Photo by Possessed Photography on Unsplash
 

Overview: The US dollar is firmer today. It has reached a new ten-month high against the yen, a little above JPY156 and the euro saw a five-day low near $1.1565. Emerging market currencies are mixed. The PBOC set the dollar's reference rate at a new high for the month. The news stream is light. UK's October CPI was mostly in line with expectations, and the market still is confident of a rate cut next month. Richmond Fed's Barkin and Fed Governor Miran speak today before the FOMC minutes from last month's meeting are published. 

Most large equity markets in the Asia Pacific region were fell today, but China's CSI 300 (~0.45%) and India's indices (~0.5%-0.6%) are the notable exceptions. Europe's Stoxx 600 is a little better than flat in late morning turnover. The S&P and Nasdaq futures are around 0.30%-0.35% better. Japanese bond yields continue to rise, but European 10-year benchmarks are narrowly mixed. The 10-year Gilts yield leads the gains with around a 1.5 bp increase, and the 10-year Swedish government bond yield is off almost the same amount. The 10-year US Treasury yield has lost yesterday's safe haven bid and is at nearly 4.13% after seeing almost 4.08% yesterday. Gold is at a three-day high near $4112. December WTI is trading quietly between about $60.10 and $60.80. 

USD: The Dollar Index has been consolidating in the lower half of the range seen set between November 5 and November 13 (~99.00-100.35). The halfway mark is slightly above 99.65, which DXY traded yesterday, and it has risen to 99.75 today. The 200-day moving average is near 99.20. The government's data reporting has not normalized, and it is not immediately clear when it will. The new ADP weekly estimate was reported yesterday. It estimated that private sector job losses averaged -2.5k a week in the four weeks through November 1. It noted that new hires are less driven by business growth and more replacement of exiting employees. Today, we will see the FOMC minutes from last month's meeting when the second quarter-point rate cut of the year was delivered. It was clear from Chair Powell's press conference and subsequent official comments that while most were able to agree with the decision, support for a third cut in three months will be considerably more contentious. Tomorrow sees the delayed September employment report. The median forecast in Bloomberg's survey is for a 55k increase after 22k in August. ADP estimated that the private sector shed 29k jobs in September, but the median projection is Bloomberg's survey is for a 65k increase, which is about this year's average. Manufacturing jobs fell for four months through August and the median forecast in Bloomberg's survey is for loss of another 5k jobs. 

EURO: Yesterday, the euro finally slipped through last Thursday's low near $1.1580 and recorded a low slightly above $1.1570. Its losses have been extended today to almost $1.1565, a marginal new five-day low. The halfway mark of this month's range is around $1.1560 and the (61.8%) retracement is about $1.1540. There are options at $1.16 for 1.4 bln euros that expire today. The eurozone's 0.2% increase in CPI last month for a 2.1% year-over-year pace (2.4% core) was confirmed today. Separately, the September current account surplus was reported at 23.1 bln euros. The eurozone's current account surplus this year has fallen to 232 bln from 325 bln euros in the first nine months of 2024. It is a much larger decline than the 3.8% decline in the aggregate trade surplus (130.75 bln euros vs 136 bln euros in Jan-Sept 2024). 

CNY: The dollar did not sustain the upward momentum that lifted it to CNH7.1170 yesterday. It is holding today. The dollar pulled back to around CNH7.1075 in the North American session and that is holding today. If yesterday's high are taken out, the next target is the CNH7.1200-30 area. The PBOC set the dollar's reference rate at CNY7.0872, the highest since November 5 (CNY7.0856 yesterday) Chinese banks set the loan prime rates tomorrow (3.0% one-year rate and 3.50% five-year rate). No change is expected. Still, there is speculation that the PBOC is considering cutting the 1.5% deposit rate (the 7-day repo volume weighted average is about 1.52%) and 9% required reserve ratio. 

