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KeyToMarketsUK

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The Brent crude oil ended the month 22.00% marked its first biggest one month fall since July 2015, several events cause the fall in Oil prices. Ahead of the OPEC meeting this week the price is sitting at the crucial juncture.

Over the weekend developments, Oil price opened higher on Monday as trailing stop losses have been stopped out who sold with against the resistance at 61.50$ before the G20 meeting.

The daily indicators still suggest higher prices in the near term, RSI and RVI confirming upside sentiment.
On the upside, despite apprehension amongst traders increasing at 62.60, a break above this level may pave the wave for a higher price through 64.70 its 20MA and 65.00$ the psychological level if the price struggled to close above 14MA at 62.60$ prompting a retracement back to 60.50$/60.00$ and 59.00$ levels.

We continue to forecast “Technical setting is positive” given last week at 60.30$ targeting a move to 64.50$, 68.50 and 70.00$ levels.
BRENTDaily.png


Developments around Dec 6th OPEC meeting will be watched closely for a production cut.
Gulf nation’s energy minister says withdrawal from 15-nation bloc will come into effect next month, Aljazeera reported.
Aljazeera news also reported, Sheikh Hamad bin Jassim Al Thani, Qatar’s former prime minister, called the withdrawal a “wise decision”.
“This organisation has become useless and adds nothing to us,” Sheikh Hamad wrote on Twitter. “They are used only for purposes that are detrimental to our national interest.”

Barclays come up with three options at Thursday’s OPEC meeting. In a weekly note to clients, the British multinational investment bank said “In our view, OPEC has three real options at this week’s meeting; a “quiet cut,” a “precision cut” or the “elegant solution.”
The note also reported, OPEC’s “elegant solution” appears the most agreeable, likely supporting prices in the near term. A less likely “quiet cut” would disappoint.

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Equities were renewed their fall on Tuesday, pressured by the bond markets. The US Treasury yield curve has inverted which ignites the recession rumors. As a result Dow (KTM Symbol: XUS30) down over three percent or 800 points.

XUS30Daily.png
What do you mean by yield curve?
The difference between yields on two different bonds (long-dated and shorter-dated). Usually, Economists or analysts watch 10 Years – 2 Years, five years- 3 years and five years- 2 years.
Ever since Fed raises rates in Dec 2015 the yields on short-dated Treasuries are rising faster but not long-dated Treasuries, because they do not have a direct impact even if the Fed raises rates.

What is yield curve inversion?
Usually, yields on long-dated Treasuries are higher than the short-dated one’s; the different is called term premium. However, on Tuesday, Dec 04, short-dated Treasuries cross over long-dated Treasuries, it is called inversion which was happened for the first time since 2008.
“The yield on the Five-year US Treasury note fell below the yield on the Three-year note.” NZ Herald reported.
“Back in March 2006, the yield curve inverted and the Bank of Japan expressed confidence that the U.S. economy would not go into a recession. Two years later, the global economy was brought to its knees.” Forbes reported.
According to the balance “An inverted yield curve means investors believe they will make more by holding onto a longer-term Treasury than a short-term one. They know that with a short-term bill, they have to reinvest that money in a few months. If they believe a recession is coming, they expect the value of the short-term bills to plummet soon.”

What happened overnight?
The 5-year note was closed at 2.79 vs. 2-year note 2.80, that is long-dated yield closed slightly lower than the short-dated ones.

U.S Department of Treasury web page is very handy to track Daily Treasury Yield Curve Rates

In this type of market conditions, traders prefer to unload the riskier assets and tend to move to safe haven currencies Japanese Yen and Swiss Franc and Gold in commodities.
As we tweeted, earlier this week gold rallied to our forecasted level and paused at the parallel resistance level which coincides with 200EA at 1243.50$. The trend remains bullish, and now we forecast another upside risk on gold for 1257.00$ and 1268.00$. A daily close above 1245.00$ is needed to rally to out next targets with supports at 1230.00$ and 1211.00$.

