• US stocks look to make it 8 for 8 ahead of the holidays
• UK November retail sales +1.3% vs +0.4% m/m expected
• UK Q3 final GDP -0.1% vs 0.0% q/q prelim
• Germany November import price index -0.1% vs +0.3% m/m prior
• Japan projects higher interest rates for upcoming budget for the first time in 17 years

Markets:

• CHF leads on the day
• European equities little changed; S&P 500 futures down 0.1%
• US 10-year yields down 3 bps to 3.861%
• Gold up 0.5% to $2,055.53
• WTI crude up 1.0% to $74.62
• Bitcoin down 0.7% to $43,720

Things are truly winding down in financial markets now as we approach the Christmas weekend.

Major currencies were subdued for the most part, with the dollar keeping lightly changed overall but set to end the week lower once again. USD/CHF did ease to its lowest level since 2015 as the pair looks to break the July lows of 0.8550-55.

Besides that, there wasn’t much action even with a strong beat on UK retail sales. GBP/USD is slightly higher by 0.2% to 1.2710 but nothing out of the ordinary on the day.

In other markets, bond yields continue to be pinned down while equities look like it is already in holiday mood. That being said, Wall Street is in the hunt to make it eight straight weeks of gains and look to tee up a potential upside break heading into the new year.

But for now, the festive period is going to keep things on ice in all likelihood. I wish everyone the best of holidays and a very Merry Christmas to those celebrating! Have a wonderful weekend. 🙂

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

It has been a rather challenging year for oil. From talks of tighter market conditions to slowing economies across the globe, there were arguments to both sides of the story. And that is also reflected somewhat in price action, with the high for WTI crude being at $95 at the end of September before sinking back lower in the past two months as markets step up rate cuts pricing.

The fortunate thing for oil prices is that buyers have stepped up when it mattered most. At each point during the course of the year the 200-week moving average (green line) was tested, they managed to keep a defense of that. And even when things were looking rather gloomy last week, they managed to barely turn it around towards the end.

And so for this year, oil is still down over 7% but if not for the defense at the 200-week moving average seen above, it really could’ve been much worse.

So, what’s next as we move towards 2024?

The outlook is mostly leaning towards bearish side amid economic and energy-transition headwinds. As such, OPEC+ will have an important role in trying to at least keep a floor on prices with deeper production cuts. That being said, if economic conditions aren’t as bad as feared, that could still stimulate higher demand and keep the market tight. That is one consideration to be mindful about, especially since lower prices will also help to lift demand conditions in general.

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

The Japanese Ministry of Finance just announced that it will cut spending for the first time in 12 years in the 2024/25 budget, as they prepare for a shift away from ultra easy monetary policy settings. The budget is estimated around ¥112 trillion, down 2% from the current year’s initial amount of roughly ¥114 trillion.

In estimating borrowing costs, the government has now assumed higher interest rates – which is the first increase in 17 years. They are projecting interest rates at 1.9%, up from the current 1.1%, and that will push the debt-servicing costs up by 7% to ¥27 trillion in the upcoming fiscal year.

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

• Eurostoxx -0.1%
• Germany DAX -0.1%
• France CAC 40 flat
• UK FTSE -0.2%
• Spain IBEX flat
• Italy FTSE MIB -0.1%

The Christmas weekend is upon us, so there shouldn’t be much else to really catch traders‘ attention today. It’s shaping up to be a tepid end to the week, although US stocks will be hoping to carry on some of the recent good form to next year.

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

So, what exactly does that mean? Essentially this: Paying more for less

Inflation may be coming down on paper but there remains a major divergence between what consumers are paying and what they are getting in food stores. And ultimately, that trickles down to every spending decision that households will make. If you’re having to pay more for essentials, that leaves less room for non-essential spending. Here’s the chart highlighting that divergence:

Unfortunately, this is a reality faced not just in the UK but in most places around the world. Typically, when prices go up, they don’t come back down even if the costs for the product normalises over time.

In Australia, there is growing backlash on the big jump in grocery expenditure over the last few years although that also owes to a duopoly between Coles and Woolworths. But just take a simple case of purchasing McDonald’s for example. In my country, a Big Mac meal used to cost $3.13 in 2021 but that has now increased to $4.41. That’s a ~41% price jump. And if you look all the way back to 2012, that used to cost just $1.93 (indicating a ~128% price increase).

I’m sure almost everyone can relate on this matter. And I can imagine that being the case in most countries all over the world right now. The real issue here is that no matter what picture central banks and governments are trying to sell, the wage increase of an average worker is most likely not going to cover the increase in prices for something as essential as food.

And the chart above is pretty much highlighting that. While the value of retail sales continue to increase, the trend actually shows that the volume of sales is decreasing when compared to the base level set out in 2019.

So, even with the retail sales beat we’re seeing last month, there are still concerning signs on UK retail spending heading towards the end of the year as highlighted by the CBI report yesterday here.

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

• To also keep credit growth reasonable

These are token remarks but it looks to be one to tee up deposit rate cuts by major state-owned banks in China as reported earlier here.

