The dollar index fell 1% in the aftermath of Wednesday's less hawkish than expected comments from Fed Chair Jerome Powell that sent Treasury yields sharply lower and rather dour ISM manufacturing data, with Friday's payrolls report even more important than usual.

The initial dollar slide on reduced Fed hike pricing and risk-on responses to Powell nS0N2W500F was only modestly extended after the ISM manufacturing index's first contractionary reading in 2-1/2 years, with weak details throughout the report nN9N2YW01S.

An unexpected 2.8% drop in German retail sales nAPN0R93XH sent bund yields sharply lower, reinforcing the tumble in Treasury yields and leaving the big EUR/USD rally a bit overdone ahead of Friday's U.S. jobs report.

EUR/USD rose nearly 1% to its highest since June, trading entirely above the 200-day moving average for first time since June 2021, while threatening to close above the 50% Fibo of 2022's drop at 1.5012.

The rally came despite 2-year bund-Treasury yield spreads dipping slightly, as the haven dollar was overwhelmed by risk-on outflows.
If prices close above the 50% Fibo after Friday's payrolls report, a broader retracement would be likely nL1N32R1MD.

USD/JPY, which is highly sensitive to rates since the BoJ-constricts JGB yields, fell nearly 2%, quickly closing the gap toward the pivotal 200-DMA at 134.43.
A close below the final 76.4% Fibo of the August-October advance at 135.48 would increase the risk of August's 130.40 low being reached.

Sterling rose 1.6% on big risk-acceptance that Fed Powell and Chinese COVID policy loosening nL8N32R04F induced, leaving the previously obstructive 200-DMA at 1.2156 in its wake, while probing the 50% Fibo of its 2021-22 downtrend by August's 1.2291 swing high.

Perhaps as a warning that risk-on flows may eventually be tripped up when weakening economic data reverts to being seen as bad news for currencies, the Australian dollar only gained 0.3% and the yuan's recent rebound stalled.

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• EUR/USD hit 1.0393 on EBS in Europe's a.m., NY opened near 1.0440

• US rates EDH3, US$ sink on PCE & ISM nL1N32R15S pricing data

• EUR/USD cleared November's monthly high & 50% Fib of 1.1495-0.9528

• Pair went on to hit a 6-moth high of 1.0534 on EBS, neared 1.0505 late

• EUR/USD's pull back aided by equity gains eroding, US$ sales abating

• Pair still up & traded +0.94% late in the session; techs lean bullish

• Consolidation ends with new high set, daily & monthly RSIs are rising

• With growing tail winds, EUR/USD confronts one more key risk nL1N32R1MD

• US Nov. Jobs report & its impact on the Fed is a key risk Friday

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ING Research sees a scope for the USD to regain some lost ground in the near-term.

"The dollar came off sharply late yesterday on comments from Federal Reserve Chairman Jerome Powell which signalled that December would probably be the occasion to shift to a slower pace of rate hikes. The market has been expecting the shift to a 50bp versus 75bp rate hike for a while, although it felt the need to price the terminal rate next summer some 10bp lower at 4.90%," ING notes. 

"Indeed, US yields came off quite a sharp 20bp across the curve. We are tempted to say that looks an over-reaction in that while Chair Powell did acknowledge the slowing in the pace of hikes, his core message was one of stubbornly high core inflation – particularly in the core services ex-housing category," ING adds. 

• Nov. 30 dip was bought aggressively, aggressive buying persists Dec. 1

• GBP/USD rallied above the Nov. monthly high, hit a 6-month high of 1.2311

• Minimal pull back from today's high implies bulls remain confident

• Rising daily, monthly RSIs indicate upward momentum remains in place

• 61.8% Fib 1.3749-1.0327, May 2022 monthly high now targeted by longs

• GBP/USD bears likely need below 1.1700/50 in order to take some control

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Danske Research discusses EUR/USD outlook and sees a scope for losing some ground in the near-term.

"We see near-term downside potential over the coming weeks. The market is about priced for a 50bp hike from Fed in two weeks, but a lot of data releases are left before Fed makes this call starting with the jobs report tomorrow and key inflation data," Danske notes. 

"Recent experience shows it only takes one positive surprise, e.g. on inflation, to tip the scale in favour of another 75bp hike. Vice versa we have a difficult time seeing Fed slow hiking pace all the way to 25bp in December," Danske adds. 

• Cable reaches 1.2305 after rising further from 1.1900 (Wednesday's low)

• 1.2305 is highest level since June 27 (1.2330 was high that day)

• Wednesday's low was plumbed before Powell speech boosted risk appetite

• That has been positive for the risk-sensitive pound, with shorts squeezed

• IMM speculators have been net GBP short since Nov 2021 (bar one week in Feb)

• EU's von der Leyen says Brexit talks with Sunak encouraging nS8N30T045

MUFG Research sees a scope for further EUR/USD rebound despite the modest dovish pricing for ECB rate expectations after this week's EZ inflation print.

