• USD/JPY dove back toward last bastions of support before 144.58

• Close below 100-DMA, 23.6% of Mar-Nov rise at 147.17/6.66 awaited

• Also the up TL from Mar at 146.55 on Monday

• Huge 2022/23 double-top at 32-yr highs is overarching sell signal

• Once below up TL from March, weekly kijun is eyed at 144.58

• That's also 50% of the Jul-Nov rise

• Broader reversal target is 50% of 2023 rise/weekly cloud top at 139.57

• Close to the 161.8% Fibo off Nov's 151.92-47.55 initial dive at 139.45

• Primary downtrend reinforced by sub-daily cloud base closes

• Daily kijun and weekly tenkan at 149.29 are daunting resistance

For more click on FXBUZ

• USD/JPY fell 1% as Tsy yields tumbled after Powell's comments

• Fed Chair was expected to more forcefully warn against rate cut hopes

• Prices threatening a sub-100-DMA close, last at 147.17

• The 23.6% of Mar-Nov rise and Up TL from March are at 146.66/45

• A sub-146.45 close would target 50% of Jul-Nov rise, wkly kijun at 144.58

• Have key ISM services and jobs reports on Tuesday and Friday to guide

• That as Fed's pre-Dec. 12-13 meeting blackout period's begun

• Also have US CPI on Dec. 12 to inform Fed, now less averse to 2024 cuts

• The 2022-23's 32-yr highs and double-top could see 2023's rise halved

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• NY opened near 0.6620, slide begun in Europe extended in early trading

• 0.6608 hit on buoyant US yields US2YT=RR, US$ & AUD/JPY drop below 97.75

• US$ buying abated however a sharp AUD/USD rally then began shortly afterward

• Yield, US$ fell hard after downbeat Nov. ISM mfg PMI, Fed's Powell's remarks

• USD/CNH hit 7.1242 (D3) while stocksEsv1, copperHGv1, goldXAU= rallied

• AUD/USD pierced the 61.8% Fib of 0.6895-0.6271, neared November monthly high

• 0.66745 traded with only a meager pull back, pair was up +0.95% late

• Hold above 10- & 200-DMAs, rising daily, monthly RSIs are bullish signs

• US Nov. employment, ADP & ISM services PMI, Oct. JOLTS are risks next week

• For more click on FXBUZ

Synopsis:

TD provides an analysis of the Canadian Dollar (CAD), highlighting its evolving drivers and predicting its performance into 2024. The analysis emphasizes that CAD is increasingly influenced by risk sentiment and broader USD movements rather than just oil prices.

Key Points:

• CAD as a Risk Currency: While traditionally viewed as an oil currency, TD's inspection shows that the impact of oil on CAD has lessened over time. Instead, risk sentiment and the broad USD have become more significant drivers for USDCAD.
• Impact of a Slowing US Economy: Canada's close trade and economic ties with the US suggest that a slowdown in the US economy will impact Canada. However, Canada has outperformed non-USD peers based on US exceptionalism, a trend TD sees reversing as the US catches up with global trends.
• Domestic Factors in Canada: Mortgage renewals may constrain household consumption in Canada. However, this is offset by factors like population growth and excess savings.
• Downgrading CAD in Macro Framework: TD's multi-factor thematic portfolio analysis (MRSI) indicates a downgrade in CAD's ranking based on themes relevant into 2024.
• TD's Prediction for CAD: The forecast is for CAD to appreciate against a broadly weakening USD next year, but not to be the top performer among G10 currencies. CAD is expected to lag, especially in crosses with currencies linked to an improving China outlook, like the AUD.

Conclusion:

TD's outlook for the CAD in 2024 suggests a nuanced view beyond its traditional association with oil prices. The analysis points to the increasing relevance of risk sentiment, broader USD movements, and cross-currency dynamics, particularly against currencies like the AUD which are likely to benefit from positive developments in China. While Canada faces domestic challenges, such as mortgage renewals, these are somewhat balanced by positive demographic trends and savings rates. The overall prediction is for CAD appreciation, albeit with a tempered performance compared to other G10 currencies.

A downside surprise in the U.S. ISM manufacturing PMI report and a lack of push back on the market’s recent dovish shift from Federal Reserve Chair Jerome Powell kept sterling trading around its best levels in two-months on Friday and left longs with reasons to continue aiming higher.