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

The squeeze on UK consumers continue as retailers are reporting a downturn in sales in December, adding to the gloomy outlook heading into next year. The expected sales reading for next month also fell sharply to -41, its weakest since the record low of -62 in March 2021. CBI notes that:

„Strained household finances and higher interest rates continue to take a toll on consumer spending, suggesting that retailers will have to navigate a tough demand environment in the months to come.“

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

• The Fed left interest rates unchanged as expected at the last meeting with a shift in
  the statement that indicated the end of the tightening cycle.
• The Summary of Economic Projections showed a
  downward revision to Growth and Core PCE in 2024 while the Unemployment Rate
  was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts
  in 2024 compared to just two in the last projection.
• Fed Chair Powell didn’t push back against the strong dovish pricing
  and even said that they are focused on not making the mistake of holding rates
  high for too long, which implies a rate cut coming soon.
• The US CPI last week came in line with expectations
  with the disinflationary progress continuing steady. This was also confirmed by
  the US PPI the day after where the data missed
  estimates.
• The labour market has been showing signs of
  weakening lately but we got some strong releases recently with the US Jobless Claims and the NFP coming
  in strongly.
• The US Retail Sales last week beat expectations across the board as
  consumer spending continues to hold.
• The US Consumer Confidence report yesterday beat expectations across the
  board.
• The latest ISM Manufacturing PMI missed expectations falling further into
  contraction, while the ISM Services PMI beat forecasts holding on in expansion.
• The market expects the Fed to start cutting rates
  in Q1 2024.

GBP

• The BoE left interest rates unchanged as expected at the last meeting
  with no dovish language as they reaffirmed that they will keep rates high for
  sufficiently long to return to the 2% target.
• Governor Bailey pushed back against rate cuts
  expectations as he said that they cannot say if interest rates have
  peaked.
• The latest employment report missed forecasts with wage growth
  coming in much lower than expected and job losses in November.
• The UK CPI today missed expectations across the board,
  which is another welcome development for the BoE.
• The UK PMIs showed the Manufacturing sector falling
  further into contraction while the Services sector continues to expand.
• The latest UK Retail Sales missed expectations across the
  board by a big margin as consumer spending remains weak.
• The market expects the BoE to start
  cutting rates in Q2 2024

GBPUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that GBPUSD recently
probed above the 1.2743 resistance but got
smacked back down soon after. The divergence with the
MACD was also
a warning sign of a possible pullback as it often signals pullbacks or
reversals. In this case, the price is pulling back to the key trendline where we
can find the confluence with the
1.2593 support and the 50% Fibonacci retracement level of
the entire fall since July.

GBPUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more closely the
bullish setup around the support zone. This is where the buyers are likely to
step in with a defined risk below the trendline to position for a rally into
new highs. 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 1.2374 level.

GBPUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action with the pair trading into the support zone.
If the price breaks above the minor downward trendline, the buyers should
increase their bullish bets into new highs. The sellers, on the other hand,
might want to lean on the minor trendline to position for a downside breakout
with a better risk to reward setup.

Upcoming Events

Today we get the latest US Jobless Claims figures,
while tomorrow we conclude the week with the UK Retail Sales and the US PCE data.

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

If you’re still doubting the dollar’s importance in every day use, you probably have to wait another year before people start entertaining that argument. The latest numbers from SWIFT this week shows that global payments are still very much all being done with the greenback and this snapshot is quite compelling evidence of that:

The standout points in the snapshot above is that the euro’s share of global SWIFT payments have dropped to a new low while the Chinese yuan’s share has improved to even surpass the Japanese yen – the first since January 2022. That makes it the fourth most used global currency behind the pound, euro, and dollar.

The yuan’s share improved to 4.6% in November and that is quite an improvement from below 2% when it started off back in January this year. Adding to that, the yuan’s share of payments for trade finance rose to 5.7% in November and that sees it surpass the euro (5.6%) as the second-most used currency for global trade finance.

Both currencies of course still pale much in comparison to the dollar in this space, which continues to hold a share of more than 80%.

So, while we are seeing some interesting shifts among other major currencies, the dollar continues to stand tall on its own. It holds nearly 45% of all global SWIFT payments, making it still the runaway leader as the most used global currency.

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

The snapshot is as per below:

Based on the above, it’s more so now a question of inflation persistence rather than extremely high inflation. Sure, core prices are still much higher than the snapshot we’re seeing but in general it is also reflecting a similar trend. I mean, it is quite telling when you compare it to the snapshot back in August here:

The most evident case of a drop in headline annual inflation is of course in the euro area, although much of that can be attributed to base effects as high energy prices are phased out. They were of course the most impacted by the Russia-Ukraine conflict last year.

But in general, the softer trend here is what is helping to feed the disinflation narrative and aggressive market pricing on rate cuts in recent weeks. The question now is, will we be able to see that final push towards 2% come sooner rather than later? That dynamic will be what determines the push and pull between central banks and markets for next year.

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