"For ECB Market participants have become more confident that the ECB will also step down the pace of rate hikes at their next policy meeting 15th December. ..The latest eurozone CPI report revealed that headline inflation unexpectedly dropped to 10.0% in November although the core rate held at 5.0%. It has added to optimism that inflation is now in the process of peaking out which alongside much weaker activity data over the winter period should encourage the ECB to adopt a less hawkish policy stance," MUFG notes. 

"Nevertheless, a modest dovish repricing of ECB rate expectations is unlikely on its to prevent EUR/USD from continuing to rebound if the broad-based US dollar sell-off," MUFG adds.

  Bank of America Global Research discusses its reaction to yesterday's Fed Powell speech and US economic outlook.

"Chair Powell indicated the time for a slower pace of rate hikes is likely to come at the December meeting. The Fed's outlook for a soft landing in the economy is heavily dependent on supply elasticity as opposed to demand restraint," BofA notes. 

"We are less optimistic that supply conditions will improve meaningfully enough to avoid a mild recession in 2023.  Our outlook for a return to 2% inflation requires a greater squeezing of demand through tighter monetary policy. We do not think a deep recession is needed, but we do believe a mild recession is more likely than not and is what may be required to put inflation on a sustainable downward trajectory," BofA adds. 

• USD/JPY options were poised for volatility and downside this week

• That came to fruition and helped to limit implied volatility setbacks

• Overnight and 2-week options now firmly bid on U.S. NFP and Fed capture

• 1-month weighed slightly by X-mas and new year holiday decay implications

• 1-month expiry risk reversals steady after reaching 1.3 JPY calls over puts

• However, dealers note slowing demand for near term expiry downside strikes

• May suggest reluctance to bet more n-term USD/JPY losses after recent fall

  
  

  
  

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• GBP/USD's late Wed rebound put the underlying bull run back into play

• We almost caught the base with our 1.1925 short profit take

• The 10DMA, 1.1995, still to define the bull run on a closing basis

• Key 200DMA next hurdle for the pound, currently 1.2155, a test seen

• A break above the 200DMA would target a 50% Fibo, 1.2280, off 1.4233-1.0327

• Daily techs turn bullish and can draw support from a strong November close

• We will stand aside for now

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• Cable climbs to 1.2155 as risk-sensitive pound benefits from equity gains

• See: nL1N32R0LZ. 1.2155 is 200DMA (1.2153 was 15-week high on November 24)

• Equity gains aided by Powell and news China set to loosen COVID curbs

• See: nL8N32R04F. 1.1900 was Wednesday's one-week low, before Powell spoke

• 1.2200 among bull targets if 200DMA vaulted (1.2216 was August 12 high)

• UK businesses report easing price pressures - BoE survey nL8N32R2BC

• Dollar plunges versus yen as Powell says Fed to go slow nL1N32R0BF

• Japan firms rising capex fuel hopes for smaller GDP contraction nL4N32Q2R4

• USD/JPY sees a big collapse, on Thursday, dropping from 138.11 to 135.85

• Some Japanese importer buys but not large, exporters hitting bounces

• USD/JPY's slump unmasks the major 135.48 Fibo, outlook darkens nL1N32R0F6

• 135.48 Fibo is a 76.4% retrace of the 130.40-151.94 (Aug-Oct) EBS rise

• USD/JPY, EUR/JPY 30-day log correlation above +0.50 = positive relationship

• EUR/USD's outlook is mixed, market stuck between a rock and a hard place

• Long upper shadow on Monday's candle is a sign the upside has been rejected

• However, the market has since found support ahead of 1.0268 Fibo Wednesday

• 1.0268 Fibo is a 23.6% retrace of the 0.9528 to 1.0497 (Sept to Nov) rise

• On balance, we expect gains as fourteen-day momentum remains positive

• However, watch this reading as it could turn negative in coming sessions

• EUR/USD Trader TGM2334. Previous update nL1N32Q0FZ

• Cable tests 1.2118 (Monday's high) after extending north from 1.1900

• 1.1900 was Wednesday's one-week low, before USD sank on Powell comments

• Fed Chair was less hawkish than expected nL1N32Q2D1nL1N32Q3IX

• 1.2126 (Black Friday high) and 1.2153 are resistance levels beyond 1.2118

• Support points incude 1.2062 (Tuesday's high) and 1.2029 (Ldn am high Weds)

• UK Nov house prices down 1.4% MM vs minus 0.3% f/c - Nationwide nL8N32R1A5

• Daily chart's outlook has darken considerably due to the latest slump

• Thursday's losses means our 138.80 short met its target at 136.60

• Fourteen-day momentum is negative, reinforcing the bearish bias

• Expectation is for losses through a major 135.48 Fibo

• 135.48 Fibo is a 76.4% retrace of the 130.40-151.94 (Aug-Oct) EBS rise

• USD/JPY Trader TGM2336. Prev nL1N32Q0H2

• EUR/JPY range has been 142.11-143.75, on Thursday, according to EBS prices

• AUD/USD powers up to 0.6818 in continuation of Wed rally

• Wed closing crossed Fibo, activated Bollinger uptrend channel

• Bollinger band 0.6770 and 61.8% Fibo at 0.6762 to support dips

• Bulls will aim for next Fibo retracement at 0.6902, then 0.7000

• Risk-on persists in wake of less hawkish Powell, China news

• China softens tone on COVID severity, eyes vaccinations nL8N32R04F

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• +0.15%, with the USD off 0.3% from 5pm NY and resilient risk appetite