XAUUSDDaily.png
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KeyToMarketsUK

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Crude Oil prices are likely to elevate the volatility ahead of the today’s OPEC meeting. In early October Brent, the Crude oil price has reached a four-year high of 86.50$, but have since corrected Brent WITH 33.00% and WTI nearly 35.00% respectively.

Recent fall in crude oil prices deteriorated the global demand and outlook of the global economy. According to provisional data, “Both European and OECD Asian demand continues to be relatively weak, reflecting the fact that prices remain significantly higher than a year ago and a slowdown in economic activity. US demand, by contrast, is very robust, albeit slowing towards the
end of 3Q18”.

November IEA Oil Market Report suggested, “For now, forecasts of oil demand growth remain solid with an increase of 1.3 mb/d this year and an increase to 1.4 mb/d in 2019, even though the macro-economic outlook is uncertain.”

Ahead of Thu and Fri OPEC meeting, crude oil prices manage to hold and settle above the support level of Brent at 56.50$ and WTI at 48.80$ respectively. Currently, the market is expecting a production cut from leading producers; the market is not pricing “how big is the cut.”

Here are the few forecasts:
  • S&P Global Platts comes with a forecast “A 1.2 million b/d-1.4 million b/d reduction compared with October’s output.”
  • “Nobody wants to mention a number, because it means you’re committing yourself to how much you’re going to cut,” said Al Rumhy. “Especially the big boys — they would want to keep this cut very close to their heart.” Oman’s Oil Minister Mohammed Al Rumhy said to reporters on Wednesday, Bloomberg reported.
  • Barclays weekly note says “OPEC’s “elegant solution” appears the most agreeable, likely supporting prices in the near term. A less likely “quiet cut” would disappoint, sending WTI below $50/b and weighing on FX of oil exporters”.
    In a weekly note, Barclays comes with three real options, quiet cut, precision cut, and elegant solution.
A “quiet cut,” lacking specifics about country-level adjustments, a “precision cut” with explicit country-level new production adjustments or the “elegant solution,” excluding Venezuela and Iran from compliance calculations and allowing Saudi Arabia and other countries to reduce output.

On Wednesday, Crude oil prices pulled back to the 20MA but settled lower as traders wait for the clarity on the production cut, as in early November the US surpassed Russia and Saudi Arabia in oil supply. Means Russia and Saudi Arabia is no more the world’s largest producer.

In the near-term Oil prices, CAD and NOK currencies trend cast on this week’s OPEC meeting.

Things to watch in Brent:
  • 50MA (Monthly) 57.40$
  • 200MA (Weekly) @56.50$, coincides with 50.0% fib reaction
  • Earlier swing low at 50.75$ its Jan 2017 low
  • The 61.8% fib reaction of 27.00$-86.60$ rally finds at 50.00/49.70$.
Interestingly, weekly RSI has entered to the oversold level of 34.00, but oscillator remains bearish.
BRENTWeekly.png


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JPY crosses are lower since Thursday Tokyo fix, led by escalating trade war concerns. They continue to slide into NY session but manages to hold crucial support/MAs and rebounds marginally. Among, GBPJPY and CHFJPY are the gainers and showing signs of bottoming process.
At the time of preparing this article, GBPJPY entirely erases intraday losses, currently trading at 144.15 and CHFJPY trading at 113.45 on the verge of a range breakout (113.50-112.90).
Insights:
  • CADJPY completed the 78.6% A-B-C corrective pattern retracement, but the full retracement, i.e. 100.0% is pointing to 82.60. Note that 200EA(Month) finds at 83.15. Moreover, it respected the 1y ascending trendline, likewise CADCHF (2Y TL). The cross lost all daily Mas, now 200MA is acting as initial resistance.
CADJPYDaily.png
  • AUDJPY fell below the parallel support 81.18 which coincides with 100MA & 50MA but rebounds sharply, currently trading at 81.60. Near-term support finds between 80.50-80.00.
AUDJPYDaily.png