Now that the Fed will enter the blackout period, a lack of push back from Powell suggests that the path of least resistance is tilted to the downside for the greenback in the lead up to the December policy meeting.

Money markets are pricing in roughly 125bps of easing from the Fed in 2024.
While there is an argument that this is appearing overdone relative to the Fed’s own expectations from its dot plots – 50bps of cuts – incoming data will determine whether markets are getting ahead of themselves.
As such, key focus will be placed on next week’s ISM non-manufacturing PMI survey and non-farm payrolls report.

For now, with the dollar also in a seasonally bearish period, sterling bulls can look to target a move towards its 200WMA (1.2843).

For more click on FXBUZ

Synopsis:

Bank of America (BofA) provides its outlook for the USD/CAD pair in 2024, forecasting a gradual rally for the Canadian Dollar (CAD) against the USD, with expectations of more significant movements in the second half of the year.

Key Points:

• Mid-2024 Expectations: BofA expects the CAD to rally slowly back to a 1.34 level against the USD by mid-2024.
• Volatility Factors: The forecast acknowledges elevated two-sided volatility due to uncertainties in central banks’ inflation policies and increased geopolitical risks.
• Second Half of 2024 Rally: A more significant rally for the CAD is anticipated in the latter half of 2024, coinciding with the beginning of the Federal Reserve’s rate-cutting cycle.
• End of 2024 Target: By the end of 2024, BofA predicts the USD/CAD to fall to 1.30.
• Outlook for 2025: The forecast of 1.30 for USD/CAD is maintained throughout 2025.

Conclusion:

BofA's outlook for USD/CAD in 2024 suggests a gradual strengthening of the CAD against the USD, with more notable movements expected in the second half of the year as the Fed commences its rate-cutting cycle. The forecast reflects a cautious approach, considering the ongoing uncertainties in monetary policies and global geopolitical situations. The consistent target of 1.30 for USD/CAD through the end of 2024 and into 2025 indicates a longer-term view of CAD appreciation.

EUR/USD fell below the 23.6% Fibonacci retracement of the 1.0448-1.1017 rally and November 23 daily low to strike a 7-session low as investors expectations for Fed and ECB monetary policies weigh and longs will need to be aware of two key influences should those expectations persist.

German DE2YT=RR and U.S. US2YT=RR 2-year yields have been trending downward but German yield drops outpaced U.S. drops which widened the dollar's yield advantage over the euro to help pressure EUR/USD downward.
German-U.S.
2-year spreads US2DE2=RR struck their widest since November 17.

Since late August spreads have been trading within a rising channel.
The channel base is coming into focus and a break of that base could lead to a sharp EUR/USD drop.

Investors need to be aware of euro positioning as well.
The latest CFTC report indicated an increase in net-long euro positions, which have reached their highest since early September.
If EUR/USD cannot rally, reduction of those longs may ensue and add bearish pressure on EUR/USD.

Eikon's interest rate probabilities page IRPR shows investors expect the ECB's first cut in March and the Fed's first cut in May.

If the Fed doesn't lean dovish soon, expectations for the first cut may get pushed back and EUR/USD's downside risk may remain elevated.

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Synopsis:

MUFG discusses a notable seasonal pattern for EUR/USD, highlighting its tendency to rise in December based on historical data. However, they caution that this pattern does not override the importance of fundamental economic factors.

Key Points:

• Strong Seasonal Bias in December: Historical data from the last 20 years shows a compelling seasonal trend for EUR/USD to rise in December. Out of these 20 years, 14 Decembers have seen a higher EUR/USD, with an average gain of 2.6% over those occasions.
• Excluding Outliers: Even when excluding an exceptional gain in December 2008 (+10.1%), the average gain over the other 13 occasions remains significant at 2.0%.
• Correlation with November Movements: In 8 out of 11 instances where EUR/USD moved higher in November, it was followed by a gain in December.
• Importance of Fundamentals: Despite this seasonal pattern, MUFG emphasizes the importance of fundamental economic indicators. The prospects of this seasonal trend manifesting in December 2023 depend on signs of slowing US economic activity.
• Significance of Upcoming Jobs Report: The US jobs report scheduled for the next Friday is deemed crucial in assessing whether the recent optimism over inflation declines will continue.

