The Fed minutes recognises that the risk of a US recession next year is almost ‘as likely as the base case’. This revelation sent the USD sharply lower on Wednesday and will put acute focus on the US PCE print next week. The week started rather subdued with the lack of any major catalyst expected and going forward the main market focus remains on whether the Fed will pivot or not and, if so, when? In other news, the RBNZ stepped up its fight against inflation significantly raising its terminal rate projections. Other key events from the past week USD: US PMIs, Nov 23: US PMIs for services and manufacturing both printed below the market’s minimum expectations showing weakening US sentiment. Will it change the Fed’s mind? Unlikely, but it moved the USD quickly lower. NZD: RBNZ hikes by 75bps, Nov 24: The RBNZ rate hike was as expected, but the committee also discussed a 100bps hike and raising the terminal rate to 5.5% for Q3 2023. This was a decidedly more hawkish tilt from the RBNZ. USD: FOMC Minutes, Nov 24: US Markets paused for US Thanksgiving celebrations on Thursday, but the Wednesday minutes showed the Fed anticipate a US recession next year which led to further USD selling and XAUUSD buying. Key events for the coming week USD: Fed’s preferred inflation measure, Dec 01: At 13:30 UK time the core PCE print is released with expectations of a 4.9% y/y print. However, if we see a larger than expected print watch out for potentially sharp falls in US stocks. Stronger seasonals approach for copper: Could improving sentiment for China support copper prices?  S&P500: US Labour data, Dec 02: Will the US Non-Farm Payrolls start to show significant signs of a slowdown in the US jobs market? If the market sees a very disappointing number then watch out for potential further USD weakness. Learn more about HYCM

Since the Fed's last raise November 3, Fed Funds rate opens and closes at 3.83. The Fed Funds rate once traded freely on its own with highs and lows as any financial instrument. In 2000, Central banks implemented meetings every 6 weeks. Prior to 2000, central banks met anytime they desired and changed interest rates at their own discretion. Traders were forced to factor Fed Funds for oversold and overbought status for possible changes to an unknown date to meetings. Fed Funds then was known as the discount rate and this rate is discounted to headline. The question was the spread and insight to possible interest changes. Bernanke and Big Sis Yellen changed Fed Funds into an immovable fixed rate. Fed Funds moves every 12 points with every 25 point change to headline and remains fixed. From 3.83, Fed Funds trades daily at its maximum 25 points and minimum 12 from 3.80 to 4.05. Yields are priced from Fed Funds and normally trade much higher rates. The question to past yield curve inversions occurrs particularly when higher yields trade below lower yields especially the 10 to 2 rates. How serious is an inversion must be measured by the 10 year to 3 month to determine where was Fed Funds location in relation to inversions. Avoidance of recession in 6 months on a 10 to 2 inversion might nullify recessions by money supply adjustment. Due to Fed Funds at Fixed rates, speculation to inversions under a completely different system as existed in past years happens when yields trade below Fed Funds rather than the old definition of 10 to 2 year crossovers and imminent economic danger. Under the new speculation to inversions, the 30, 10 and 7 year yields meet the criteria to inversions as Yields trade below Fed Funds by 11, 15 and 3 points at 3.72, 3.68 and 3.80. Further, interest on reserves or IOR trade 3.90, SOFR 3.80 and 3.76 for Tri Party and Broad collateral rates. Fed Minutes released yesterday revealed Treasury Markets were functioning normally. The overall assumption is yesterday's inversions and recession no longer applies as the criteria pertains to a systemic condition that no longer exists. The week Best trades for next week are short to severely overbought EUR/CAD, GBP/CAD, AUD/CAD and NZD/CAD. All are subject to Gap openings on Sunday night. Next is deeply overbought EUR/USD, GBP/USD and NZD/USD. AUD/USD is excluded as it imposes a different set of circumstances than EUR, GBP and NZD/USD. When AUD/USD traded 0.6500's and 0.6600's, AUD/EUR also traded in lock step to AUD/USD at 0.6500's and 0.6600's. This marriage left EUR/AUD paralyzed to movements over months. AUD/EUR now trades 0.6480 or EUR/AUD 1.5413 and AUD/USD at 0.6700's. AUD/USD lower must break 0.6673 and AUD/EUR 0.6552 or EUR/AUD 1.5262. AUD/USD and AUD/EUR remain in a tight relationship. EUR/AUD or AUD/USD requires a wider range movement to