No rush but the signs are pointing to at least a 25 bps move in December again. That being said, traders are still pricing in a ~26% probability of a 50 bps move for the time being as well.
This article was written by Justin Low at www.forexlive.com.
Last week, despite the
higher-than-expected inflation figures and a less dovish Powell, the US Dollar
couldn’t extend the gains. The market’s pricing remained largely unchanged at
three rate cuts by the end of 2025.
This might be a signal that
the market is now fine with the current pricing, and we will need stronger
reasons to price out the remaining rate cuts. This could open the door for some
pullbacks and general US Dollar weakness.
USDCHF
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDCHF couldn’t extend above the 0.89 handle. From a risk management perspective,
the buyers will have a better risk to reward setup around the major upward trendline. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets into new
lows.
USDCHF Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we had another minor upward trendline defining the bullish momentum on
this timeframe. The price recently broke below it which could be a signal of a
bigger pullback to follow.
The sellers are likely to
pile in here to target a drop into the 0.88 handle. The buyers, on the other
hand, will want to see the price rising back above the trendline to position
for a rally into new highs.
USDCHF Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we now have a minor downward trendline defining the current pullback.
The sellers will likely keep on leaning on it to push into new lows, while the
buyers will look for a break higher to position for new highs. The red lines
define the average daily range for today.
Upcoming
Catalysts
This
week is pretty empty on the data front with the most important releases
scheduled for the latter part of the week. On Thursday, we get the latest US
Jobless Claims figures, while on Friday we conclude the week with the US Flash PMIs.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
Gold is up over 1% on the day and starting to close back in on testing the $2,600 mark once more. The bounce here comes as the precious metal looks to snap a run of six straight days of losses, after having ran into a test of its 100-day moving average (red line) last week:
For some context, it was the first time since February that the precious metal even touched the key level. And even when you consider the ~9% drop from the highs at the end of October, it’s but a mild correction to the unrelenting gold rally so far this year.
Nonetheless, a major technical level is still a major technical level regardless. This was highlighted in my post last week here.
And it looks like gold buyers are surviving that test in not letting the pullback run much deeper than it could on a break of the key level above.
The bounce so far is decent but not exactly all too convincing though. It is still running into some potential resistance in the form of the 23.6 Fib retracement level of the swing lower this month, seen at $2,596.63. Adding to that, offers layered around $2,600 adds to some short-term resistance around the current region.
So, buyers will still have some work to do. But the case of an early sign of a bottom is at least starting to build.
This article was written by Justin Low at www.forexlive.com.
Tuesday
The Canadia CPI
Y/Y is expected at 1.9% vs. 1.6% prior, while the M/M figure is seen at 0.3%
vs. -0.4% prior. The focus will be on the underlying inflation measures with
the Trimmed Mean CPI Y/Y expected at 2.4% vs. 2.4% prior, while the Median CPI
Y/Y is seen at 2.4% vs. 2.3% prior.
The BoC is now focused
on growth as inflation has been inside the target band for several months while
economic activity slowed down. The market is pricing a 35% chance of another 50
bps cut in December, so lower than expected inflation readings will likely
raise those probabilities.
Wednesday
The PBoC is
expected to keep the LPR rates unchanged at 3.1% for the 1 year and 3.6% for
the 5 year. Deflationary forces remain in place and the market continues to
signal that they need to do more.
The PBoC pledged
more monetary policy support with another cut in the reserve requirement ratio
to accommodate additional government bond issuance likely coming by the end of
the year. The central bank should do much more though as real interest rates
are still too high.
The UK CPI Y/Y is
expected at 2.2% vs. 1.7% prior, while the M/M figure is seen at 0.5% vs. 0.0%
prior. The Core CPI Y/Y is expected at 3.2% vs. 3.2% prior. Last time, the UK inflation data missed expectations by a big margin with
services inflation dropping to 4.9% from 5.6% in the prior month.
In the meantime,
we’ve also got a soft labour market report and a lower than expected GDP
print. The market is currently pricing just a 22% probability of another 25 bps
cut in December, but that should increase if we were to get another miss in the
CPI data.
Thursday
The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.
Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
after a spike to the cycle highs in the last couple of weeks due to distortions
coming from hurricanes and strikes, are now turning around.
This week Initial
Claims are expected at 223K vs. 217K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior reading saw a
decrease to 1873K vs. 1884K prior.