Conclusion:

MUFG's analysis points to a strong seasonal tendency for EUR/USD to rise in December, based on historical data over the last two decades. However, the firm advises that this pattern should not lead to a disregard of fundamental economic indicators. The current economic climate, particularly concerning US economic activity and upcoming jobs data, will play a crucial role in determining whether this seasonal trend will be evident in December 2023.

Synopsis:

ANZ provides a rationale for considering a medium-term trade in buying AUD/USD on dips, targeting a move upwards. This strategy is based on the momentum of the USD's decline towards the year-end and into 2024, along with specific economic indicators and central bank policies.

Key Points:

• USD Decline Momentum: ANZ observes a gaining momentum in the USD’s decline as the narrative of US exceptionalism fades, which opens up room for AUD/USD to move upwards.
• US Employment Data Outlook: Negative US employment data, as hinted by PMI indicators like the composite employment index dropping below 50, support the case for the AUD’s strength against the USD.
• RBA's Hawkish Stance: The Reserve Bank of Australia (RBA)’s more hawkish stance is seen as beneficial for the AUD. Despite the Consumer Price Index (CPI) missing market estimates, key aspects of inflation (such as service and non-tradeable inflation) are still areas of concern for the RBA and are driving domestic inflationary pressures.
• Expectation of RBA Reminder: A hawkish reminder from the RBA in the coming week is anticipated to provide a boost to the AUD.

Trade Strategy:

• Entry Point: ANZ suggests buying AUD/USD on dips at around 0.6575.
• Target: The target for this trade is set at a movement towards 0.6850.

Conclusion:

ANZ's analysis supports a medium-term trade strategy of buying AUD/USD on dips, with an entry point at 0.6575 and a target of 0.6850. This outlook is underpinned by the USD's declining momentum, expected negative US employment data, and the RBA's hawkish stance on inflation, especially in the services and non-tradeable sectors. The upcoming RBA policy reminders are likely to further influence this currency pair, reinforcing the potential for an upward move in the AUD/USD.

• Traders are heavily long EUR/USD ($17.8bln equiv)

• Pair has swiftly risen 1.0448-1.1017 EBS - many profitable bets

• Probability profits booked heightened by proximity to year-end

• Profit taking may be misinterpreted as positive for broader $

• Int/rates changes influencing USD put it under more pressure nL1N3CW0TH

• Euro/crosses are likely to soften due combo profit-taking/pressure on $

• USD rises influenced by EUR/USD dip may prove very short-lived

• Larger bets on USD rising (JPY, AUD, CAD, CHF, GBP) likely to be reduced

• Next year traders may reestablish EUR/USD longs which served them well

• AUD/USD has traded 35.5 pip range since European open; 0.6600 = session low

• 0.6600 was Asian session low too. Fed's Powell is due to speak later today

• AUD/USD might rise to 0.6650 if Powell conveys relatively dovish message

• 0.6650 was Thursday high. 0.6676 resistance beyond (17-week high Wednesday)

• US Nov ISM mfg PMI due at 1500 GMT; 47.6 f/c (services ISM due next week)

• RBA rate decision next week: no change is consensus forecast nL1N3CW0FV

• Daily chart hinting at a bout of sideways action

• Decided to square our 1.2658 short at entry

• Fourteen day positive momentum fading but RSI rising again in o/b territory

• Weeklies have a long upper candle shadow adding to the bear side risk

• However, Nov bucked a three-mth bear run: hints of a positive l/t outlook

• We stand aside for now but will be looking at short-term bear plays

  For more click on FXBUZ

When EUR/USD was trading around 1.0600 in October, Morgan Stanley made a call for parity by April 2024 and although EUR/USD has risen to 1.1017 since, its most recent strategy research note still thinks that target can be achieved.

While the bank says that the 10% drop now required is large, such a move is not unheard of and cites the EUR/USD plunge in 2022.
It says the USD sell-off may have run its course and at a minimum, consolidation may be in store, but current levels also look attractive to sell, with a stop above 1.1000.

In summary, Morgan Stanley thinks growth and rate divergence, particularly relative to expectations should continue.
It thinks long end German bonds are too high and have room to ease, dragging on EUR.
December's central bank policy announcements could certainly impact EUR/USD if the Fed pushes back against market pricing and/or the ECB forecasts lower inflation which would endorse the recent shift in market pricing for earlier rate cuts.

