greece review will slip into next year. What’s more, 2nd set of Greek milestones by mid-December. IMF needs to see Greek pension reform.

- Pound Eyes Carney Comments, Euro May Overlook German Data.

- Strong US 3Q GDP to Fuel EUR/USD Selloff- April Low on Tap?

- With this morning’s scheduled Federal Reserve announcement amounting to absolutely nothing, we continue to creep forward along the winding path leading to an expected December hike. We did however get some unexpected headlines from the Fed, with Janet Yellen responding to a letter titled ‘An Open Letter To Chairwoman Yellen From the Savers of America‘. Yellen’s response explained that most Fed policymakers expect the pace of rate hikes to be gradual and that any early, aggressive interest rate moves would only have a short term benefit to savers as lack of demand could quickly have the Fed back at low rates in an attempt to provide stimulus once again.Although Yellen’s responses were mainly cliché and not really containing substance for traders, I do have to applaud the response. She is working for the people after all.The other major narrative overnight was the weakness experienced in commodity prices most notably headlined by the continued rout in copper.

- Don't sleep on the prospect of more currency depreciation from the People's Bank of China, warns Bank of America Merrill Lynch, calling for a "great divorce" between the U.S. and the world's second-largest economy in the coming year. David Woo, head of global rates and currencies research, laid out the case for the team's favorite trade of 2016—buy USDCNH six-month forwards—in his preview for the year ahead: "On the eve of the December FOMC meeting, we think the question is not whether the U.S. economy can live with higher interest rates and a higher U.S. dollar. The question is, given the semi USD/RMB peg and China's increasing open capital account (which come at the expense of China's monetary independence), whether China can live with higher U.S. interest rates and a higher U.S. dollar. We are skeptical. This is why we think the USD/RMB peg, a marriage of convenience that has been the anchor for the global growth model for the better part of the last 15 years, is headed for a divorce, and we think the RMB devaluation on Aug. 11 was a first small step in this direction."

- "We forecast USD/CNY to rise to 7.0, which would represent 9 percent depreciation from the current level, compared with 3 percent depreciation implied by the forwards right now," wrote Woo. "We could see renewed decline of the RMB as early as the first quarter, as the combination of the inclusion of the RMB in the SDR and a December Fed hike (both of which are our central scenario) could turn out to be a perfect storm for the RMB."

- The German economy has shown continued moderate growth. As the Federal Statistical Office (Destatis) already reported in its first release of 13. November 2015, the gross domestic product (GDP) increased 0.3% - upon price, seasonal and calendar adjustment - in the third quarter of 2015 compared with the previous quarter. In the first two quarters of the year, the GDP had also increased moderately, that is, by 0.4% in the second quarter and by 0.3% in the first quarter of 2015.

- Crude oil futures rose around one percent on Tuesday, after Saudi Arabia pledged to work toward oil price stability, while a strong U.S. dollar and an expected rise in U.S. crude stocks limited the price rally. Benchmark Brent futures for January contract LCOc1 climbed 38 cents or 0.85 percent at $45.21 a barrel as of 0121 GMT after it settled up 17 cents at $44.83 a barrel on Monday. U.S. crude's West Texas Intermediate (WTI) futures CLc1 increased 40 cents or 0.96 percent at $42.15 a barrel after hitting $42.18 a barrel earlier in the session. It finished down 15 cents at $41.75 on Monday."The focus is turning to the upcoming OPEC meeting and the hope that some production cuts will be forthcoming. OPEC member comments leading into the December 4 meeting are likely to continue to drive sentiment," ANZ said in a note on Tuesday.

- The following are UBS' latest short-term trading strategies for EUR/USD, AUD/USD. EUR/USD: continues to move lower and the year's low is not that far away. We expect pressure to persist ahead of next week, although short-term accounts will likely be happy to book some profit. The US holiday this week may slow things down, but we see no reason to change strategy. Play the short side and add on any moves to this morning's high of 1.0651, with a stop at 1.0685. AUD/USD: opened near the Friday high today but has since come off, with no clear catalyst for the move other than broad US dollar strength and possibly some short-term break out buyers cutting longs. The key pivot on the topside is 0.7250. With commodities trading soft, we prefer selling rallies as long as the pair is below 0.7250 in order to play the USD from the long side. Resistance comes in around 0.7210/20; support at 0.7135, 0.7100 and 0.7050.

- Major news for today: US Q3 GDP, US Richmond Fed, German IFO.

Have a great day!