break the AUD/USD and AUD/EUR relationship and force a better trade for both currencies. Until this happens, AUD/USD and EUR/AUD will suffer to total range movements and reduced profits. Overbought EUR, GBP and NZD/USD is the direct result of DXY. Last week big lines above were located at 107.81 and 108.34 and DXY traded to 108.01. DXY above averages now exist at 106.81, 108.27 and 108.42 and 109.29. DXY averages above are dropping slowly as weeks progress. DXY traded 232 pips this week Vs EUR/USD at 226. DXY targets 105.05 this week and another 200 pip range week. USD/CAD as a result of DXY averages, faces many and massive lines at 1.3400's and 1.3500's on a short only strategy. USD/CAD first major line is located 1.3329. USD/CAD averages above are droppoing slowly every week along with DXY. USD/JPY last week 139.44 to 140.29 or 141.15 and 142.01. Highs traded to 142.24 and lows at 138.02 on the break ay 139.44. USD/JPY this week: 137.76, 139.29 and 140.05. Above 140.81 then higher for USD/JPY. Overall, USD/JPY will follow DXY lower. EUR/NZD long for next week anywhere at 1.6500's. AUD/NZD trades massive oversold while GBP/NZD also heads long but least favored. EUR/NZD is the best of the 3 currencies. GBP/JPY and NZD/JPY trade overbought while EUR/JPY waits for a resolution at 143.29 and oversold to AUD/JPY and deeply oversold CAD/JPY. JPY cross pairs lack uniformity.

The U.S. Dollar was lower across the board on Thursday, as markets reacted to the latest Fed minutes. The Federal Open Market Committee confirmed that it could be prepared to pivot from aggressive rate hikes in coming months. Yesterday's minutes showed that, "A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate."  The minutes went on to say that, "The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important." GBPUSD is currently trading at a three month high, with EURUSD nearing a five month high.

Dollar Index has declined sharply post the FED meeting minutes released yesterday and could be headed towards 105/104 while Euro has scope to rise to 1.05/1.06. Aussie and Pound are headed towards 0.68 and 1.22 while EURJPY holds below 146 and can fall. USDJPY can test 136 before bouncing back from there. USDCNY can test 7.10 while USDRUB remains within 59-61.50 region. EUINR has risen sharply and can test 86. USDINR can be ranged within 82-81.50 region before breaking higher eventually. The US Treasury yields are continuing to fall in line with our expectation. The minutes of the US Federal Reserve's November meeting showing that the pace of rate hikes would be slowed down soon has dragged the yields lower. The Treasury yields have room to fall more from here. The German Yields are coming down as expected and can fall further to test their key supports. Thereafter a bounce is possible. The 10Yr and 5Yr are looking mixed and are stuck in a sideways range. Dow continues to rise above 34000 keeping our bullish view intact. DAX remained stable but overall view remains bullish to see a rally on the upside. Nikkei has risen as expected and has room to test key resistance on the upside before reversing lower from there. Shanghai looks mixed but broader picture remains weak while below resistance at 3125-3150. Nifty remains bullish to see a break above 18400 while above the support at 18100-18000. Brent and WTI fell sharply to $84.12 and $76.87 yesterday on talks of price cap on Russian oil and release of higher than expected US gasoline inventory data. As per the news, G7 nations are considering a price cap on Russian seaborne oil in the range of $65-70/bbl. Gold recovered well from a low of 1719 as the support at 1720 seems to be holding well while Silver has broken above the resistance at 21.30/50. Both the metals have scope to rise further on the upside while above 1720 (Gold) and 21.50 (Silver) respectively. Copper remains bullish for a rise towards 3.80-3.85 while above the support at 3.5. Visit KSHITIJ official site to download the full analysis

United States: Leftovers are for quitters The closest thing to leftovers in economic data are unfilled orders, which may help sustain factory activity, but they're unlikely to be a saving grace should demand dry up more meaningfully. In addition to a jump in durable goods orders this week, new home sales shot higher in October. The number of people still on unemployment benefits rose to the highest level since March. Next week: Personal Income & Spending (Wednesday), ISM Manufacturing (Thursday), Employment (Friday). International: European sentiment improves, but recessions unavoidable Eurozone and U.K. purchasing manager indices were better than expected in November, but remain in contraction