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Analysts at Rabobank see the EUR/USD pair at 1.09 in a three month period and at 1.11 in nine months.

• "What is bad for the US economy, however, is enviably sour for the global economy. We expect any USD downside into the end of next year to be moderate as other central banks also provide more stimulative monetary policy conditions. In Australia, this could mean that Quantitative Easing is rolled out for the first time.
• During the past two years, the market has underestimated the strength of the USD vs. the EUR. What has changed since the start of that period is that the market is no longer short of USD, meaning it should become more sensitive to any bad news. What remains the same is that the USD is still the only dominant currency on the global payments system and that the US economy continues to perform well relative to other major countries.
• We see potential for EUR/USD to dip lower into the spring. However, on our view that the Fed will be cutting interest rates aggressively into the end of the year and we see scope for the USD to lose some ground in H2 2020."

Analysts at CIBC expect the U.S. Dollar Index (DXY) to move lower over the next quarters, forecasting DXY at 95.5 in Q1 and at 93.4 in Q3 of next year.

• "The US dollar has managed to rally in the past year, despite a dose of Fed rate cuts and an adverse current account balance that protectionism has not addressed. After what looks to be a softer Q4 pace, the US looks poised to pick up in early 2020 on improved interest-sensitive demand, particularly in housing. That should see the Fed put away the rate cut tool for good, which on its own would be supportive for the dollar. But we see that overridden by a gradual reduction in global uncertainty over the course of the coming year, which will lean towards a partial reversal of some of the flight to safety gains for the dollar.
• We enter the year with a US-China trade deal waiting to be tested, lingering uncertainties over post-Brexit UK-EU trade talks, and pockets of overseas economic weakness still evident. The lagged impacts of earlier monetary stimulus, clarity on some of the trade files over time, and fiscal stimulus in Japan, and potentially down the road in Europe, could see the world exit 2020 with an improving tone overseas. That risk-on environment should allow recoveries for the euro and Sterling, and superior current account balances in Europe and Japan should also favour their currencies against the dollar."

The latest survey from the Federal Reserve Bank of Richmond revealed on Tuesday that the U.S. fifth district's manufacturing softened in December.

According to the report, the composite manufacturing index declined from -1 in November to -5 in December, due mainly to decreases in the already negative indexes for shipments and new orders. Meanwhile, the third component - employment - rose slightly. Manufacturers reported weakness in local business conditions and capacity utilization, but they were optimistic that conditions would improve in the coming months, the Richmond Fed added.

Economists had expected a reading of +9.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

• We are just working on the paperwork
• There will be signing ceremony on China deal with himself and Chinese President Xi

• Says "we will deal with it" when asked on any possible North Korea's so-called 'Christmas gift'
• We will see what happens if North Korea launches a long-range missile

U.S. stock-index futures traded flat on Tuesday, hovering near record-highs, supported by optimism about the global economy in the wake of improving trade relations between the U.S. and China.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Analysts at BNP Paribas are expecting the Fed to cut its official rate twice in the first half of 2020 in reaction to a slowing economy, moderate inflation and high uncertainty.

• "This should support the medium-term growth outlook, which is why, after an initial decline, we expect Treasury yields to increase gradually.
• In the eurozone, the ECB's state-dependent forward guidance and the sluggishness of the inflation process imply that the very accommodative environment will remain in place for a long time. The movement of bond yields will be very much influenced by what happens to US yields, although we expect the increase in Bund yields to be smaller. Sovereign spreads in the eurozone should decline.
• We expect that the Bank of Japan will refrain from further monetary easing.
• We expect little change in EUR/USD even though euro's fair value is quite higher than current pricing."

FedEx (FDX) downgraded to Hold from Buy at Argus

• The Australian dollar is the best performer against the greenback, holding on to higher ground above the 0.6900 level. The AUD/USD pair is confined to a tight intraday range amid the Christmas holiday keeping most major markets closed.
• A stronger gold, which trades at around $1.490 a troy ounce, and Wall Street flirting with all-time highs, provide support to the commodity-linked currency. Easing tensions between the US and China ever since announcing phase one of the trade deal, adds to the positive tone of the Australian currency.
• US markets will open their doors today but are due to an early close. The American macroeconomic calendar will offer the Richmond Fed Manufacturing Index for December, foreseen at 9 from -1 in the previous month.
• The AUD/USD pair, however, is unable to extend gains beyond the 0.6930 price zone, a level that was unable to surpass ever since breaking below it in July. The pair has broken a long-term descendant trend line coming from January 2018 high this month, which further adds to the bullish case.

