The big picture

• The dollar was generally lower overnight, gaining vs GBP, NOK and CHF but lower vs five other G10 currencies (JPY, CAD, SEK, AUD and NZD). EUR/USD was largely unchanged. USD weakness stemmed from weak US indicators: pending home sales and the Dallas manufacturing index both came in below expectations. Some of the delay in pending home sales may be due to the government shutdown in October, so there could be a rebound when the next data comes out on Dec. 30th. However before then we will have existing home sales for November (19 Dec), and since pending home sales tends to lead existing home sales by a month or so, that figure may be weak.

• Brent was up around 2.1% ($2.26) while WTI gained 0.4% ($0.38) from their price at Monday’s European opening. Brent opened sharply lower yesterday after the interim accord with Iran raised the possibility of an increase in supplies from that country, but the European opening turned out to be the lows for the day and it recovered steadily. Silver and gold also gained with oil. The impact on currencies was mixed however: NOK continued to fall while CAD was higher this morning. It seems to me that the rebound in Brent may be overdone – Brent is back to levels that have been seen only a few times in the last year, while the Brent/WTI spread is at a record high. I would expect to see Brent come back down somewhat and with it NOK fall even further. Gold and silver may also come off today in sympathy. WTI is supported ahead of Wednesday’s release of the US Energy Information Administration report on oil inventories. The market is predicting a 300,000 barrel fall in inventories, the first decline in 10 weeks. Yet the modest movement suggests not that much enthusiasm for oil against the background of yesterday’s sluggish manufacturing indicator. Therefore CAD too seems vulnerable to me at these levels, as oil is Canada’s largest export.

• Today’s indicators start with Italy’s consumer confidence index for November, which is forecast to rise slightly to 97.5 from 97.3. In the US we have housing data that may counter the negative impression from yesterday’s weak pending home sales and therefore support USD. Building permits data for both September and October will be released. Permits are expected to be 930k in October, vs 926k in August, the last month we have data for. House prices are expected to show a steady rise: the S&P/Case-Shiller house price index is expected to be up 0.9% mom in September, the same as in August, while the FHFA price index for September is forecast to have risen by 0.4% mom, an acceleration from +0.3% mom in the previous month. The S&P/Case Shiller index includes higher-priced houses, which have been recovering faster than lower-priced houses. The Conference Board Consumer confidence for November is forecast to rise to 72.5 from 71.2 and US Richmond Fed Manufacturing survey for November is expected to rise to 4 from 1, both of which would also be USD-positive.

• There are two BoE and two ECB speakers on Tuesday. Bank of England Governor Mark Carney testifies at the Treasury committee on the central’s bank’s Inflation Report and its new economic forecasts and BoE’s Bulley speaks at a Conference in London. Mr. Carney tends towards the dovish side so his testimony could pressure GBP. ECB’s Mersch gives a keynote speech on monetary and financial stability, while ECB’s Asmussen gives a guest speech at a dinner in Berlin. Mersch recently said that the ECB has the tools “to flood the economy with liquidity” if necessary, while Asmussen said that he wouldn’t exclude setting a negative deposit rate. Their comments today could therefore be negative for the euro.

THE MARKET

EUR/USD

• EUR/USD moved slightly lower but rebounded slightly after finding support at the 1.3500 (S1) barrier. The pair is currently trading between that support and the resistance of 1.3578 (R1). That’s below the light-blue support line, but since it failed to overcome the previous low, I remain neutral for now until one of the aforementioned barriers is violated. Yesterday’s price formed a bearish harami candlestick, suggesting that we might see the rate once again below 1.3500 (S1).

• Support: 1.3500 (S1), 1.3414 (S2), 1.3321 (S3)

• Resistance: 1.3578 (R1), 1.3662 (R2), 1.3782 (R3).

USD/JPY

• USD/JPY moved lower but the decline was halted by the 101.36 (S1) support and the upper boundary of the purple uptrend channel. A downward violation of that level will bring the price once again into the channel. However, I would consider any decline as a pullback that may provide renewed buying opportunities. The short-term trend remains an uptrend, since the rate is printing higher highs and higher lows and the 50-period moving average lies above the 200-period moving average, providing support to the price action. On the daily chart, the rate is trading above the upper boundary of a symmetrical triangle formation, suggesting further advance.

• Support: 101.36 (S1), 100.43 (S2), 99.55 (S3).

• Resistance: 101.90 (R1), 102.40 (R2), 103.60 (R3).

GBP/USD

• GBP/USD moved lower yesterday, and reached the lower boundary of the short-term uptrend channel which coincides with the 1.6147 (S1) support barrier. Only a clear violation of that support would be a reason to assume further decline. As long as the previous low holds and the price remains within the channel, the short-term uptrend remains in effect. The 50-period moving average remains above the 200-period moving average, confirming the short-term uptrend.

• Support: 1.6147 (S1), 1.6052 (S2), 1.6000 (S3).

• Resistance: 1.6260 (R1), 1.6375 (R2), 1.6442 (R3).

GOLD

• Gold rebounded from the 1227 (S1) barrier and moved significantly higher. At the European opening the price is testing the upper boundary of the downward sloping channel. The short-term trend is still a downtrend since the precious metal remains within the channel, printing lower highs and lower lows. On the daily chart the price is trading slightly above the neckline of a possible head and shoulders top formation, where a downward break would have larger bearish implications.

• Support: 1227(S1), 1211 (S2), 1177 (S3).

• Resistance: 1251 (R1), 1269 (R2), 1290 (R3).

OIL

• WTI moved higher after finding, for the umpteenth time, support at the 93.14 (S1) barrier. The price is trading between that barrier and the resistance of 95.36 (R1), since the 5th of November. Both momentum studies lie near their neutral levels not giving any clues for the next direction of oil. On the daily chart, yesterday’s trading activity is printed as a doji, indicating indecision between investors to choose a direction for WTI.

• Support: 93.14 (S1), 91.22 (S2), 89.32 (S3).

• Resistance: 95.36 (R1), 98.81 (R2), 101.00 (R3).