territory. While the upside surprise signals the magnitude of economic contraction may not be as severe as initially expected in Q4-2022, we still believe recessions in the Eurozone and U.K. are imminent. Next week: China PMIs (Tuesday), Eurozone CPI (Wednesday), Brazil GDP (Thursday). Credit market insights: China steps in to help struggling property sector China's property sector has certainly faced challenges this year, as struggles to generate sufficient cash flow and liquidity issues have seen real estate projects across the country stall. Furthermore, over-leveraged developers continue to face elevated probabilities of defaulting on debt as well as an inability to deliver completed properties to homebuyers. Given these problems, the government has taken steps to help alleviate some of the stress on the industry. Topic of the week: Talking Turkey on thanksgiving As millions of Americans gather this Thursday, some are noticing all of the food they have brought to the table has left their wallet a little less stuffed this season. Whether it is a meal of traditional Thanksgiving trimmings or an evening gathered around a restaurant table, prices have gone up significantly over the past year. Download The Full Weekly and Financial Commentary

Stagflation is coming – and it could make the 1970s look like a walk in the park. As you’ve probably noticed, I expect a recession next year, and I’m not alone, as this has become the baseline scenario for many financial institutions and analysts. Even the DSGE model used by the New York Fed shows an 80% probability of a hard landing (defined as four-quarter GDP growth dipping below -1%) over the next ten quarters. Reasons? Inflation and the Fed’s tightening cycle. The history is clear: whenever inflation has been above 5%, the Fed’s hikes in interest rates have always resulted in an economic downturn. The key yield curve has recently inverted, which means that the most reliable recessionary indicator has started to flash red light. Although the coming recession could decrease the rate of inflation more than I assume, given the slowdown in money supply growth, I believe that high inflation (although lower compared to the current level) will continue through 2023 and perhaps also in 2024 due to the excess increase in money supply during the pandemic. It means that recession is likely to be accompanied by high inflation, forming a powerful yet negative combo, namely, stagflation. If the calls for stagflation are correct, it suggests that the coming recession won’t be mild or short-lived, as it’s not easy to combat it. In the early 1980s, Paul Volcker had to raise the federal funds rate to above 17%, and later even 19% (see the chart below), to defeat inflation, which triggered a painful double-dip recession. During stagflation, there is a lot of uncertainty in the economy, and monetary policy becomes much more complicated, as the central bank doesn’t know whether to focus on fighting inflation, which could become entrenched, or rising unemployment. In a response to the Great Recession or the Great Lockdown, the Fed could ease its monetary policy aggressively to address declining aggregate demand and neutralize deflationary pressure. But if inflation remains high, Powell’s hands are tied. Some analysts argue that today’s financial imbalances are not as severe as those in the run-up to the 2007-2009 global financial crisis. Partially, they’re right. Commercial banks seem to be in much better shape. What’s more, inflation has reduced the real value of debts, and it remains much higher than many interest rates, implying that governments and companies can still issue very cheap debt. However, financial markets remain very fragile. A recent example might be the turmoil in the UK after the government proposed unfunded tax cuts that altered the price of Treasury bonds and negatively affected the financial situation of pension funds. The level of both private and public debt as a share of global GDP is much higher today than in the past, having risen from about 200% in 1999 to about 350% today. It means that the space for fiscal expansion will be more limited this time, and that the current tightening of monetary policy all over the world could have huge repercussions for the global economy. We’re already observing the first symptoms: the financial bubbles are bursting and asset prices are declining, reducing financial wealth and the value of many collaterals. This is why economist Nouriel Roubini believes that “the next crisis will not be like its predecessors.” You see, in the 1970s, we had stagflation but no debt crisis. The Great Recession was essentially the result of the