FX option markets are highlighting the potential volatility risk from those central bank meetings and next week's U.S. NFP jobs data.

For more click on FXBUZ

• EUR/USD's big drop on Thursday closed under the tenkan line, at 1.0935

• However, it did find support very close to the 1.0883 Fibo

• 1.0883 Fibo is a 23.6% retrace of the 1.0448-1.1017 (Oct-Nov) EBS rise

• Note also that 14-day momentum remains positive, highlighting the bull bias

• EUR/USD outlook is mixed. We remain long at 1.0965

• EUR/USD Trader TGM2334. Previous update nL1N3CU0JP

• Cable holds above 1.2600 before Fed Chair Powell's fireside chat at 1600 GMT

• 1.2600 is former resistance level turned support point (1.2592 = Monday low)

• Thursday's low was 1.2604, after hawkish steer from Fed's Daly lifted dollar

• 1.2608 was Tuesday's low (before rise to 1.2733 three-month high Wednesday)

• UK house prices up 0.2% in Nov vs forecast decline of 0.4% - Nationwide data

• New way of measuring UK rents would have raised CPI in past-ONS nL8N3CW1IN

Synopsis:

JP Morgan provides an analysis of the Australian Dollar (AUD) as the primary beneficiary within the G10 FX group of any potential economic uplift in China during the first half of 2024. This outlook is based on traditional patterns where commodity exporters like Australia benefit from Chinese growth, especially in infrastructure and construction activities.

Key Points:

• Traditional Beneficiaries of Chinese Growth: Historically, commodity-exporting currencies such as the South African Rand (ZAR), Brazilian Real (BRL), and AUD have benefited from upgrades in China's growth, particularly due to China's reliance on commodities for infrastructure and construction.
• Lower Elasticities in Next Cycle: The impact of Chinese growth on these currencies might be less pronounced in the next cycle. This is partly due to the reduced role of housing in China's current economic cycle and the uncertainty surrounding the extent of commodity demand, which might have been affected by stockpiling in recent quarters.
• Relative Rank Order of Beneficiaries: Despite these factors, the relative order of currencies benefiting from China's economic lift is not expected to change significantly. AUD remains a top choice when considering currency valuations and a bottom-up discretionary currency analysis.

Conclusion:

JP Morgan's 2024 outlook positions the AUD as a likely key beneficiary of any economic uplift in China during the first half of the year. While the influence of Chinese growth on commodity-exporting currencies may be somewhat muted compared to past cycles, the traditional pattern of these currencies, particularly the AUD, benefiting from Chinese reflation is expected to hold. This analysis suggests that investors might consider the AUD favorably in the context of anticipated developments in China's economy.

• AUD/USD opened -0.18% @ 0.6604 after USD moved up on higher US yields nL1N3CV1YU

• It moved higher early Asia - initially led by fall in USD/JPY ahead of fix

• More support came from better Caixin China Mfg PMI nZUN008RMK

• AUD/USD traded up to 0.6629 before settling back at 0.6605/10

• AUD/USD sellers are tipped at 0.6650 with resistance at 0.6676

• Support is at the 10-day MA at 0.6588 and 200-day MA at 0.6580

• A close below 0.6580 would likely end the short-term trend higher

• Key today will be reaction to speeches by Fed Chair Powell later today

• For more click on FXBUZ

• EUR/USD opened -0.74% at 1.0888 after weak EZ CPI & higher US yields weighed nL1N3CV1YU