Friday
Friday is going to
be the Flash PMIs Day for many major economies. The market is going to focus
majorly on the Eurozone, UK and US PMIs as they are likely to influence the
interest rate expectations:
The Japanese Core
CPI Y/Y is expected at 2.2% vs. 2.4% prior. Inflation isn’t really an issue for
Japan as the underlying measures are basically at target. Nonetheless, the
probabilities for a rate hike in December increased to 55% recently as the
Japanese Yen continued to depreciate non-stop due to the rally in Treasury
yields. One of the main reasons why the BoJ hiked rates last time was the fast
depreciation of the JPY.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
Note: Previews are listed in day-order
RBA Minutes (Tue):
The minutes as usual will be dissected for any
commentary regarding potential policy steps ahead, whilst it was already
telegraphed that the Board did not actively consider a rate hike or cut – just
as in September. As a reminder, the most recent meeting saw a lack of fireworks
from the RBA meeting, where it opted to keep the Cash Rate unchanged for the
8th consecutive meeting which economists had unanimously forecast. The rhetoric
provided little fresh insight as it reiterated that the board will continue to
rely upon the data and evolving assessment of risks, as well as noted that
inflation remains too high and is not expected to return sustainably to the
midpoint of the target until 2026. Furthermore, it stated that policy will need
to be sufficiently restrictive until the board is confident that inflation is
moving sustainably towards the target range and it repeated that the board is
not ruling anything in or out. The latest quarterly Statement on Monetary
Policy noted that core inflation remains elevated with service inflation
expected to decline only gradually and that policy in Australia is not as
restrictive as in most peer countries, even after recent rate cuts abroad,
while the RBA lowered its GDP, household consumption, trimmed CPI and core
inflation forecasts. The post-meeting press conference also provided little in
the way of fresh clues as RBA Governor Bullock stated that the last part of
bringing inflation down is not easy and rates need to stay restrictive for the
time being, while she thinks there are still risks on the upside for inflation
but noted they will be ready to act if the economy turns down more than
expected. Furthermore, she said they have the right settings at the moment and
there were no discussions on specific scenarios for rate
changes, as well as stated the current Cash Rate path priced by the market is
as good as any.
Canadian CPI (Tue):
The Canadian inflation data will be used to
confirm the BoC’s victory on inflation with focus now turning to supporting
growth, hence their 50bps rate cut in October. It also noted that inflationary
pressures are no longer broad based, and they are seeing business and consumer
inflation expectations largely normalised. The BoC largely believe they can
continue with the easing process and keep inflation within the BoC’s 1-3%
target range, noting the timing and pace will be guided by incoming information
and the assessment of implications for the outlook, noting decisions will be
made meeting by meeting. Looking ahead, the latest forecasts saw the 2024 and
2025 CPI forecasts lowered while the 2024 Q4 forecasts saw Y/Y CPI ease to 2.1%
from 2.4% and core inflation rise to 2.1%. Money markets are currently pricing
in 33bps of easing for the next meeting in December, which implies a 66%
probability of a 25bps rate cut, but with a 33% probability of another 50bps
rate cut. A hot inflation report could see money markets start to unwind the
pricing of another 50bps move, but with focus shifting to economic growth, GDP
and labour market data will also be eyed.
UK CPI (Wed):
Expectations are for the Y/Y to tick up to 2.2% from
1.7% while the core figure is seen moderating slightly to 3.1% from 3.2%. As a
reminder, the prior release showed headline Y/Y CPI in September fell to 1.7%
from 2.2%; below target for the first time since April. Furthermore, core Y/Y
declined to 3.2% from 3.6% and the all-important services metric slowed to 4.9%
from 5.6%. This time around, Pantheon Macroeconomics looks for a pick-up in
headline inflation to 2.2% on account of Ofgem’s 9.5% hike to the energy
utility price cap, combined with “last October’s utility price cut dropping out
of the inflation calculation”. Note, an outturn of 2.2% would be 40bps below
the last MPC forecast with Pantheon suggesting that most of the discrepancy
will likely be on account of falling petrol prices. On services inflation, the
consultancy expects an uptick to 5.0% which would match the MPC’s November MPR
forecast. For policy, the release will be scoured to see if there are any
elements which could bring a December cut back into contention, or further pare
expectations for a move, with markets currently ascribing less than a 20%
chance of a 25bps cut in December; as a reminder, November’s CPI will be
published the session before the BoE rate announcement.