debt crisis, followed by the credit crunch and deleveraging. But it caused a negative demand shock and low inflation as a result. Now, we could have the worst of both worlds – that is, a stagflationary debt crisis. What does it all mean for the gold market? Well, to be very accurate, nobody knows! We have never experienced stagflation combined with the debt crisis. However, gold shone both during the 1970s stagflation and the global financial crisis of 2007-2009, so my bet is that it will rally this time as well. It could, of course, decline during the period of asset sell-offs, as investors could sell it in a desperate attempt to raise cash, but it should later outperform other assets. To be clear, it’s possible that inflation will decline and we’ll avoid stagflation or that the Fed will blink and prevent the debt crisis instead of fighting with inflation at all costs, but one or another economic crisis is going to happen. When gold smells it, it should rebound! 2023 should, therefore, be much better for gold than this year, as the economy will be approaching recession and the Fed will be less hawkish.

EUR/USD struggles to capitalize on the previous day's positive move beyond the 1.0300 mark. China's COVID-19 woes lend support to the USD and cap the major ahead of FOMC minutes. Traders will also look to Wednesday's release of the flash PMIs from the Eurozone and the US. The EUR/USD pair regained positive traction on Tuesday and climbed back above the 1.0300 mark, stalling the pullback from a four-and-half-month top. The US Dollar came under some renewed selling pressure and eroded a major part of the previous day's strong gains to over a one-week high. This, in turn, was seen as a key factor acting as a tailwind for the major. Despite hawkish comments by several Fed officials, investors seem convinced that the US central bank will slow the pace of its rate-hiking cycle. In fact, the current market pricing indicates a greater chance of a relatively smaller 50 bps lift-off at the next FOMC policy meeting in December. The bets were reaffirmed by Cleveland Fed President Loretta Mester, saying that it makes sense to slow down the pace of rate increases. This led to a further decline in the US Treasury bond yields, which, along with the risk-on impulse, weighed heavily on the safe-haven greenback. The shared currency, on the other hand, drew support from talks for a more aggressive policy tightening by the European Central Bank (ECB). In fact, ECB policymakers - Robert Holzmann and Mario Centeno - backed the case for a third straight 75 bps rate increase at the December ECB policy meeting. This was seen as another factor that provided an additional lift to the EUR/USD pair. Bulls, however, struggle to capitalize on the momentum and remain on the sidelines through the Asian session on Wednesday. Concerns about economic headwinds stemming from a spike in new COVID-19 cases in China and the imposition of fresh restrictions keep a lid on the optimism. Furthermore, expectations that the Fed will continue to raise borrowing costs to curb inflation acts as a tailwind for the buck and caps the EUR/USD pair. Hence, the market focus will remain glued to the November FOMC meeting minutes, due for release later during the US session. In the meantime, traders will take cues from the flash PMI prints from the Eurozone and the US. Technical Outlook From a technical perspective, any subsequent move up is more likely to confront stiff resistance near the very important 200-day SMA. The said barrier is currently pegged just above the 1.0400 round figure and should act as a pivotal point. A sustained strength beyond has the potential to lift the EUR/USD pair back towards the monthly swing high, around the 1.0480 region, touched last week. This is closely followed by the 1.0500 psychological mark, which if cleared decisively will be seen as a fresh trigger for bullish traders. Spot prices might then accelerate the momentum towards reclaiming the 1.0600 mark with some intermediate resistance near the 1.0545-1.0550 zone. On the flip side, any meaningful pullback below the 1.0300 level might continue to find decent support near the 1.0240-1.0220 region. Some follow-through selling below the 1.0200 round figure will negate any near-term positive outlook and shift the bias in favour of bearish traders. The EUR/USD pair might then turn vulnerable to extend the corrective decline and challenge the 100-day SMA, currently around the 1.0100 mark. A convincing break below the latter will expose the parity mark, below which spot prices could slide to the next relevant support near the 0.9935 area en route to the 0.9900 round-figure mark.  