• Trades in the middle of a 1.2056-1.2103 range with heavy flow on D3

• UK to trial Elon Musk's satellite broadband equipment in remote locations

• If successful, real progress towards 'levelling up' in the UK nL8N32Q5N1

• Charts, daily momentum studies flat line, 5, 10 & 21 DMAs head higher

• 21 day Bollinger bands rise - a positive setup near recent range high

• Initial key resistance at 1.2291, the well tested August high

• 1.1988 10 DMA is initial major support, then pivotal 1.1700 21 DMA

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• NZD/USD closed above the 200-day MA (0.6289) for first time since April

• NZD attractive, as RBNZ remains hawkish as other central banks hint at scaling back nL4N32J0KP

• NZD/USD trending higher with the 5, 10 & 21-day MAs in a bullish alignment

• Only a break below the 10-day MA (0.6214) would suggest waning momentum

• The first target is the 61.8 of 2022 high/low at 0.6452

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• AUD/USD traded to a 10-week high at 0.6814 in upbeat start to Asian session

• Weaker than expected Q3 Aus Capex ignored as AUD/USD remains above 0.6800 nAZN0SKL2W

• AUD/USD targeting stiff resistance at 0.6915/30

• The Sep 13 high and 50% of 2022 high/low at 0.6915 and 200-day MA at 0.6926

• Key support is at the 21-day MA at 0.6643

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• +0.15% after closing up 0.75% - USD continues to slide post Fed's Powell

• Rate hikes to slow, but likely elevated for longer- risk soared nL1N32Q2D1

• EZ inflation eased, reducing the pressure on ECB to hike nL1N32Q0PX

• Euro continues to be led by USD moves and data rather than European events

• Charts; momentum studies flat line, 5, 10 & 21 day moving averages conflict

• 21 day Bollinger bands contract - neutral setup as consolidation extends

• 1.0256 21 day moving average and 1.0511 50% 2022 fall are the pivotal levels

• There are no significant close strikes for December 1st

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• EUR/USD opens +0.73% after rallying in wake of Powell speech nL1N32Q2QU

• It completed bullish outside day - as it fell below 1.0300 before speech

• EUR/USD moves aligned with US Treasury yields that fell hard from highs nL1N32Q2JQ

• EUR/USD close above 200-day MA at 1.0370 re-ignites trend higher

• The 5, 10 & 21-day MAs in a bullish alignment

• Support is at the 21-day MA at 1.0255 and break would suggest top is forming

• Resistance is at 50% of 2022 high/low at 1.0511 with offers ahead of 1.0500

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• USD/JPY poised to close 0.45% Thursday as Powell tempers Fed rate outlook

• Powell says Fed could scale back rate hikes in December nL1N32Q2D1

• Traders cut bets on Fed peak rate, UST yields pull back; 10-year down 14 bps

• USD falls from 139.89 day high to 137.67, stabilizes above Monday 137.50 low

• Focus turns to US PCE, claims & ISM manufacturing Thu, jobs data Friday

• Below 137.50 opens ratchet to 136.19, Aug 26 low; resistance 138.50, 139.00

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• AUD/USD opened NY just below the overnight high of 0.6741

• Overnight gains aided by equity ESv1, commodity HGv1 gains

• USD/CNH drop below 7.0650 also helped prop up AUD/USD

• Gains eroded in NY as rates, US$ gained after data nL1N32Q1AU

• AUD/USD fell below the 10-DMA, hit 0.6677 then neared 0.6710

• US rates EDH3, US$ sink after Fed Chair Powell comments nS0N30W01U

• Equities, commodities rallied and USD/CNH fell towards the session low

• AUD/USD broke the Nov. 29 high, struck 0.6760 & was up +0.92% late

• Techs lean bullish; RSIs rise, consolidation persists, pair above 10-DMA

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• EUR/USD slowly lifted in Europe, NY opened near 1.0355, rally extended

• Equity ESv1, commodity LCOc1 gains drove risk-on and US$ lower

• Pair struck 1.0400 on EBS after US data nL1N32Q1AU but the rally reversed

• Rising US rates EDH3 drove broad based US$ buys, USD/CNH neared 7.1015

• EUR/USD fell below the 200- & 10-DMAs, turned negative & hit 1.0290 on EBS

• Fed Chair Powell comments nS0N30W01U help drive rates EDH3, US$ down

• EUR/USD rallied above 1.0370 and was +0.45% late in the session

• Tech lean bullish; RSIs rising & pair trades above the 10- & 200-DMAs

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