Squeeze Story

Good morning,

- The U.S. dollar pulled back on Thursday after four sessions of gains and U.S. stocks edged lower in choppy trade as the prospect that the U.S. Federal Reserve will hike interest rates next month gained steam. Shares in major European markets rallied, while U.S. crude again dipped below $40 a barrel before rebounding. U.S. data showed fewer Americans filed for unemployment benefits last week, further supporting the view that the Fed will raise interest rates in December after seven years near zero. U.S. rate futures on Thursday implied traders see a 72 percent chance the Fed will raise rates at that meeting, compared with a 68 percent chance on Wednesday, according to CME Group's FedWatch.

- Finally, we are somewhat accepting of the fact that it looks like the Fed will pull the trigger come December," said Chip Cobb, senior vice president at Bryn Mawr Trust Asset Management in Bryn Mawr, Pennsylvania. "Everyone is just waiting for the December meeting to come and go.

- ECB's Coeure Speaks in Frankfurt at 08:15 GMT.

- SNB's Jordan: CHF is overvalued and overvaluation is corrected over time.

- OECD: Higher US rates won't have disruptive effects on Emerging Asia, Emerging Asia to grow to moderate 6.2% average in 2016-2020.

- Yesterday’s FOMC Minutes, today’s Fed speeches from Fischer/Lockhart and the USD price action in relation to how much of the hike has been priced in, are all coming together to shout December. Data out of the US including last night’s Philly Fed Manufacturing Index and Unemployment Claims both continued to highlight the strength of the US economic recovery and markets are now sure that the time has come. We got this from the Fed’s Fischer early this morning: “The Fed has done everything it can not to surprise markets.” But as Lockhart continues to make clear, it now comes down to how fast and up to what level the Fed goes to: “The pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates.”

- RBA's Heath: China has seen slowing demand for industrial metals. RBA forecast show expected fall in unemployment. What’s more, Labor market outlook improving over course of year. A$ fall has helped to improve competitiveness, economy has "done quite well" versus previous trade cycles. All in all, ‘’Australia growth "not as strong as we would like", Forecasting terms of trade particularly difficult’’.

- The technical FX strategy teams at Credit Suisse and JP Morgan provide their insights on EUR/USD technical setup and trading strategies in the near-term. Credit Suisse: A small base warns of a near-term bounce, but we stay bearish for 1.0521, then 1.0458. "EURUSD is showing some signs of near-term exhaustion, flagged by the RSI momentum divergence, which has failed to confirm the move to a new cycle low, and a minor intraday base has been completed above 1.0690. This leaves prices vulnerable to a near-term squeeze higher. However, any strength would be seen as corrective and we ideally look for the 1.0830 price high to continue to cap," CS advises."Support shows at 1.0692/90 initially, then 1.0672, below which should see a move back to the 1.0617 recent low, ahead of 1.0521 and then the 1.0458 low for the year. Resistance moves to the 13-day average and price resistance at 1.0774/78, and we look for strength to ideally fail here," CS adds.

- The Australian Dollar launched sharply higher against its US counterpart, producing the largest daily advance in six weeks. Prices have now broken the series of lower highs and lows established from mid-October, seemingly overturning the near-term bearish trend bias. From here, a break above the 38.2% Fibonacci expansion at 0.7197 opens the door for a test of the 50% level at 0.7253. Alternatively, a move back below the 23.6% Fib at 0.7128 – now recast as support – clears the way for a challenge of the 14.6% expansion at 0.7085. We entered short AUDUSD at 0.7058. Prices have not met the conditions set out to trigger the stop-loss but we will exit the trade regardless. The break of trend line resistance set from the October 12 swing high warns that the balance of power has shifted to favor the bulls in the near term. The dominant long-term trend remains bearish however. With that in mind, we will stand aside for now until another trading opportunity presents itself.

- The ECB’s monetary policy measures have clearly worked, in fact they are probably the dominant force spurring the recovery. They have been instrumental in arresting and reversing the deflationary pressures that hit the euro a year ago. Yet growth momentum remains weak and inflation remains well below our objective of below but close to 2%. Composite lending rates for non-financial companies declined more than 70 basis points for the euro area as a whole between June 2014 and today, and by between 110 and 120 basis points in stressed economies. That is a formidable pass-through.

- China said it cracked the nation’s biggest “underground bank,” which handled 410 billion yuan ($64 billion) of illegal foreign-exchange transactions, as the nation tries to combat corruption and rein in capital outflows that have hit records this year. More than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province, the People’s Daily reported on Friday, citing police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.

- Major news for today: EU Consumer Confidence, ECB speeches, FED Dudley, Bullard, CAD Core CPI. Have a great day!