 Hello and welcome to CMC Markets on Tuesday the 1st of December and the weekly market update. And I think the real big decision this week is really what to focus on, because there's so much going on this week that sometimes I think you can have too much information. But I'm going to focus predominantly on the European Central Bank rate meeting, market expectations surrounding that meeting, which I think are running slightly ahead of expectations and also look at the euro dollar and the potential, or otherwise, for whether or not we can see further declines in that against the backdrop of an ECB that has a significant easing bias. But where the economic data in Europe is showing some signs of improving quite significantly, we've seen European PMIs coming at four-year highs, we've seen unemployment continue to come down, German unemployment hit an all-time low today at 6.3%. So against this backdrop, is market expectation of what we're going to get on Thursday running ahead of what actually the ECB can conceivably deliver? So in that context, we're going to look at the spread between German two-year yields and US two-year yields, and the potential effect that could have on further downside risk for euro dollar. Then we're going to conclude with a quick, brief look at the euro dollar client sentiment indicator, which suggests that certainly from a euro point of view, the market is very aggressively short of euros and long of dollars. So let's look at what markets could potentially expect from Thursday's meeting. Now German two-year yields are currently showing minus 0.42%. Now with a deposit rate of minus 0.2%, that does appear to suggest that we could get a sizeable reduction in the deposit rate from its current rate of minus 0.2%. The big question is by how much? What we could also get is an extension to QE. Now by an extension to QE, we could get it extend beyond the current expiry date of September 2016. Furthermore, we could also get an expansion of QE. So not 60 billion euros a month, maybe 70 or 75. I think it's very unlikely that we're going to get all three. And I think there's a distinct possibility that the markets could actually find what the ECB does on Thursday, a little bit of a disappointment. So let's look at a comparison chart of the German two-year yield, sorry, the German two-year price chart, and the US two-year price chart. So you can see straight away the divergence in monetary policy. The red line is the German two-year price chart, and that's at record highs, not surprisingly, yielding minus 0.42%. And the other chart, the gray chart, is the US two-year treasury note. And again, that has significantly pushed lower on expectations that the Federal Reserve could well hike interest rates later this month. So that gap is massive. It's nearly 150 basis points. Is that sustainable? I certainly don't think it's sustainable in the short term. We do need a correction. And that then brings me on to the euro-dollar daily chart, which I'm now putting on the chart in front of you now. So when we look at this euro-dollar daily chart, I think it's important that we also look at it in the context of what the dollar index is doing as well, because thus far, we haven't breached the highs in the dollar index that we saw in March this year at 100.40. So we need to really break above the highs that we saw in March for the dollar index to give a signal that potentially we've got further downside in the euro. Furthermore, we're also approaching a very key long-term support level in euro-dollar. And that's signified by the purple line that is basically underneath the price action right now on this daily chart in front of you. Now that trend line comes in from the all-time lows at 82.30 that we saw at the beginning of the last decade, the previous decade. That comes in around about 105 and a half. If we look at the daily chart as well, we can see that the oscillator is very overbought. It has been for quite some time. So at some point, this policy divergence between the European Central Bank and the Federal Reserve is going to need to unwind. And I think at the moment, everyone is talking about a parity party in euro-dollar. I think that, but while it could well pan out, I think it's too extended at the moment towards the downside. And I think there's a significant area of support coming in in euro-dollar around about 105 and a half and the lows that we saw earlier this year. Furthermore, we take a long-term dollar index chart over the last 20 years. And we look at the all-time highs or the previous peaks in dollar index in January 2004, at 120.102. And then we take the lows in 2010 at 70.69. A 61.8 retracement of that currently comes in around 101.80, just over 100 points above in dollar terms of where we currently are at the moment. So the dollar index is starting to approach a very key resistance level on the top side. Last but by no means least, while we've talked about the importance of poor areas in euro-dollar, the important resistance levels in the dollar index and the policy divergence between the Fed and the ECV, let's also look at client sentiment. Client sentiment is very important in the context of whether or not a trade is two one way. And certainly in the context of this particular chart, euro-dollar cash positions are predominantly short in excess of 90%. That suggests to me that further downside is likely to be very limited and we need to be prepared for a potential sharp short squeeze. And we could well get a sharp rebound back to around about 108.20, 108.40 in the event the ECB disappoints, or we also get potentially a disappointing non-farm payrolls report on Friday. So those are two factors this week that could potentially dictate where euro-dollar goes. Disappointment from the ECB, disappointment from non-farm payrolls could provoke a US dollar set off. So that's it for this week. Just a quick reminder to let you know about Friday's non-farm payrolls webinar. Starts at 1.15 with me, my colleague in Canada, Colin Sosinski. You can sign up right here. Otherwise, until then, this is Michael Houston talking to you from CMC Markets.