• Prior +2.5%
• Market index vs 165.9 prior
• Purchase index vs 129.0 prior
• Refinance index vs 347.3 prior
• 30-year mortgage rate % vs 7.61% prior

This article was written by Justin Low at www.forexlive.com.

2023 was supposed to be the year of the dollar demise. Instead, things did not pan out that way as the greenback proved to be rather resilient. And so the narrative has been constantly kicked down the road for many months now but is yesterday the tell that we have finally gone past the summit on the dollar’s journey?

The market thinking now is that the Fed is done with rate hikes and that is helping to dispel some deep-seated fear that we could see interest rates hit 6%. The talk now instead is about rate cuts and traders are seeing that come as soon as June next year. It’s a rather straightforward thinking that inflation is going to progressively return to the 2% mark while the US economy achieves a soft landing and perhaps even avoid a technical recession altogether.

That’s the hope and that is what markets are pricing in at the moment.

And if things do play out that way, perhaps we have already seen the dollar go past the apex and is set to fall further going into next year. That being said, this is the same kind of naive thinking that caught traders off-guard about the supposedly imminent demise of the dollar all through this year.

Sure, we’re starting to see the dollar finally crack lower significantly but it is still trading up 14.7% higher against the yen this year, 1.1% up against the loonie, 4.3% up against the aussie, and 4.8% up against the kiwi. It is only European currencies that have outperformed the dollar in any way and a large part of that is thanks to gains in the last two weeks. If you put that aside, the dollar has held up rather well against all the calls of it set to fall apart since the end of last year already.

So, is there a chance that traders might get blindsided by the greenback again?

I would say the odds of that is lower this time around but the current market positioning is a dangerous one that could result in squeezes.

The dollar might not be in a good spot technically at the moment (as outlined earlier via EUR/USD, AUD/USD, and GBP/USD) and could be set for a further decline in the near-term.

But in the overall picture, the US economy continues to outshine its peers and the Fed looks most likely to be in a stronger position to keep rates higher for longer than other major central banks. And when you throw in the fact that Treasury yields are likely to stay underpinned amid the waves of supply coming through, a reversal in the bond market may not be too forceful given a counter-force that will warrant selling pressures.

All of that are supportive factors for the dollar to some extent and depending on how the market focus shifts and what the data tells us, it will offer traders some clues on the degree of resilience that we might see in the greenback heading into next year.

To summarise, yes we might be past the summit already for the dollar’s climb higher. However, to say that we will see a protracted and steep decline in the greenback next is to think that the market isn’t going to throw you any curveballs along the way. And as we already have seen this year, that’s not exactly how things work most of the time.

This article was written by Justin Low at www.forexlive.com.

• The BoE kept interest rates
  unchanged as expected at the last meeting.
• The central bank is leaning towards
  keeping interest rates “higher for longer”, although it keeps a door open for
  further tightening if inflationary pressures were to be more persistent.
• BoE Governor Bailey repeated that
  they will keep rates high for long enough to get inflation back to target.
• The latest employment report beat
  expectations across the board with the unemployment rate ticking lower and wage
  growth ticking higher.
• The UK CPI today missed expectations
  across the board which favours the BoE’s “on hold” stance.
• The UK PMIs showed further
  contraction in the services sector, which accounts for 80% of UK’s economic
  activity.
• The market doesn’t expect the BoE to
  hike anymore.

JPY

• The BoJ kept its monetary policy basically
  unchanged but formally widened the YCC to 1% on the 10-year JGBs stating that
  it will be a reference cap.
• Governor Ueda repeated once again
  that they won’t hesitate to take easing measures if needed and that they are
  not foreseeing sustainable price increases.
• The recent Japanese CPI showed that inflationary pressures remain high with
  the core-core reading hovering at the cycle highs.
• The Unemployment Rate remained
  unchanged near cycle lows.
• The Japanese Manufacturing PMI
  matched the prior reading remaining in contraction with the Services PMI
  falling but holding on in expansion.
• The latest Japanese wage data beat
  expectations. As a reminder the BoJ is focusing on wage growth to decide
  whether to tweak its monetary policy.
• The market expects the BoJ to keep
  interest rates unchanged at the next meeting as well.

GBPJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that GBPJPY broke
above the key resistance around the 183.70 level and continued higher targeting
the high. The pair yesterday broke right through the high following the miss in
the US CPI data which weakened the USD across the board and strengthened the
other currencies.

GBPJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that from a risk
management perspective the buyers will be better off waiting for a pullback
into the trendline where they will also find the confluence with the broken
high, the 38.2% Fibonacci retracement level and the red 21 moving average. This
is where the buyers should step in with a defined risk below the trendline to
position for another rally into new highs.

GBPJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the bullish setup with the support zones marked with green boxes. Given
that there’s also a good support around the 61.8% Fibonacci retracement level,
the buyers might want to split their long position in half and place orders
both at the 38.2% and the 61.8% Fibonacci retracement levels. The sellers, on
the other hand, will want to see the price breaking below the trendline to
invalidate the bullish setup and position for a drop into the 183.50 level.

Upcoming Events

Today, we have the US
Retail Sales and PPI data with the market likely giving more importance to the
Retail Sales data. Tomorrow, we will see the latest US Jobless Claims figures
where the market will want to see how fast the labour market is softening.
Finally, on Friday we conclude with the UK Retail Sales figures.

This article was written by FL Contributors at www.forexlive.com.

• 2023 economic growth forecast lowered to 0.6% from 0.8% previously
• 2024 economic growth forecast seen at 1.2%, then 1.6% in 2025
• 2023 inflation forecast seen at 5.6%, then 3.2% in 2024, then 2.2% in 2025
• High inflation, interest rates, and weaker external demand took a heavier toll on growth than anticipated

The Commission said that while the economy is to grow more slowly this year, a technical recession should be avoided. Adding that „economic activity is expected to gradually pick up as consumption recovers on the back of a steadily robust labour market, sustained wage growth and continued easing of inflation“.

This article was written by Justin Low at www.forexlive.com.

• Prior €6.7 billion

The year-to-date euro area trade balance is seen at €16.3 billion and that marks a drastic improvement to last year, which was a deficit of €278.3 billion (which was heavily impacted by high energy imports).

This article was written by Justin Low at www.forexlive.com.