JPY: The dollar reached JPY155.45 in Europe, slightly shy of the JPY155.50 where options for about $527 mln expired. Previous resistance at JPY155 functioned as support in the North American morning. After the expiry of the option, the dollar was bid to almost JPY155.75, slightly shy of the February high near JPY155.90. The dollar traded to JPY155.20 in the local session today but in Europe reached almost JPY156.30. The year's high set January 10 was almost JPY158.90. Between the threats from China, spurred by the most aggressive comments from a Japanese prime minister in decades that linked a crisis in the Taiwan Strait to the deployment of Japanese forces, the government's plans for a large fiscal package, and the cat-mouse game with the MOF, the yen remains vulnerable. The threats from China add a new consideration in the assessment of intervention, but given the likely US skepticism, we suspect it is not imminent, and if/when it occurs, it is most likely while Tokyo markets are open. 

GBP: Sterling continues to coil. It recorded its third consecutive session yesterday, and remains within the range set last Thursday (~$1.3100-$1.3215). It frayed the  lower end in late morning trade in Europe and recorded a low near $1.3095.  Sterling may be sandwiched between GBP530 mln in options at $1.31 and another set for almost GBP410 mln at $1.3200 that expires today. The 20-day moving average is falling, and it appears to have offered the cap. It comes in near $1.3180 today. Nearby support under $1.3100 may be near $1.3080. The UK reported a 0.4% increase in the October CPI. Yet, given the base effect--last October's 0.6% rise drops from the 12-month comparison, the year-over-year rate eased to 3.6% from 3.8%. The core measure slipped to 3.4% from 3.5% and service prices ticked lower to 4.5% from 4.7%. Price pressures are still elevated, and the UK CPI remains the highest within the G10. Nevertheless, the economic weakness is seen carrying the day and the swaps market is discounting around an 87% chance of a cut next month. 

CAD: Despite the risk-off mood, with equity markets selling off, the Canadian dollar held its own and more. It rose to a new high for the month. The US dollar posted a bearish outside down day by trading on both sides of Monday's range and closed below its low. The greenback took out last week's low near CAD1.3985, which is the (61.8%) retracement of the greenback's gains since both central banks cut rates in late October. It approached CAD1.3970. The next area of potential support around CAD1.3930-50. Yet, there has been no follow-through US dollar selling today. In the consolidative phase, the US dollar is testing the air above CAD1.40 in Europe. With the fiscal expansion approved by parliament, the swaps market has downgraded the chances of another rate cut. In fact, the swaps market is beginning to think about tightening in Q4 26. 

AUD:  The Australian dollar was sold to an eight-session low yesterday near $0.6465 and rebounded to almost reach $0.6520 in the North American afternoon. Options for A$640 mln at $0.6500 expire today and might have been offset yesterday. Nearby resistance is seen in the $0.6535 area. The Aussie is trading inside yesterday's range to trade roughly between $0.6475 and $0.6510. Westpac's measure of Australia's leading economic indicators rose to 0.11 in October, its first positive reading since July. The wage price index rose 0.8% in Q3 for a 3.4% year-over-year pace, steady from Q2. The bar to another cut in the coming months is high and this was underscored by the minutes of the recent RBA meeting that were published yesterday. 

MXN: Although the peso has shown sensitivity to the risk environment, it proved resilient yesterday in the face of the continued retreat in US equities. The dollar peaked in the Asia Pacific session on Tuesday slightly above MXN18.49, stopping front of the (50%) retracement of this month's decline near MXN18.51. It almost looked like it was going tick-for-tick with the yen, giving the appearance of new yen carry-trades. The dollar recorded a low near MXN18.3300. Follow-through selling has been limited to the MXN18.3150 area today. Options for $870 mln at MXN18.30 expire today. It was a similar pattern with the Brazilian real. The dollar rose to a seven-session high near BRL5.3455 and stalled in front of the 20-day moving average (~BRL5.3475). The BRL5.3510 area is the (61.8%) retracement of the greenback's slump since the November 5 high around BRL5.4050. The greenback surrendered its gains and was sold to nearly BRL5.3150.

More By This Author: