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Overview:   The US dollar is mostly narrowly mixed against the G10 currencies. The Japanese yen is the notable exception. It leads the major currencies with around a 0.35% gain as the dollar slips to a four-day low near JPY156 after peaking last week slightly shy of JPY158. The dollar-bloc currencies join the Swiss franc and Swedish krona nursing small losses. With the pendulum swinging back in favor a Fed cut next month, emerging market currencies have caught a bid. There are a couple of minor exceptions and the Russian ruble, which is off almost 0.6%. 

US stocks extended the pre-weekend recovery yesterday, and the S&P 500 posted its largest gain in a little over a month (1.55%) but the knock-on effect in the Asia Pacific was mixed. Japanese markets, returning from the long holiday weekend were themselves mixed. China, Hong Kong, Taiwan, South Korea, and Australia markets rose. Most of the others did not. Europe's Stoxx 600 is treading water, straddling little changed levels in late morning transactions. US index futures are a touch softer (~-0.10-0.25%). The benchmark 10-year yield rose 2.5 bp in Tokyo to about 1.80%. Last week's high, near 1.85%, was the highest since 2008. European yields are mostly a little softer, with UK and French yields leading with a little more than a basis point decline. The 10-year Treasury yield fell from about 4.16% last Thursday to almost 4.02% yesterday. It has not traded below 4.0% this month and the market seems hesitant to drive it through it. The yield is near 4.03% now. Gold reached a seven-day high near $4156 earlier today but is struggling to sustain the upside momentum. It recorded the session low, a little below $4110 as European markets were opening and buyers emerged that lifted the yellow metal back to $4140. January WTI is consolidating in the upper end of yesterday's range but is holding below $59 so far today. 

USD: Today is the fourth consecutive session that the Dollar Index is confined to a narrow range of about 100.00 to 100.40. It is the second session if it has held below 100.30. A break of 99.80 or 100.50 is needed to signal an end to the consolidative phase that began in the second half of last week. Today's release of September retail sales and PPI may pose headline risk but is unlikely to have significant impact on expectations for the Fed's meeting next month. The labor market is seen as the key for many officials. Retail sales are expected to have risen by 0.4%, according to the median forecast in Bloomberg's survey, but the risk seems to be on the downside given the largest drop in October auto sales in five months and the slowest since August 2024. Producer prices look little changed from August when they rose 2.6% at the headline and 2.8% at the core. House prices appear to have edged higher. The Conference Board's measure of consumer confidence (November) is expected to have softened.

EURO: A line from the early August low (~$1.1400) and the early November low ($1.1470) caught the low from the end of last week (~$1.1490). That trendline is near $1.1485 today. A band of resistance extends from about $1.1555 to $1.1575 and overcoming it lifts the technical tone. The data highlight is at the end of the week as the four largest eurozone members provide national CPI figures for November, while the aggregate estimate will be published next week (December 2). Meanwhile, three Italian states held gubernatorial elections Sunday-Monday. The incumbent governors appear to have won in each state. The center-left is finding it difficult to challenge Meloni's center-right coalition. However, within the coalition, the League trailed Meloni's Brothers of Italy, and this may see its leader (Salvini) influence diminished, following the setback of one of his projects (bridge to Sicily).

CNY: The dollar appears to be trading comfortably between CNH7.10 and CNH7.12. The broader range is about CNH7.0850 and CNH7.14 since mid-October. The PBOC continues to lower the dollar's reference rate on a trend basis. At the end of April, the dollar was fixed at CNY7.2014. It was the highest month end fix since June 2023. The dollar's reference rate at the end of October was CNY7.0880, and today's fix was at CNY7.0826. President Trump held back-to-back calls with China's Xi and Japan's Takaichi. There are conflicting reports of who initiated the call between the US and China in which Ukraine, South Korea, Taiwan, and Japan were said to feature prominently. Trump reportedly reached out to Takaichi after the call with Xi.  Still, Beijing is refusing to attend a  trilateral summit with Japan and South Korea scheduled for next month in Tokyo. 