CBRT Announcement (Thu):
The Turkish Central Bank is expected to
maintain its One-Week Repo Rate at 50.00%. Desks were split on a December cut,
but recent CPI data topped expectations and did not slow as much as had been
hoped, whilst the CBRT in its final inflation report of the year raised its
2024 inflation forecast to 44% (prev. 38%), raised its 2025 forecast to 21%
(from 14%) and raised its 2026 forecast to 12% (from 9%) – implying a delay in
Türkiye’s disinflation process. That being said, analysts at ING suggest that
“While addressing structural challenges related to food and rent inflation, the
CBT’s relatively positive assessment of the October data and projected
inflation path suggests that a rate cut in December should not be fully ruled
out if we see more benign data releases in November. That said, economic
activity may be headed for a further slowdown given the significantly tight
financial conditions, and a deeper-than-expected impact could also be a key
factor in the timing of the cutting cycle.”
SARB Announcement (Thu):
Expected to deliver a 25bps cut, bringing
its interest rate down to 7.75% from 8.00%, according to 20/22 respondents to
the Reuters survey; the remaining two look for a 50bps move. The median
forecasts then point to further cuts in January, March & May taking the
rate to a 7.00% trough. As a reminder, headline annual inflation slowed to 3.9%
in September vs the prior 4.4%; which is below the mid-point of the Bank’s
target range; paving the way for further easing. Analysts at Standard
Chartered, wrote that “we think the SARB will want to proceed cautiously,
monitoring global risks and any consumption boost from South Africa’s recent
Two Pot Pension Reforms”. In terms of the prior meeting, the SARB delivered a
25bps cut for the first time since COVID; a unanimous decision which matched
analyst expectations. The accompanying statement noted that „as long as
headline inflation stabilises at lower levels, we anticipate further progress
in re-anchoring expectations around the middle of our target range“.
Japanese CPI (Thu):
There are currently no expectations for the
Japanese CPI data, whilst the preceding Tokyo CPI release saw Core CPI above
consensus but still down from the prior month. ING suggests in their view, “the
BoJ is likely to take a closer look at yen movements. The yen has depreciated
by almost 4.5% against the dollar over the past month, raising the possibility
of higher import costs and a subsequent overshooting of inflation. As for the
Bank of Japan raising interest rates, we believe it is only a matter of time
and that this should materialise in either December or January. We see a
slightly higher probability of a December hike than a January hike, as we
expect the JPY depreciation to continue for a while and for upcoming inflation
data to provide more evidence of growing inflationary pressures. If this is
confirmed, the Bank of Japan is likely to hike 25bp in December.” The next BoJ
announcement is scheduled for December 19th.
UK Retail Sales (Fri):
Expectations are for October’s M/M figure to
come in at -0.2% (prev. 0.3%) though the consensus is subject to a wide
forecast range of -0.6% to 0.2%. In terms of recent retail indicators, BRC
retail sales for October rose 0.3% Y/Y (prev. 1.7%) with the accompanying
release noting “After a good start to Autumn, October’s sales growth was
disappointing. This was in part driven by half term falling a week later this
year, depressing the October figures, and November sales will likely see more
of a boost. Uncertainty during the run-up to the Budget, coupled with rising
energy bills, also spooked some consumers”. Elsewhere, the Barclaycard consumer
spending report observed “Overall Retail spending increased by 0.7% in October
2024, a third consecutive month of growth as the sector continues its recovery.
In particular, spend at General Retailers & Catalogues increased by 6.0%,
the highest growth for the category since February 2024 (6.9%), whilst spend at
Department Stores increased by 4.7%, as consumers were incentivised by
retailer’s promotional activities”.
EZ Flash PMI (Fri):
November’s Flash PMIs will be one of the first
reads into the bloc post-Trump’s victory in the US Presidential election. Thus
far, we have seen November ZEW for the bloc and Germany, with metrics for the
regions coming in markedly shy of expectations. For Germany specifically,
attached commentary highlighted that „economic expectations for Germany
have been overshadowed by Trump’s victory and the collapse of the German
coalition“ with the release clarifying that US political developments were
likely the primary cause of pressure in sentiment indicators. As such, market
consensus looks for the manufacturing print to remain at 46.0 while Services is
seen slipping to 51.5 from 51.6, which would push Composite back into a
contraction at 49.9 from 50.0. However, some of the pressure could be offset by
a boost in orders/stockpiling ahead of potential tariffs, a point raised by
Pantheon’s Vistesen, who adds and reminds that tightening supply side
developments can actually bolster the PMI, as seen during COVID.
