European Stocks and Sterling Rebounds from Recent Lows

Theresa May BrexitAsian stocks got a bounce today after reports that Chinese and U.S. officials spoke by phone, a sign that discussions between the world’s top two economies continue even after the arrest of Huawei’s CFO. The Shanghai Composite rose 0.4%, but the Nikkei225 in Tokyo was again under performing other markets in the area, with the Japanese stock index down 0.34%. In macro news the Japan Machine Tool Orders (YoY) fell from previous -1.1% to -16.8% in November.

In Europe we had been scheduled to see a vote on Brexit deal today, but is now called off and UK Prime Minister Theresa May is going back to EU meeting Angela Merkel to seek changes on the deal, including the backstop. European Commission President Jean-Claude Juncker reiterated that Brexit deal on the table is the only deal possible and said that reopening of the withdrawal agreement will not happen.

In forex markets, USDJPY traded with negative bias in Asian session and erased a part of the previous session’s strong upsurge to near one-week tops. The pair gained over 100 pips to over one-month lows set last Thursday and surged back above the 113.00 level. The technical bias is bullish in short term testing 113.65 area. First support is seen around 112.75 level. A clear break below that level could drive price to neutral zone in nearest term retesting 112.50, the 112.00 key support area still remains a good place to buy.

GBPUSD shaken by the latest Brexit drama and tumbled across the board yesterday after the PM Theresa May called off a highly anticipated Brexit parliamentary vote. The pair today started on positive momentum and refreshed session tops above 1.26 on upbeat UK labor market report. Immediate resistance for GBP/USD is near the 1.2655-60 region, above which the major is likely to aim towards reclaiming the 1.2700 round figure mark. On the flip side, the 1.2600 area now seems to protect the immediate downside, which if broken might trigger some fresh weakness and accelerate the slide further towards the 1.2535 intermediate support en-route the 1.2500 handle. All in all I expect high volatility for the pair as traders watching their terminals with flashing news from the Brexit frontier.

EURUSD is trading in narrow trading range between 1.1350 and 1.1385 seeking a break for the next move. Italy budget crisis remains high on the European agenda. Deputy PMs Matteo Salvini and Luigi di Maio refuse to discuss a budget deficit of under 2%, but there are reports of readiness to compromise. Italian headlines will likely move the Euro against majors. Technical, on a convincing move above the 1.1425 immediate resistance, the pair is likely to aim towards reclaiming the key 1.1500 psychological mark, on the flipside support can be found at 1.1320 that supported the pair last week, and then by 1.1305 which was a swing low in late November. The trough of 1.1270 is next down the line.

GOLD edge toward the 200-day moving average at 1,255
GOLD edge toward the 200-day moving average at 1,255

GOLD continues to edge toward the 200-day moving average at 1,255. This moving average has capped prices since June 14 2018. Speculative investors increased their net long futures positions by more than 47,000 contracts in the week to December 4, according to the latest data snapshot from CFTC. Global Exchange Traded Fund flows have turned positive for 2018 as at end-November, according to a World Gold Council report dated November 30.

Later today we have UK jobs numbers, where consensus is a gain of 25K and unchanged y-o-y earnings at 3.0% – but we all know there is only one job we are all thinking about, and that’s Theresa May’s.

In Europe, we have the German ZEW survey, which is seen edging down to 55.05 from 58.2, as analysts grow gloomier.

In the US we have the NFIB small business reading, seen staying at a buoyant 107.0, and then PPI, which is expected flat m-o-m and up 0.2% ex-food and energy.