Analysts at TD Bank Financial Group (TD) note that the data released on Monday revealed Canada's real GDP fell 0.1% in October.

• "Thirteen of 20 major sector groupings reported higher levels of output as declines were concentrated in a few sectors, notably manufacturing.
• Indeed, the biggest drag on overall activity came from manufacturing (down 1.4%). The biggest story there was spill-overs from a U.S. auto sector strike that sent transportation equipment manufacturing 2.5% lower, but there were additional drags. Eight of 10 subsectors reported lower output in October, including machinery manufacturing, fabricated metal products, and wood products, as well as rubber and plastics products.
• Performances among other goods-producing industries were mixed, leaving the sector as a whole down 0.5% month-on-month, the third decline in the last four months.
• Among the service sectors, output was flat, but this masked significant divergence in performances. Retail and wholesale trade fell markedly (-1.1% and -1.0% respectively), offset by better performances among sectors including real estate (+0.3%), transportation (+0.6%), and professional services (+0.3%)."

Analysts at Nordea Markets suggest that less uncertainty surrounding the trade war and Brexit have trumped negative effects from Norges Bank pulling out of the market and EUR/NOK has headed south towards levels not seen since the beginning of October.

• "In addition, oil prices are super bid supporting the NOK. While the oil price sensitivity is not what is used to be, it has been stable over the last couple of years. Further support to the NOK should be expected from current oil price levels. Chart 6 suggests levels right below 9.90 in the short term.
• Around the 9.90-level EUR/NOK should also face technical support from lows in August and end-September levels. The 200dmavg kicks in at 9.87. A 14d RSI at the lowest since October 2018 also suggests a pause in the EUR/NOK sell-off soon. If this materialises, we would like to position for further NOK strengthening into Q1 (we don't like to be long NOK over Christmas).
• Some of the positive seasonality effect in the NOK in Q1 has likely been taken out already. However, we still find good value in a long NOK/SEK position and have this as one of our top picks for Q1. According to the Regional network survey and PMIs, growth is slowing in Norway. However, in relative terms it looks a lot better than what's happening in Sweden. NOK should also be supported by favourable carry versus the SEK."

Nathan Janzen, the senior economist at the Royal Bank of Canada (RBC) notes that the larger-than-expected 1.2% drop in sales in October caps off a month of broadly soft economic data reports following earlier-reported declines in October wholesale and manufacturing sale volumes.

• "The numbers will keep concerns alive that the domestic Canadian economic growth backdrop has lost its footing somewhat at the end of the year, particularly after an unusually bad looking November employment report.
• To be sure, all of these monthly reports are volatile, perhaps the employment numbers most of all. The retail numbers in particular still look oddly soft given what has been an unspectacular but still decent household income backdrop.
• Even in that ugly November employment report, strong wage growth meant that household income growth still looked okay. And the external growth backdrop has begun to look a little less scary with US/China trade tensions easing.
• Still, Q4 GDP growth now looks like it's tracking firmly below the Bank of Canada's call for a 1.3% increase (and our own 1.4% call), and economic data releases, particularly the next Canadian labour market report, will be watched just that much more closely for confirmation that soft October/November data to-date has been more monthly volatility than new trend."

Analysts at Danske Bank believe they saw the first sign of a turn in the Chinese business cycle in October, but a continued moderate recovery has hinged on a de-escalation of the US-China trade war and this is exactly what we got with the phase-one deal.

• "Our GDP forecast for 2020 has been 6.0% for some time based on the assumption of easing trade tensions and increasing effects of the policy stimulus. We stick to this view and now see risks as more balanced after having been mainly to the downside."

ING analysts suggest that as we head into the New Year, they can reflect on an impressive turnaround in market sentiment through 2H19.