UK Flash PMI (Fri):
PMIs are seen printing in-line with October’s
figures after several months of pressure, though there are numerous factors in
play. As a reminder, the prior release showed the October services PMI decline
to 51.8 from 52.4, manufacturing slip into negative territory at 49.9 vs. prev.
50.3, leaving the composite at 51.7 vs. prev. 52.6. The accompanying release
noted “The early PMI data are indicative of the economy growing at a meagre
0.1% quarterly rate in October“. This time around, focus will be on what
impact respondents expect the victory of US President Trump to have on the UK,
with the narrative potentially different to that for the EZ; irrespective of
this, the passing of political uncertainty around the election will be a
positive. On politics, respondents will have had more time to digest the recent
UK budget and thus may have formed more concrete views on the
short/medium/long-term implications of it. Overall, Oxford Economics expect the
PMIs to stabilise close to October’s figures after declining in the last few
periods.
This article originally appeared on Newsquawk
This article was written by Newsquawk Analysis at www.forexlive.com.
Goolsbee spoke on Friday:
trying to revert to dove mode:
but having to throw in the strong caveat:
He spoke later on Friday also:
He added that strong economic growth is not necessarily signalling the economy is overheating, citing productivity gains over the last year. Said that this rising productivity allows for faster economic growth without generating additional inflation“
This article was written by Eamonn Sheridan at www.forexlive.com.
Credit Agricole argues that despite similarities, 2025 will not be a redux of the USD’s 2018 rally driven by Trump-era policies. Differences in economic conditions, monetary policy, and the USD’s current strength suggest that the dynamics underpinning the dollar’s movement will differ significantly from 2018.
Key Points:
Potential Stagflationary Impact:
Stronger USD Starting Point:
Conclusion:
Credit Agricole acknowledges that Trump’s policy agenda has added upside risks to the USD, but a repeat of 2018’s rally is unlikely. Slower US growth, stagflation risks, and the already strong USD limit the potential for another broad-based surge, suggesting a more nuanced outlook for 2025.
For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.
This article was written by Adam Button at www.forexlive.com.
Markets:
There wasn’t a tidy narrative on Friday as trading started out with a ’sell everything‘ mode before bonds made something of a comeback. Still, it was a tough one for stocks, bonds and equities. In that environment you would expect to see US dollar strength but that wasn’t the case as the euro and Australian dollars held steady.
The retail sales report was the main event of the day ahead it was better than the headline looked due to a strong September revision. However others would argue that was negated by a negative August revision. Still, there isn’t much of a debate going on about the US consumer right now with most arguing that spending will be healthy and could get a post-election bump.
The big move in FX was in USD/JPY. There was some intervention talk earlier and stronger verbal intervention. I’m dubious that was the cause but there was some real selling as about half of the week gain was wiped out in a 200 pip fall. The Fed has turned less dovish, which should help but the bond market could be sniffing some economic weakness out or there could be angst about tariffs and deficits.
Cable fell for the sixth day, which if fine with me because I’ll be in London next week. The pair broke the August low and continued down to 1.2600, which is flirting with the June low in what’s been a rough ride.
The loonie has been struggling alongside the pound and fell to a fresh four-year low, which meant a rise in USD/CAD to 1.4105 at today’s peak. The move was helped along by another decline in oil prices.
There is brewing concern about China and equities there were the global laggards this week. That’s a problem for the antipodeans but on Friday they shook off the worries to finish flat.
Have a great weekend and if you’re in London, I’ll be at FMAS 2024 next week.
This article was written by Adam Button at www.forexlive.com.
Trump’s cabinet picks are leaning heavily on „promises made, promises kept“ and the market is wondering about the biggest promises: 60% tariffs on China, 10% across the board and mass deportations of 11m illegal immigrants.
Closing changes:
On the week:
This article was written by Adam Button at www.forexlive.com.
It’s now up 3.3% on the day to $91,200 and that’s coincided with a modest rebound in risk appetite more broadly.
This article was written by Adam Button at www.forexlive.com.