  • NZDJPY rejected at 200MA(Weekly) early this week, since then the RSI negative divergence is speaking loudly. Intraday support (Fri) finds at 77.15/77.00 below here, focus shifts to 76.50 and 76.20 and even 75.50. Flipside resistance seems to be at 77.65, 78.00 and 78.35 levels.
NZDJPYDaily.png
  • USDJPY: Selling pressure remains very strong at 20MA, a descending channel is still evident in the hourly chart. On top of this, the daily indicators are staying bearish, but 100MA & 20MA (Weekly) is the superheroes overnight. This morning the cross is trading at 112.70. Friday Asia resistance could be 112.85 and 113.30.
    The corrective structure on the daily chart is point 111.00.
USDJPYDaily.png
  • EURJPY: For four weeks the cross has been bouncing between127.50-129.30. Overnight the cross-posted a low at 129.70 and currently trading at 128.35. Friday Asia resistance could be between 128.40-128.60 above here the focus shifts to the higher end of the range 129.30. We expect a tight range trading action for the next few days.
EURJPYDaily.png
  • GBPJPY: The cross manages to hold the previous day low, a symmetrical triangle formal is still evident in the hourly chart. In the daily chart, the cross has traced out a double bottom at 124.75 while holding we could expect a rally towards 144.50 and 145.50/145.80 in the near term. Though the RSI has been marking a higher low pattern, the oscillator is not supporting the bullish view. We remain focused on the daily oscillator and prefer buying on the dip. A daily close above 146.00 could strengthen the bulls to rally further to 149.50.
    If the cross fails at the double bottom, we could see another leg down to sub-140 levels.

GBPJPYDaily.png
  • CHFJPY: The cross traced out a short-term price bottom near 112.85 via the formation of a triple bottom pattern. However, in the Friday Asia session, the cross could face stiff resistance at the higher end of the range at 113.50, support finds at 113.15 and 113.00/112.85.
    For bulls, if the price settles above 113.50, could rally to 113.75/113.85 and 114.00 by today. Note that the 50MA seems to be at 113.65. The flip side, selling could accelerate below 112.85, in this case, 112.30 and 112.00 are possible.

CHFJPYDaily.png
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KTM FX Daily: AUD insights

  • AUD smoked last week, rebounded and retraced
  • Chronical of events dampens the $A sentiment
In the worst week for the Australian dollar over the previous two months, the AUD down between 1.50%-2.50% across the board after Last Monday’s gap up opening. Intensified trade-war risk, weak local macroeconomic data and soft Chinese data keeping lid on the AUD.
Reuters ran a strong headline on Trade war a few minutes ago, “U.S. says March 1 ‘hard deadline’ for trade deal with China.”
Reporter Howard Schneider said U.S. Trade Representative Robert Lighthizer said on Sunday, clarifying there is a “hard deadline” after a week of seeming confusion among President Donald Trump and his advisers.
Robert also said “As far as I am concerned it is a hard deadline. When I talk to the president of the United States he is not talking about going beyond March,” said on the CBS show “Face the Nation,” referring to President Donald Trump’s recent decision to delay new tariffs while talks proceed.

On top of this latest developments, yesterday’s soft Chinese data clouded the sentiment again during early Asian session this morning. At the time of preparing this, AUD down between 0.30-0.5% in early Monday’s trade.
Chinese data review: November PPI rose 2.7% on YoY basis but down 0.2% monthly. The other relevant data, CPI rose 2.2% YoY in November vs. 2.5% in October, according to the National Bureau of Statistics.
What’s on today?
We will see October Home loans data today.
Overall, the combination of risk factors trade war, soft Chinese data and weak local economic data and concerns over global growth which dampens the commodities likely to pressure the AUD into the year-end.
  • Among AUD crosses, EURAUD favors bullish, intraday resistance seems between 1.5890-1.5910 above this, 1.5940 and 1.5980 exists.
  • EURAUDDaily.png
AUDUSDDaily.png
  • AUDUSD support finds at 1.7160 and 0.7130 below here psychological support 0.71 handle exists. This morning the price lost 50MA aswell. Weekly resistance seems to be at 0.7240. Weakness persists until capped at 0.7240. Intraday pivotal finds between 0.7160-0.7130. Besides the dollar index (KTM symbol: USDX) is currently trading on the verge of a symmetrical triangle breakdown. We keep an eye between 96.00-95.50 below here deep cut could be expected. In this case, AUDUSD could rally back to 0.7300, 0.7400 and even 0.7500 possible.
  • AUDUSDDaily.png

USDXDaily.png
  • AUDNZD: The cross manages to find the foot around support 1.0440, currently trading at 1.0485. The price has been capped between 1.0520-1.0530, downside prevails until 1.0530 is the resistance, and we are waiting for sub-1.0400 levels. However, over the long-term, the cross offers better risk: reward ratio. We expect the downside is limited to 1.0300 and the upside forecast at 1.0800 and 1.1000. Instead of selling at current levels, better buy/accumulate on dips.
  • GBPAUD remains in the tight range between 1.7750/1.7735-1.7600 levels. The week ahead the pound is associated with both the risks macroeconomic data event. Above 1.7750 the key resistance 1.7820 exists.
GBPAUDH4.png
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KTM FX Daily: GBPAUD technical forecast

GBPAUD is quiet during the Asian session with no volatility. The cross manages to keep yesterday ’s low and is not trading at 1.7335. Intraday pivotal finds at 1.7280 (today’s lo so far) coincide with early Aug low.

The cross again would be in pressure if the price could not hold 1.7280. In this case, 1.7200 Dec 03 low which coincides with earlier swing high posted in Jan 2017.

For three weeks (including this week) the cross has been consolidating in a narrow range between 1.7280-1.7750 and manage to find the foot above 100MA (Weekly).

In the near term, we focus on the support zone 1.7280-1.7200. Turning to the daily indicators, the RSI has been propelling North whereas the oscillator turned back to bearish again.

The cross hasn’t seen a weekly close below 100MA (Weekly) since mid-Jan 2018. Keeping the support zone in mind, we expect as long as 1.7200 is support look for 1.7475 and 1.7550, but the chances are remote/very low at the time of preparing this.

Also read the GBPUSD forecast and GBP/XXX charts on our KTM blog

GBPAUDWeekly.png
The flip side, downside risks heighten below 1.7200 for sub 1.7000/1.6900 its 50.0% fib reaction.

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The pound advanced on UK Prime Minister survive the confidence vote, easing trade tensions help the EM currencies to rebound, the dollar slipped but Treasuries rebounded; Palladium at a record high; Market wrap

The pound rose between 1.00-1.60% recorded the biggest intraday gain in a month as the market prepares for May’s survive on a confidence vote.
Just in: UK’s May wins the party confidence vote, post the news pound narrowed gains slightly but still holding significant intraday gains. As we noted yesterday, more clarity on Brexit means a big squeeze (not in a straight line though). What we saw on Wednesday is a trailer, to us.
  • In the EM currency space, South Africa Rand up by 1.50% and currently trading at 14.10 whereas Lira firmed at 5.35.
  • Turning to G10 currencies GBP surged more than a percent followed by EUR and DKK 0.55% each. Besides NZD lost 0.40%.
  • The dollar index rejected again at the supply zone 97.40-97.50 and traced out a triple top formation; closed at 96.95. But the yield on 10-year Treasuries closed at 2.91 up from Wednesday’s 2.89
  • Now my interesting space to trade lies on commodities where we saw massive gains overnight with Platinum 2.5% followed by Palladium 1.70% at fresh high and Silver with 1.50%. Besides gold advanced only 0.2% remains below 200MA.
  • Finally, cryptos Bitcoin and Ripple rallied more than 2.00%. Both the digital currencies manage to hold the 200MA (Weekly) so far, but the rallies are uncertain.
What’s on today?
The Swiss National Bank Monetary policy and ECB monetary policy decision will be published today. We expect both the central banks’ main policy rates to remain unchanged.

Goldman Sachs says, “we expect (1) the SNB to leave the target range for the three-month Libor unchanged, at between -1.25% and -0.25%; (2) maintain the interest rate on sight deposits with the SNB at -0.75%; and (3) resort to occasional foreign exchange market interventions to deal with short-term appreciation pressures on the Swiss Franc as is deemed necessary.”
The bank also said, “we pushed back the first expected policy rate rise for the Swiss National Bank to Q1 2020, from Q4 2019 previously.”.