"Back in August markets were worried about recession with the US Treasury yield curve having inverted and equities selling off. After three Fed rate cuts and the announcement of a 'phase one trade-deal that eases US-China tensions, equities are at all-time highs and the yield curve has steepened. We have also had some better-than-predicted data, which makes it look more-and-more likely that we are in for a period of stable interest rates in the US.That theme should continue with the final set of releases in 2019. Home sales figures are likely to be supported by the plunge in mortgage rates experienced over the past 12 months while consumer confidence should get a lift from the strong jobs report and rising asset prices. Nonetheless, it isn't all positive with the manufacturing ISM likely to remain consistent with ongoing contraction in that sector despite the better trade newsflow."

Analysts at BNP Paribas, suggests that in the US, they are expecting the Fed to cut its official rate twice in the first half of 2020 in reaction to a slowing economy, moderate inflation and high uncertainty.

"This should support the medium term growth outlook, which is why, after an initial decline, we expect Treasury yields to increase gradually. In the eurozone, the ECB's state-dependent forward guidance and the sluggishness of the inflation process imply that the very accommodative environment will remain in place for a long time. The movement of bond yields will be very much influenced by what happens to US yields, although we expect the increase in Bund yields to be smaller. Sovereign spreads in the eurozone should decline. We expect that the Bank of Japan will refrain from further monetary easing. We expect little change in EUR/USD even though euro's fair value is quite higher than current pricing."

Danske Bank analysts note that IMF to revise up Chinese growth from 5.8% to around 6% after phase-one deal.

"Data on industrial production and retail sales underpin growth of at least 6% in Q4 and early 2020. We see more upside in Chinese equities. Signing of a phase-one deal is still on track for early January. Xi Jinping will not join Davos meeting, which could have been a Xi-Trump signing opportunity. USD/CNY treads water around 7-level. We look for more downside in 2020."

China's cabinet issued guidelines to Tuesday to further promote employment, while acknowledging that pressure on stabilising employment is increasing due to internal and external challenges.

China will step up financial support for private and small firms, appropriately expand investment, and stabilise foreign trade to boost employment, the state council said in a statement on its website.

Jean-Luc Proutat, analyst at BNP Paribas notes that the UK's general election on 12 December gave Prime Minister Boris Johnson's Conservative Party a substantial majority in the House of Commons.

"The way is now clear for ratification of the Withdrawal Agreement (Brexit) by the UK and the European Union, and this will come into force after the 31 January 2020 at the latest. There will then follow a transitional period, during which the UK and EU will have to determine the framework of their future relationship. However, at just eleven months long, this period threatens to be too short to implement the clean break sought by Mr Johnson. Unless it is to fall back on WTO rules, the UK will only be able to disentangle its links with the EU through a long and delicate process. In effect, Brexit is only at the beginning."

Eurozone's economic slowdown is continuing, especially in Germany, due to the international environment and difficulties in the manufacturing sector, according to analysts at BNP Paribas.

"The recent stabilization of business surveys, albeit at a low level, provides some hope but needs to be confirmed. Inflation is now expected to decrease while core CPI is hardly moving. The activity slowdown also implies that the pick-up in core inflation could be slower than expected until recently. The very accommodative monetary policy should be maintained as long as inflation hasn't converged sufficiently, in a convincing and lasting way, towards the ECB's objective."

China will expand the scope of its blockchain cross-border financing pilot platform, a senior official at the country's foreign exchange regulator said.

Lu Lei, deputy head of the State Administration of Foreign Exchange (SAFE) make his remarks at a forum in Beijing, where he said the regulator will strengthen the integration of fintech and the foreign exchange market, while maintaining a grip on supervising technology development.

"We will gradually expand the scope of the pilot and the application scenarios of blockchain technology in cross-border financing and macro prudential management," Lu said.

"At the same time, (the government) will push forward a prospective study on foreign exchange reforms to deal with cryptocurrency and explore the construction of the foreign exchange regulation and technology system under the new situation."

According to analysts at BNP Paribas, China's economic growth continues to slow as industrial activity and exports have been hard hit by US tariff hikes.

"Domestic demand has also decelerated. The central bank is easing liquidity and credit conditions, but the reduction in financial-instability risks should remain a priority and banks are prudent. Fiscal policy is expansionary through increased investment in infrastructure projects and household/corporate tax cuts. Tax measures are expected to have some success in supporting consumer spending. Consumer price inflation has accelerated due to rising food prices (soaring pork prices), but core inflation remains subdued."

Analysts at Nordea Markets point out that Andrew Bailey will take over the reins in Bank of England 16th of March next year and it's kind of tricky to judge whether he will lean in a firmer or softer direction than Carney.

