Photo by Phillip Flores on Unsplash
 

Overview: The US dollar is mixed.  Sterling is the weakest of the G10 currencies after unexpectedly poor employment reported boosted chances of rate cut next month.  The dollar also made marginal new high against the Japanese yen since February, but so far has remained below JPY154.50.  The dollar-bloc currencies are softer while the Scandis are slightly firmer.  Holidays in the US and Canada make for a quiet North American session today.  

Equities in Asia Pacific were mixed and the MSCI regional index was little changed.  South Korea and Singapore were the strongest gainer, while China's CSI 300 fell the most among the large bourses; almost 1%.  Europe's Stoxx 600 is rising for the second consecutive session, something it has not done in a little more than two weeks.  The S&P and Nasdaq futures are off around 0.20-0.35%.  Most benchmark 10-year yields in Europe are slightly firmer, the UK Gilts are an outlier--with a 5-6 bp decline.   US note futures imply steady to slightly firmer yields. Gold extended yesterday's $114.50 gain and is up another $22 to $4138, having recorded a high near $4149 today in the cash market. It has now retraced a little more than half of what it lost since the record high was set on October 20 (~$4381.50). December WTI is firm but continued to be capped in the $60.50 area for the fourth consecutive session.   

USD: US banks and bond market are closed today while the stock market is open. The House of Representatives may vote tomorrow on the compromise bill that was approved by the Senate. The re-opening may be too late to see the October CPI, PPI, and retail sales that were due this week. From the multi-year low recorded on September 17, when the Fed delivered its first rate cut of the year, the Dollar Index rallied about 4.3% to its highest level since the end of May (100.35) and nicked the 200-day moving average for the first time since early March last week. It traded in a range last Friday of about 99.40-99.90 and remained in that range yesterday and so far today.  Nearby support is seen in the 99.20-25 area. The daily momentum indicators are poised to turn lower, and a break of the 98.75 area would strengthen our conviction that the nearly two-month upside correction has run its course. 

EURO: The euro's recovery off last week's three-month low (~$1.1470) stalled near the down trendline connecting the September and October highs. It is near $1.1590 today and the 20-day moving average is around there too. It also corresponds to the (50% retracement) of the pullback from last month's high slightly above $1.1720. The euro's consolidation inside last Friday's range (~$1.1530-$1.1590) looks constructive. Germany's November ZEW survey reversed the recent pattern. After deteriorating for the past three months, the current assessment improved slightly.  It stands at -78.7 after the -80.0 reading in October, its worst since May. It was at -93.1 at the end of last year. Expectations, which had improved in five of the past six months deteriorated in November. They slipped to 38.5 from 39.3 and were at 15.7 at the end of last year. 

CNY: The dollar peaked against the offshore yuan last week near CNH7.1385. It found support slightly below CNH7.12 yesterday.  It is little changed today in a range of about CNH7.1210-CNH7.1265. It can slip to around CNH7.1135 without changing much. A break of CNH7.1075 the risk of a return to the low seen in late October near CNH7.0885. At the end of last week, the PBOC set the dollar's reference rate at a marginal new low since October 2024 at CNY7.0836. The fixing was at CNY7.0866 today after CNY7.0856 yesterday. The data highlight this week is Thursday real sector reports covering retail sales and industrial production, both of which look softer on a sequential basis. The contraction in fixed asset investment and property investment may have intensified. 

JPY: The dollar reached a marginal new nine-month high earlier today as it edged closer to JPY154.50. With a minor exception last Tuesday, the dollar had been confined to the range set on October 30 of roughly JPY152.15-JPY154.45. A small shelf appears to have been carved in the second half of last week near JPY152.80. A break of JPY154.50 targets JPY155.00. Although Japanese officials have cautioned the market at least on two occasions about the one-way market as the dollar traded near the highs, we do not think that a specific level is being targeted. And despite the provocative language, we do not expect material intervention, and note that with today's losses, the yen is off a minor 0.2% this month.  

GBP: With yesterday's gains to $1.3190, sterling retraced half of its losses since the Fed's rate cut late last month. The next retracement objective (61.8%) is near $1.3230. Instead, the poor employment data saw sterling sold to almost $1.3115. It met the (38.2%) retracement of last week's gains and the (50%) retracement is near $1.3100. Also, sterling recovery against the euro after reaching a 3 1/2 year low in the middle of last week stalled.  The euro is back above GBP0.8800 after peaking near GBP0.8830 last week and testing GBP0.8770 yesterday. Employment in the past three months fell 22k, the first decline since March 2024. The number of payrolled employees fell by nearly 32k, almost as much as in September. This metric has only rise in one month since July 2024 and that was in August this year. Jobless claims rose by 29k, the most since July 2024. The ILO measure of three- month unemployment rose to 5.0% from 4.8%.  Average weekly earnings slowed. In response, the swaps market upgraded the chances of a cut next month to almost 86% from about 72% yesterday, the most since August.  

CAD: The US dollar reached a seven-month high against the Canadian dollar last week near CAD1.4140. It pulled back to almost CAD1.4025 before the weekend, aided by a larger than expected decline in Canada's unemployment rate (6.9% vs. 7.1%) and tested CAD1.4000 yesterday. That met the (50%) retracement of the greenback's rally since the Federal Reserve and Bank of Canada cut rates at the end of October near CAD1.4015. The (61.8%) retracement is around CAD1.3985. That said, a move above CAD1.4050-70 would strengthen the US dollar's technical tone and could signal a return to the recent highs. It is trading quietly today mostly between CAD1.4015 and CAD1.4040. Canadian markets are closed for Remembrance Day.

AUD: The Australian dollar approached $0.6540 yesterday. It corresponds to the (38.2%) retracement of the losses since the year's high was recorded on September 17 slightly above $0.6705. It also corresponds to the (50%) retracement of the retreat since the late October high near $0.6620. It is consolidating in about a $0.6515-$0.6535 range today. Meanwhile, fueled by the divergence interest rate policies, the Australian dollar surged above NZD1.15 yesterday to reach its highest level in a dozen years yesterday.  It, too, is consolidating today. Australian's data highlight of the week is the October employment report early Thursday. Job growth is seen accelerating and the unemployment rate may tick down from 4.5%, which was a four-year high.

MXN: After it reached a two-month high in the middle of last week near MXN18.77, the greenback was sold for the fourth consecutive session yesterday and slipped below MXN18.37 yesterday. The dollar is pinned near yesterday's lows. Nearby support is seen in the MXN18.3350-MXN18.3400 area. Mexico reports September industrial production today. It has fallen for the previous three months, and half of the eight economists surveyed by Bloomberg look for an increase. One bank's forecast for a 1.4% gain is an outlier. None of the other economists project more than a 0.1% gain. Three look for a flat report, and one anticipates another decline. Nevertheless, the market impact is likely to be minimal since Q3 GDP (0.3% quarter-over-quarter) has already been released and the central bank cut the overnight target rate by a quarter of a point last week to 7.25%.  In Brazil, today's October inflation report is expected to show continued moderation of price pressures.  The median forecast in Bloomberg's survey projects the year-over-year rate will fall to 4.74% from 5.17%.  If accurate, it would be the first sub-5% reading since January.  A decline in electricity and gasoline prices may be offset in part by food prices.

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