Our main focus remains on the December ECB meeting (Thu). We and the market expect the ECB to leave its key policy rates on Hold. After a series of weak macroeconomic data across EA, we also assume that the meeting could be on a dovish tone.
Chart of the day: EURCHF
As long as 1.1220/1.1180 is support look for 1.1350 and 1.1450. Intraday support finds at 1.1260/1.1250, 1.1220 and 1.1180.
EURCHFDaily.png
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Prices fell across many asset classes last week; USD outperform
The disappointing UK and Chinese economic data, Weak EA PMI surveys, Dovish ECB are encouraging us to re-think about global growth rate. Besides, US retail sales were printed better than expected. On top of these, Brexit news accelerated the GBP volatility again last week.

Latest EZ PMI surveys suggest the latest flash PMI survey data indicate that growth of business activity in the euro area slowed to the weakest for over four years in December, according to the IHS Markit.

Currencies: Winners and losers last week
The dollar index (KTM symbol: USDX) breakthrough the earlier double top but failed to close above; but U.S 10Yr Treasury Yields fell back to 2.89 vs. 2.91 Thursday’s closing.

Overall, last week the dollar index closed higher in the Volatile week. Besides, equity indices fell, and Bonds rallied as Global growth fear multiples.

The NOK was the biggest loser in the G10 basket, with 1.7% against the USD, followed by GBP 1.30%, DKK by 1.00%, CHF and NZD by 0.90% each, JPY by 0.7%, CAD and SEK by 0.5% each and the AUD by 0.40% respectively.

Turning to EM currencies, South African Rand fell 1.70% and Turkish Lira down by 1.35% respectively.

Commodities:
The strong dollar always enjoys the inverse co-relation on commodities, Gold down 0.90$, Platinum down 0.80% and Silver down by 0.30% respectively. However, Palladium up 0.80%.

The Ferrari without the engines has been trading down since mid-Dec 2017. On Friday the Bitcoin closed below 3200$ mark, the lowest level since Sep 2017.

Weekly preview:
Data-packed week; Brexit chaos and the Fed meeting should dominate the headlines.
  • CPI for US and UK
  • GDP for NZ and US and Aussie labor force data
  • Fed, BOJ and BOE Interest rate.
FOMC preview:
  • Market participants are waiting for Fed’s tone and updated economic projections; besides the subject of a rate hike is already priced in. December rate hike would bring the target range of 2.25-2.50%. In case of a dovish hike, we could see a quick rally in G10 &EM currencies and commodities. However, the hawkish surprise could eventually push the dollar above 100.00 marks. In this case, we lean to further bullish on USDCHF than USDJPY.
USDX (weekly chart) =USDCHF and USDDKK for us. Based on this, we continue to see board upside for USDCHF and stay long in every dip.
  • Turning to the Bank of England’s meeting, we expect the no change. But given the risk associated around the globe and Brexit choas, our focus remains on the bank’s outlook on the economy.
  • The Bank of Japan is not expected to change in this week’s meeting. The Bank’s price stability target is to achieve the inflation rate of 2 percent, the current rate is at around 1%.
  • Australia Nov labor force data preview: The expected bounce in employment appeared in the October Labour Force Survey with a 32.8k rise. The market median was for 20k, according to Westpac.
  • NZ Q3 GDP: We expect growth to drop back to a more modest 0.5% in the September quarter as some of those one-offs are unwound, according to Westpac. The Bank’s price stability target is to achieve the inflation rate of 2 percent, the current rate is at around 1%.
  • In euro, we are particularly focusing on EZ final CPI estimate for November (Mon, 17). Moody’s Analytics said, “We expect it to conform to expectations and show that inflation pressures in the currency area eased sharply at the middle of the fourth quarter, to 2% y/y, from 2.2% previously.”
Chart of the week: USDCHF
USDCHFDaily.png
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  • Crude prices are ever-more volatile, presenting a challenge for OPEC to stabilize the market.
  • The supply and easing global growth are continuing to raise the volatility over the near and medium term.
  • The overall near-term trend is difficult to forecast, though Brent appears better placed above Nov low, whereas WTI closed below Nov low.
Since October high Oil prices have fallen more than 30.0%, Brent tumbled to 57.80$ from peak 86.60$ in just seven weeks.
Technically, the 200MA (weekly) has been offering decent support over a year. Back in July 2014, Brent oil broke the 200MA (weekly) and spent nearly three and half years below that particular moving average.