Minutes from the latest Federal Reserve meeting may shed emphasis on the dovish tilt in the text. The document is revised before the release, considering the weak inflation report. Markets have tended to see the glass half-full in recent weeks – and that is unlikely to change. "Turning our back to forward guidance" – those following central banks closely will have noticed that this catchphrase belongs to the European Central Bank, not the Federal Reserve. The Washington-based institution does guide markets, and this is one of the reasons to expect the US Dollar to fall in response to the market-moving FOMC Meeting Minutes. I will run through three reasons to expect markets to cheer and the Greenback to glide lower in response. 1) Dovish tilt in the statement The Federal Open Market Committee (FOMC) deliberates every word in its statement, and these words caught markets' attention at the time of the last FOMC on November 2 (emphasis mine): ...the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation... What do these changes signal? The Fed acknowledged in its statement that It had already raised rates significantly and that it could slow down the pace of raising rates, waiting to see the effects on inflation. Markets cheered in response to prospects of lower rates and the US Dollar lost steam. The Minutes from the same meeting, meanwhile, are set to explain this change of tone and provide a reminder that a 50 bps hike is likely in December, not a 75 bps one like the previous four. That is Dollar-negative.   2) Countering last month's outcome I just said that markets cheered the statement, so how would countering the outcome be negative for the Dollar? Only 30 minutes after the release, Fed Chair Jerome Powell took to the stage and said interest rates would reach higher levels than expected. He clarified that while the Fed could slow down in the next meeting, the final rate would be more than previously thought and more than markets had expected. If that was not enough, he verified that he disliked the initial, positive market reaction. By then, stocks were already down and the Dollar was up. In the past few years, the Minutes tended to provide a counter-punch to the outcome of the rate decision – a hawkish twist in the minutes after a dovish outcome to the rate decision, and vice versa. History may well repeat itself, or at least rhyme.  Moreover, since the Fed's last meeting, the US has released a weak inflation report. The Core Consumer Price Index (Core CPI) rose by only 0.3% in October, half of the rate in the previous three months – a significant improvement. The Fed's minutes are revised until the last moment and to reflect incoming data. They are crafted to reflect changes by emphasizing specific topics and de-emphasizing others. I expect the release to amplify voices saying inflation may soon reach a peak. Another Dollar downer.  3) Market reactions Only two days after the Fed decision, markets showed what they really wanted to see. A mixed report resulted in a surge in stocks and the Dollar's fall. The weak CPI report mentioned above triggered a massive rally, further taking the Dollar down. And when China denied it was planning to reopen the economy – markets shrugged it off. At least until the next inflation report, I expect investors to see the glass half full rather than half empty – to cling onto good news to rally rather than get depressed from downbeat data. That would weigh on the safe-haven Dollar.  Final thoughts The FOMC Meeting Minutes are released just before the Thanksgiving holiday, and investors may rush to find Black Friday bargains – almost regardless of the nuances in the report. The mere publication may unleash "animal sporting" as Americans get ready to gobble up some turkeys. 