• USD gave back ground in Asia - led by Japan exporter selling USD/JPY

• EUR/USD bounced to 1.0913 before settling around 1.0905/10

• Resistance is @ 10-day MA @ 1.0929 and close above would reignite uptrend

• Support is at the 21-day MA at 1.0841 and close below would end trend higher

• Key event ahead will be two appearances by Fed Chair Powell later today

• Talk he may push back against market pricing of Fed cuts in 2024

• The Fed blackout period begins Saturday ahead of the Dec 13 Fed decision

• Key will be bond market reaction and relative moves in EZ/US yields

• For more click on FXBUZ

• Caixin manufacturing PMI improved to 50.7 in Nov from 49.5 in Oct nZUN008RMK

• Data helped AUD/USD trade to a session high at 0.6628

• A 1.25% rise in Dalian iron ore and softer USD/CNH also supports

• AUD was resilient on Thursday - rising against the JPY and EUR

• AUD/USD sellers are tipped around 0.6650 with resistance at 0.6676

• Support is at the 10-day MA at 0.6689 and 200-day MA at 0.6580

• For more click on FXBUZ

• AUD/USD up to 0.6620 after trading as low as 0.6602 this morning

• USD/JPY down 0.37% and leading the USD lower in early Asia

• AUD/USD sellers are tipped around 0.6650 with resistance at 0.6676

• Support is at the 10-day MA at 0.6589 and 200-day MA at 0.6580

• A close below 0.6580 would warn a top is forming

• For more click on FXBUZ

• EUR/USD tumbled 0.74% after soft EZ CPI led to dovish ECB expectations nL1N3CV0ZM

• Concerns Fed Chair Powell may make hawkish comments helped push up US yields

• EUR/USD closed below the 10-day MA at 1.0927 to warn top may be forming

• The 5, 10 & 21-day MAs in bullish alignment, but 5 & 10-days tilting lower

• Support is @ 21-day MA @ 1.0841 and close below would confirm uptrend over

• A close back above the 10-day MA (1.0927) would likely reignite trend higher

• Consolidation likely ahead of Powell comments later today

• Key will be moves in US yields following the Powell comments

• For more click on FXBUZ

Synopsis:

HSBC provides an analysis of the current state of the FX market, describing it as a 'Dollar On, Dollar Off' (DODO) environment. This characterization is based on the observation that market movements are increasingly dominated by attitudes towards the US Dollar (USD), rather than local economic factors or traditional risk-on, risk-off (RORO) dynamics.

Key Points:

• DODO Market Dynamics: The FX market's current behavior is characterized by binary states of either 'dollar on' or 'dollar off', where movements are primarily driven by sentiments towards the USD.
• Reaction to Eurozone CPI Data: Recent lower-than-expected Eurozone inflation data led to EUR weakness, triggering a 'dollar on' mood. This shift reflects a move away from the EUR in favor of the USD.
• G10 FX Reactions: Other G10 currencies like GBP, AUD, NZD, and SEK are weakening against the USD, despite positive local economic indicators. For example, GBP-USD weakened despite better UK business sentiment, and AUD-USD and NZD-USD softened even after positive Australian data and hawkish guidance from the RBNZ.
• Global Equities vs. FX Market: Interestingly, this shift towards the USD is occurring even as global equity markets gain, underscoring the divergence between equity and FX market reactions.
• Shift from RORO to DODO: The current market scenario indicates a departure from the traditional RORO framework, as investor focus shifts more towards the relative appeal of the USD versus other major currencies.

Conclusion:

HSBC's analysis suggests that the FX market is increasingly influenced by perceptions of the USD, overshadowing local economic factors and traditional RORO dynamics. This DODO framework indicates that investor behavior is now more about choosing between the USD and other currencies based on their relative appeal, rather than based on broader risk appetite or aversion. This trend highlights the central role of the USD in current FX market movements.

• AUD/USD opens -0.18% as higher US yields broadly supported the USD nL1N3CV2W4nL1N3CV1YU

• AUD/USD recovered from 0.6571 as risk currencies were bought against JPY

• A 1.2% rise in NY copper also helped cushion AUD/USD against steeper fall

• AUD/USD dipped below key support at 0.6580 - but closed well above

• On Thursday, the 10 & 200-day MAs converged at 0.6580

• The 10-day MA ascends to 0.6588 today - while the 200-day is still 0.6580

• A close below 0.6580 would warn top is forming and a deeper slide underway

• More support is at the 38.2 of the late Oct/late Nov rise at 0.6521

• Resistance has formed at 0.6676 with sellers tipped at 0.6650

• Tokyo AUD/JPY flows and month-end rebalancing to influence direction today

• For more click on FXBUZ

• USD/JPY rebounds after Wed's lows breached the 100-DMA but closed above it

• Month ending above Oct's 147.30 on-close sell signal low

• Recovery is corrective and capped by Monday's low and the 10-DMA

• Bigger hurdle is the kijun at 149.30, with tenkan bearishly below at 148.33

• And after Wed's close below the cloud base that rises to 147.61 on Fri

• Huge 2022/23 double-top at 32-yr highs points to large losses medium-term

For more click on FXBUZ