"We would argue that Carney has moved in a relative hawkish direction in recent quarters compared to the overall mood within the MPC. Had it been a few years ago, it would have been almost impossible to find a more dovish BoE boss than Carney (maybe Draghi or Ingves would have been the exceptions), but now-a-days a pragmatic approach from Bailey make take the MPC in an overall slightly softer direction compared to Carneys most recent stance. Given that Bailey joins straight from running a regulatory office, he may though initially be viewed as a slightly hawkish choice. We don't see why Bailey should rock the boat on the narrative that risk/reward still favours a dovish tilt on the next move from Bank of England - and now that BoJos exit-deal is fully priced in, maybe markets will start to trade on the very weak UK key figures again? We lean long in EUR/GBP and short in Cable in to Q1-2020."

After a decade-long debt crisis that made Greece a bond-market pariah, the country now enjoys the luxury of having no financing needs for 2020. Yet the government's 2020 budget shows it still plans to sell new debt.

Despite a cash buffer of some 32 billion euros left over from the country's bailout program, Greece wants to maintain the good momentum of 2019 after yields hit record low levels in October. The aim is to reduce total debt seen at 329.3 billion euros in 2019, not only as a percentage of gross domestic product, but as an absolute number too.

Greek borrowing needs for 2020 will be 1.9 billion euros, according to next year's budget. But this amount is expected to be covered by using some of the primary surplus, privatization receipts and by the proceeds from Greek bonds that central banks bought during the crisis under the Securities Market Program (SMP) and the Agreement on Net Financial Assets (ANFA).

Yields on the benchmark 10-year issue are now trading some 68% lower than at the beginning of the year, around the same level as for the Italian equivalent.

Analysts at Standard Chartered Bank offer their price outlook on the pound heading into the next year.

"We still expect GBP strength. But with more volatility, a jagged upward path. Investors are concerned about "cliff-edge" Brexit risk, but this should decline. Political incentives do not support the risk of economic disruption. We sees GBP/USD at 1.38 by the end of Q3 2020 and at 1.40 by the end of 2020."

Despite the support coming from the Fed rate cuts in 2019, analysts at BNP Paribas are expecting the US growth to slow in the near term under the influence of corporate investment (slower profits growth, trade uncertainty) and housing (declining trend of affordability, despite a recent rebound).

"Consumer spending should be more resilient but could slow on the back of a less dynamic labour market. As a consequence, we expect two Fed funds target rate cuts in the first half of 2020."

The minutes of the policy board meeting held on October 30 and 31 showed that a few board members of the Bank of Japan shared the view that the central bank should not only conduct monetary policy but also enhance its cooperation with the government in terms of economic policies and prepare for the next economic downturn.

A different member pointed out that the BoJ should continue to examine whether additional monetary easing would be necessary.

At the October meeting, the Policy Board voted 7-2 to maintain interest rate at -0.1 percent. Further, the bank strongly signaled further monetary easing going forward at the meeting.

Discussing guidance, many members pointed out that, considering that a pick-up in overseas economies would be delayed, it was necessary to pay close attention to the possibility that the momentum toward achieving the price stability target would be lost. These members said that it was appropriate for the central bank to consider revising the current forward guidance at this meeting.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1210 (5331)

$1.1179 (2565)

$1.1163 (3731)

Price at time of writing this review: $1.1087

Support levels (open interest**, contracts):

$1.1048 (5488)

$1.0999 (3051)

$1.0950 (2670)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 3 is 54690 contracts (according to data from December, 23) with the maximum number of contracts with strike price $1,1050 (5488);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3207 (3120)

$1.3161 (829)

$1.3118 (1457)

Price at time of writing this review: $1.2941

Support levels (open interest**, contracts):

$1.2870 (1622)

$1.2831 (1401)

$1.2788 (2287)

Comments:

- Overall open interest on the CALL options with the expiration date January, 3 is 24156 contracts, with the maximum number of contracts with strike price $1,3500 (3272);

- Overall open interest on the PUT options with the expiration date January, 3 is 26931 contracts, with the maximum number of contracts with strike price $1,2800 (2287);

- The ratio of PUT/CALL was 1.11 versus 1.12 from the previous trading day according to data from December, 23

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.