BRENTMonthly.png
Now again the price back to that MAs. We can see the same story on the monthly chart as well with 50MA.
BRENTWeekly.png
What to expect is hard to predict at the current given market conditions. As the commodity market continues to experience high volatility as usual into the year-end, the lower level buying is drying up as global growth concerns multiples.

Whenever global growth eases, commodity market volatility has the potential to change the landscape quickly.

However, International Energy Agency (IEA) kept its 2018 and 2019 oil demand unchanged at 1.3 mb/d and 1.4mb/d respectively. The Paris-based agency also said, “Time will tell how effective the new production agreement will be in re-balancing the oil market.”

The IEA monthly Oil Market report ended with “The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.”.

Bringing the 200MA (Weekly) back to the picture, currently, it is sitting at 56.50$, and the Brent price is trading at 58.75$ levels.
The daily volatility and the bullish turnaround of the daily oscillator should apply the brakes around that particular MA.

A weekly close below of the particular MA and 50MA (Month) sounds tricky, and we instead see a decline to the next supports at the prior swing low at 50.75$ its Jan 2017 low and the 61.8% fib reaction of 27.00$-86.60$ rally finds at 50.00/49.70$.

The flip side, resistance stand at 60.00$, 61.20$ and 62.00$. Note that a break above 62.00$ would underpin the baby bullish momentum, paying the way to 63.75$. A successful foot above 63.75$ could trigger a sharp near-term rally 68.50/70.00$.

We still forecast a limited “downward approach.” Brent oil might have put in a meaningful bottom between 56.00$-50.00$ and could consolidate sideways for few days.

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KTM FX Daily: EURUSD technical overview


The single currency has been moving higher so far this week, supported by the weak dollar as investors bracing for Today’s Fed’s policy review. The dollar index fell below the 50MA for the first since mid-Oct but rebounded and closed above by the end of the day.
The euro traders experienced another week of weak economic data, growth concerns continued to impact, but the oversold technical levels supported the currency so far this week. EURUSD rose to 1.1400 which is our first target, a break out above Tuesday’s high needed to challenge last week’s high 1.1440.
Data review:
EA CPI printed below market expectations.
The euro area annual inflation rate was 1.9% in November 2018, down from 2.2% in October. A year earlier, the rate was 1.5%, according to Eurostat. The euro area flash estimate for November 2018, was 2.0%, according to Eurostat.

Tuesday’s headline data ifo Business Climate Index fell to 101.0 points in December from 102.00 points to November. However, the construction sector index remained at last month’s very high level. Contractors assessed their current business situation slightly more favorably, but their expectations declined somewhat, according to CES ifo.
Capture.JPG
The other key sectors pointed lower; manufacturing the business climate index fell markedly, the service sector, the business climate deteriorated considerably, the index also edged downwards in the trade sector.
Capture2.JPG
Based on the ifo Business Cycle (below chart), we forecast an optimistic view of the state of the Germany economy in 2019. Currently, the ifo Business Cycle Traffic Lights sitting in the regime of contraction, it could move to buffer zone in the next couple quarters in 2019, followed by expansion by the end of 2019 or early 2020.

Capture3.JPG

TECHNICAL OVERVIEW

Since Monday we have noted earlier this week, Pivotal/double bottom at 1.1260 tested and held so far. As a result, the price action swings higher through the first resistance and met our first target 1.1390/1.1400. Over the past two days, the support level has moved higher to 1.1330 from 1.1300 followed by 1.1260.

Now getting through Tuesday’s high could rally further to 1.1440 which is the key level to observe to forecast 1.1500.
The daily indicators are supporting higher prices, but we are cautious around 1.1440 levels.


EURUSDDaily.png
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