JPY: The dollar climbed from a low near JPY156.35 yesterday to a high in early North American dealings around JPY157.20. It has held below JPY157 today. The dollar eased to a four-day low today near JPY156.15, leaving the dollar sandwiched between two expiring options: $433 mln at JPY157 and around $910 mln at JPY156. Tokyo markets re-opened after the long holiday weekend. The risk of material intervention is perceived to have increased, but without a rate hike, intervention risks a criticism by the US, which could undermine its effectiveness. The JPY156.25 area, which was tested before the weekend and again yesterday, is the (38.2%) retracement of the last leg up that began on November 14 near JPY153.60. One-month implied yen volatility is a little above 10%, after it reached a three-month high last week near 10.70%. It set the low for the year on November 5 around 7.65%. The high for the year was seen in April at around 16.8%. 

GBP: Sterling edged through the pre-weekend high yesterday to reach almost $1.3120 before sellers knocked it back to around $1.3080 in the North American morning. It recovered back to near session highs, and today, it reached $1.3140, a four-day high, and has frayed the 20-day moving average (~$1.3130) for the first time in a month. It also met the (61.8%) retracement of the losses since the November 14 high near $1.3220. While a move above is constructive, the intraday momentum indicators are stretched in late European morning turnover. The CBI retail report tends not to move the market, and this is especially true ahead of tomorrow's budget announcement (and the Office for Budget Responsibility new economic projections). Besides raising something around GBP20-GBP25 bln, there is talk that the budget will contain items that also could dampen measured inflation, such as freezing rail fares, and some effort to reduce energy and food costs. The swaps market shows confidence that the Bank of England will cut rates next month (~88% chance)

CAD: The Canadian dollar drew little comfort from the improved risk-appetites to start the new week. The greenback traded firmly but within last Friday's range (~CAD1.4080-CAD1.4130). It is holding above CAD1.4100 today, though below CAD1.4125. The seven-month high recorded earlier this month was near CAD1.4140, and CAD1.4165 corresponds to the (50%) retracement of this year's decline. A convincing push above there could target the next retracement found a little above CAD1.4300. The economic calendar is light until the second half of the week. Canada's Q3 current account balance will be published Thursday. The trade disruption with the US saw the deficit blowout in Q2 to C$21.16 bln, a record shortfall. Economists expect it to narrow to around a C$15.3 deficit in Q3. At the end of the week, Canada reports September and Q3 GDP. The economy appears to have stabilized after it contracted 1.6% at an annualized pace in Q2. The Bank of Canada projects a 0.5% expansion in Q3. 

AUD: The Australian dollar remains fragile. The rally before the weekend that began near a three-month low (~$0.6420) faltered around $0.6470 yesterday, shy of the (38.2%) retracement of the leg down that began on November 13 around $0.6580. It has held below $0.6470 so far today but came with 1/100 of cent of it today. Initial support around $0.6440 held in Europe and North America yesterday and it has hardly traded below $0.6450 today. Australia will report October's CPI tomorrow. The headline is expected to firm to 3.6% (from 3.5%) and the core may edge up to 2.9% from 2.8%. The futures market has already given up previous hopes of a rate cut next month. The highest the odds have been this month was around 27% in the first week, and now it is around 7%. The Reserve Bank of New Zealand is widely expected to deliver a 25 bp cut the first thing tomorrow, which would put its new cash target rate at 2.25%. In Bloomberg's survey of 24 economists, one does not anticipate a cut and two see a 50 bp cut. The other 21 project a quarter-point cut. The swaps market is pricing in a terminal rate between 2% and 2.25%.

MXN: The dollar remained firm against the Mexican peso yesterday, despite the bolstered risk-appetites reflected in the equity market rally. The pre-weekend high, slightly above MXN18.53 held yesterday, was briefly violated today before retreating to session lows in Europe near MXN18.4750. Nearby support is seen in the MXN18.43-44 area. Options at MXN18.48 and MXN18.60 for $555 mln and almost $410 mln, respectively expire today. Mexico reported inflation readings for the first half of November yesterday. The headline rate firmed to 3.61% (from 3.50%) while the core rate was steady at 4.32%. Today's September retail sales report illustrates why many still look for Banxico to cut rates next month. They are expected to be flat. Economic growth remains the immediate challenge. The central bank's inflation report tomorrow could see lower growth and inflation projections. 

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