The OECD warning that the UK faces years of stagnant growth has done little to dampen sentiment for the FTSE 100, with energy stocks leading the push higher. FTSE 100 leads the gains despite OECD growth  concerns "European markets have provided an area of optimism today, with equities outperforming their US counterparts despite growth concerns raised by the OECD. Quite how much markets are listening to the OECD is questionable, with both the FTSE 100 and pound gaining ground despite claims that we will see a measly 0.2% 2024 after next year's contraction. While the effects of Brexit have been largely masked by the Covid pandemic, the outlook remains bleak over our ability to grow our way out of this current crisis. Nonetheless, with the Bank of England likely to take a more accommodative stance once inflation is brought under control, the ability to predict when the UK returns to health will be reliant on driving down prices. Unfortunately, the OECD predict that the UK energy price cap will serve to lift inflation, thus limiting the ability to combat the stagflation that is expected to dominate 2023. " Saudi comments help drive energy outperformance "Energy stocks have managed to push to the front of the queue today, with rising crude oil prices helping to lift the sector on both sides of the Atlantic. Yesterday's comments from the Saudi Energy Minister have served to highlight their unwavering desire to lift energy prices, with the rebuttal of claims they planned to lift output also accompanied by a commitment to further reduce production if necessary. For oil traders, the importance of OPEC's desire to support prices has been somewhat lessened thanks to a wave of Covid restrictions in China as Beijing cases reach record highs. The complete reopening of the Chinese economy does allow energy bulls a degree of optimism over the medium-term, but recent moves to remove restrictions look to be a false dawn for now. "

Outlook: This week is a short one in the US because Thanksgiving comes on Thursday and while markets are open on Friday, lots of folks make it a 4-day weekend--trading will be thin in every class. Somewhat strangely, the news of the week may well be the minutes of the last FOMC meeting on Wednesday, since we are all trying to read the Fed's mind. We guess the minutes will show a relentlessly hawkish tone. You have to wonder if the markets will "get it" at last. We also get the S&P flash manufacturing and services PMI's, durables, the Riksbank, the Reserve Bank of New Zealand, and the minutes of the last ECB policy meeting. The S&P composite PMI is forecast down a hair to 48.0 from 48.2 in Oct, led by manufacturing (50.0 from 50.4) with services at 48.0 from 47.8. We also get a slew of regional Fed reports, starting with the Chicago national today, expected down to -0.03 from 0.10 in September. Remember that in this measure, zero means "on trend," so despite being the first negative reading since June, it's not actually "bad" but rather a sign of ongoing resilience. About the Fed: The bond gang got it, a little. The expectations-sensitive 2-year rose to a one-week high on Friday and closed at 4.514% after spending most of the week under 4.4%. That seems a feeble response to Bullard's over 5% and maybe as much as 7% for Fed funds. And check out the 10-year—not out of the woods. The CME FedWatch tool—so badly designed and presented in tiny fonts—shows that those expecting 5.25-5.5% by June next year rose from 8.3% last week to 22.5% in the latest reading, up in one day from 19.4%—but it was 16.4% the month before. Those seeing 5.50-7.75% rose to 4.8% from zero and those seeing 5.75-6.0% rose only to 0.3% from zero. We may get some leadership from the Reserve Bank of New Zealand, which meets on Wednesday and forecast to hike another 75 bp (to 4.25%), but maybe only 50 bp, which is what it did at the Oct 5 meeting. Inflation is at 7.2% y/y in Q3. We will not publish any reports on Thursday or Friday. That means we will miss Germany's IFO and GfK plus a slew of other releases.  As the week gets going, we see three drivers—the Fed minutes, the Reserve Bank of NZ, notable for sanity and reasonableness, plus realistic forecasts—and China's Covid policies. Bloomberg reports risk aversion arising from Covid setbacks in China is the driver of the dollar today. It's also presumably the driver for the AUD—to the downside. It's an easy jump from China crackdown to supply shortages and supply chain problems. Remember that earlier this year, China closed ports as well as factories, inhibiting imports as well as exports. If we get a repeat, that means inflation in the US and Europe gets a punch in the nose, again. Does this influence the economists beavering away in the back rooms of the Fed, BoE and ECB? We bet they are keeping an eagle eye on it. We also guess that renewed crackdowns in China, if that's what we get, raise the probability of recession pretty much everywhere. Assuming inflation remains the top priority, it doesn't tell us anything about what central banks will do, but tickles the odds to more hawkishness. Recession Tidbit: The WSJ reports the pile of savings built up during the pandemic is already shrinking and will be used by in 9-12 months. Those stimulus checks plus "constrained spending opportunities" resulted in excess savings of $1.2-1.8 trillion.  "As those savings dwindle, signs of financial stress could reappear, such as rising default rates on loans. That stress could get more pronounced if the labor market slows. Economists surveyed by The Wall Street Journal expect employers will start cutting jobs in the second and third quarters of next year." This report comes from an Oct report by the Fed that helpfully defines how savings can be "excessive" and what they look like across income segments. It's pretty interesting that the Fed conclusion is different (positive) from the WSJ's (negative). "In summary, our estimates suggest that households across the income distribution continue to have a buffer of excess savings to help them navigate higher prices and/or a tightening cycle. While this buffer is dwindling, for now it is likely still providing some needed balance sheet support that could help to stanch a negative feedback loop were the economy to slow." US Politics: The Attorney General has appointed a special counsel, a puritanical-looking guy named Jack Smith, to take a leadership role now that Trump has generated "special circumstances" by running for office. The amount of commentary on this action, much of utterly false, is astounding. The important thing—the first 2024...

As we start a new week in the UK, the focus is on the renewed Brexit debate, which has resurfaced after some assumed it was put to bed at the end of 2020. The Sunday Times ran a story that said senior government figures were mulling over putting Britain on the path towards a Swiss style relationship with the EU. In effect this would mean frictionless trade, but it would come with a price: free movement and contributions to the EU budget. However, those claims have been rebuffed by PM Rishi Sunak on Monday, he told the CBI conference that he would not support a realignment with EU trade rules although he would be looking for closer ties with the EU. The Brexit debate has resurfaced at an interesting time for the UK. The latest YouGov polls suggest that the wider British public now think that Britain was wrong to leave the European Union by 56% to 32%, and one fifth of Brexit voters now think that they made the wrong decision. The ERG was outraged by the headlines on Sunday and vowed to bring down the government if they planned on following a Swiss-style relationship with the EU. However, it appears that public support for Brexit is waning, so what does this mean for the future relationship between the UK and the EU, and for UK asset prices?  The problems of a Swiss-style relationship with the EU  Even die-hard Remainers like myself, would be wary of a Swiss-style deal. While I would welcome re-entry to the single market, the Swiss don’t have a say at the EU table, for the UK’s best future interests, surely, we need to forge stronger ties with the EU. What is interesting, is that if YouGov is correct, and if one fifth of Brexit voters now think they made the wrong choice in 2016, then if there is a re-run of the Brexit referendum then the UK would overwhelmingly vote to remain in the EU. This should give Rishi Sunak and co. pause for thought. The unplanned, chaotic, and ugly Brexit that was delivered by Boris Johnson is not working for the country and the voters know it, thus I would very much expect that behind the scenes the government is working on building a strong relationship with the EU. Here at Minerva, we would urge the government to do something bigger and bolder than replicating a Swiss-style relationship. Of course, Sunak can’t yet speak about this out loud. But soon, even the ERG will know that the game is up and when that happens, hopefully Brexit will be confined to history as a bad mistake, found in the same bracket as the Liz Truss premiership.  The UK’s continuing debt problem  The impact on UK asset prices is more nuanced, but overall, I believe that signs that the UK and EU are building stronger bonds will have a positive impact on UK asset prices. At the start of the week, there is a risk off tone to global markets, European and US stocks are lower, while the Vix index, Wall Street’s fear monitor, is up. Likewise, the dollar has also caught a bid on Monday and is the strongest performer in the G10 at the start of this week. Government bond yields are lower across the board, however, after last week’s spike higher, UK Gilts are one of the strongest performers in the G10 sovereign bond space at the start of this week. After the UK’s Autumn statement at the end of last week, 10-year Gilt yields surged by 20 basis points. This followed on from the backloading of UK government spending cuts announced by Jeremy Hunt. Added to this, a report by Citi pointed out the total amount of government debt that the Treasury will have to issue in the next two years. In recent years, the BOE has been buying up lots of government debt, but now that it wants to shrink its balance sheet it won’t be the buyer of last resort that it once was. It is worth noting that the biggest buyer of UK Gilts in the 3–7-year range is now a seller. This leads to the question – who will buy UK government debt, especially when the growth outlook is so bad? The fact that Gilt yields have fallen on Monday is telling: the prospect of a closer relationship with the EU, even an imperfect one like a Swiss-style deal, is pleasing to the bond market and could entice more buyers of Gilts in the coming years. The government and Treasury know this, and it is why we believe that within 2 years the UK’s current relationship with the EU will have to change. Within 5 years we could even be back in the EU. Being part of...

EURUSD remains under some selling for the third successive day and drops to a one-week low. China’s COVID-19 woes, geopolitical risks drive haven flow towards the USD and exert pressure. Talks for a more aggressive policy tightening by the ECB could limit deeper losses for the Euro. The EURUSD pair extends last week's retracement slide from a four-and-half-month high and edges lower for the third successive day on Monday. The downtick drags spot prices to a one-week low during the Asian session and is sponsored by some follow-through buying around the US Dollar. The market sentiment remains fragile amid the worsening COVID-19 situation in China and the imposition of fresh lockdowns in several financial hubs - including the capital Beijing and the economic centre Shanghai. Adding to this, fears of a potential escalation in the Russia-Ukraine conflict temper investors' appetite for riskier assets and drives some haven flows towards the safe-haven greenback. This comes on the back of hawkish signals from several Federal Reserve officials last week, which is seen as another factor offering additional support to the buck. Moreover, the better-than-expected US Retail Sales data released on Thursday cast doubts on the peak inflation narrative and suggested that the Fed might still be far from pausing its policy-tightening cycle. Market participants, however, seem convinced that the US central bank will hike interest rates at a slower pace and have been pricing in a greater chance of a relatively smaller 50 bps lift-off in December. This continues to weigh on the US Treasury bond yields and might cap any further gains for the USD. Hence, the focus will remain glued to the FOMC monetary policy meeting minutes, due on Wednesday. In the meantime, talks for a more aggressive policy tightening by the European Central Bank (ECB) could lend support to the shared currency and limit the downside for the EURUSD pair. The bets were lifted by ECB President Christine Lagarde's comments on Friday, saying that the central bank is committed to bringing down medium-term inflation to 2% in a timely manner. Lagarde added that the ECB will have to continue raising interest rates to get price pressures back under control. This, in turn, warrants some caution for aggressive traders and before positioning for a deeper pullback. There isn't any major market-moving economic data due for release on Monday, either from the Eurozone or the US. Hence, traders might take cues from scheduled speeches by ECB’s Member of the Supervisory Board Edouard Fernandez-Bollo and San Francisco Fed President Mary Daly. Apart from this, the broader risk sentiment will influence the USD price dynamics and produce short-term trading opportunities around the EURUSD pair. Technical Outlook From a technical perspective, sustained weakness below the 200-hour SMA, around the 1.0270 region, has the potential to drag spot prices further towards the 1.0200 mark. Some follow-through selling should pave the way for an extension of the corrective fall to the 1.0160-1.0155 area en route to the 1.0100 round figure. Failure to defend the said support levels will make the EURUSD pair vulnerable and expose the parity mark. On the flip side, attempted recovery back above the 1.0300 round figure now seems to confront a hurdle around the 100-hour SMA, currently near the 1.0335 region. A sustained strength beyond should allow bulls to reclaim the 1.0400 mark. This is followed by the very important 200-day SMA, around the 1.0420-1.0425 region, which if cleared decisively will negate any near-term negative bias. The EURUSD pair might then accelerate the momentum towards the monthly peak, around the 1.0480 zone, and aim to conquer the 1.0500 psychological mark.