POWER: Italy February Power to Open Lower
The Italian February power base-load contract is set to open lower with losses in EU gas prices and forecasts for strong wind generation.
- Italy Base Power FEB 26 closed up 3.5% at 116.34 EUR/MWh on 2 Jan
- Italy Power Cal 26 closed up 1.2% at 97.95 EUR/MWh on 2 Jan
- TTF Gas FEB 26 down 4.1% at 27.81 EUR/MWh
- EUA DEC 26 down 0.6% at 87.75 EUR/MT
- TTF front month has fallen to reverse some of the gains seen last week with warmer weather expected later this week and strong LNG import supplies.
- Algeria gas flow to Italy at Mazara is estimated at 55.7mcm/d today, Snam data shows, compared to an average of 50.8mcm/d over the previous week.
- The 30-day TTF/Italy Power correlation stood at 0.56 as of Friday’s close.
- The latest two-week ECMWF weather forecast for Rome suggests mean temperatures will decline this week before rising briefly back up above normal late this week. Temperatures are set to be well below normal next week before rising back up.
- Mean temperatures in Rome are forecast at 8.7C on Tuesday, from 10.3C on Monday, and below the seasonal average of 9.3C.
- Italy’s PUN index settled at €122.62MWh for Monday’s delivery, from €106.66/MWh for Sunday’s delivery.
- Wind output in Italy is forecast between 2.55GW and 7.53GW during base load on 6-14 January, according to SpotRenewables.
- Italian wind output is forecast at 2.55GW during base load on Tuesday, from 2.07GW on Monday.
- Italian residential/commercial gas demand is forecast at 156.5mcm/d on Tuesday, from 165.8mcm/d on Monday, Bloomberg data showed.
- Residual load in Italy is forecast at 21.55GWh/h on Tuesday, from 26.58GWh/h on Monday, Reuters data showed.
- Italy’s hydro balance forecast has been broadly stable at -1.28TWh as of 19 January, Bloomberg data showed.
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USDCAD TECHS: Bull Channel Breakout
- RES 4: 1.4140 High Nov 5 and a key resistance
- RES 3: 1.4131 High Nov 21
- RES 2: 1.4051 High Nov 28
- RES 1: 1.3939/4016 Low Nov 28 / 20-day EMA
- PRICE: 1.3865 @ 16:35 GMT Dec 5
- SUP 1: 1.3853 Intraday low
- SUP 2: 1.3840 50.0% retracement of the Jun 16 - Nov 6 bull cycle
- SUP 3: 1.3812 Low Sep 23
- SUP 4: 1.3779 Low Sep 22
A bear theme in USDCAD remains intact and Friday’s strong sell-off reinforces a bear theme. The pair has breached an important support at 1.3942, the base of a bull channel drawn from the Jul 23 low. The break highlights a stronger bear cycle and signals scope for an extension towards 1.3840 next, a Fibonacci retracement point. Initial firm resistance to watch is 1.4016, 20-day EMA.
LOOK AHEAD: US Week Ahead: FOMC Decision Dominates, Post Shutdown Data Catch-Up
- Next week’s US calendar is dominated by the FOMC decision on Wednesday, with a third consecutive 25bp cut almost fully priced.
- Expect it to be a contentious meeting however, with many arguing for a pause not least whilst they’re still relatively in the dark on key official data releases following the government shutdown.
- Fed Chair Powell opted for a surprisingly hawkish tone at the late October press conference, highlighting a deeply divided committee on prospects for another cut in December.
- The “fog” had appeared to win out until NY Fed’s Williams, a senior permanent voter, gave unusually explicit guidance on still seeing room “for a further adjustment in the near term”. With no pushback from FOMC members or media briefings, it appears this message has approval from the core of the FOMC which should be enough to see a rate cut this month. The likely catalyst was the further increase in the unemployment rate to 4.44% back in September, although subsequent tracking suggests stabilization and jobless claims data don’t show any signs of deterioration.
- We’ll be looking for the number of hawkish dissents (we’d be surprised if anyone joins Miran dissenting for a 50bp cut) and expect a greater number to object to a cut in the 2025 dot plot, whilst the distribution of dots for 2026 should be in greater focus.
- As for the economic projections, we expect upward revisions to GDP growth but downward revisions to near-term core PCE inflation with tariff passthrough proving less severe than previously feared.
Aside from the Fed, we also receive two months worth of JOLTS data along with other delayed releases as the shutdown data backlog is slowly caught up.
AUDUSD TECHS: Bullish Impulsive Wave Extends
- RES 4: 0.6723 High Oct 21 ‘24
- RES 3: 0.6707 High Sep 17 and a key resistance
- RES 2: 0.6660 High Sep 18
- RES 1: 0.6649 Intraday high
- PRICE: 0.6630 @ 16:32 GMT Dec 5
- SUP 1: 0.6580/6533 High Nov 13 / 20-day EMA
- SUP 2: 0.6517 Low Nov 27
- SUP 3: 0.6466/21 Low Nov 26 / 21
- SUP 4: 0.6415 Low Aug 21 / 22 and a bear trigger
A strong impulsive bull wave in AUDUSD remains intact, having printed 10 consecutive sessions of higher highs. Recent gains have cleared a number of important short-term resistance points, strengthening a bull theme and highlighting scope for a continuation higher. Today’s rally has resulted in a breach of 0.6640, 76.4% of the Sep 17 - Nov 21 bear leg. This opens 0.6707, the Sep 17 high and key resistance. Key support to watch is at 0.6533, 20-day EMA.
