• AUD/USD has traded on 0.66 handle since European open; 0.6603 = session low

• 0.6620 was Asian session high (0.6620 was also Thursday's high)

• US jobs report due 1330 GMT; Nov NFP forecast 180k. Goldman estimates 238k

• Big NFP beat might depress AUD/USD towards 0.6526 (Thursday's two-week low)

• US unemployment rate forecast at 3.9%, with 'Sahm Rule' formula in focus

• RBA rate decisions to be made by a new Monetary Policy Board (9 members)

USD/JPY could be set to stage a much bigger recovery in coming sessions, as the price action points to an oversold market.

Investors in Japan's yen have jumped at what they see as the clearest sign yet from the country's monetary authorities that the end of ultra-low interest rates is fast approaching, opening the floodgates to a rush of buyers.
However, there are signs that those yen buyers could well be overextended in the short-term.

USD/JPY's long tail on Thursday's candlestick line points to a downside rejection, which increases the likelihood of a bigger recovery to test the kijun line -- the midpoint of the last 26 trading days -- currently at 146.76.

The failure to close below the 142.85 Fibo, a 61.8% retrace of the 137.25 to 151.92 (July to November) EBS rise, hints at a bear trap.
A bear trap is set when a market breaks below a technical level but subsequently reverses and is usually a bullish sign.

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• There are three technical reasons to expect a bigger EUR/USD drop

• EUR/USD has closed under the 1.0800 Fibo for three days in a row

• 1.0800 Fibo is a 38.2% retrace of the 1.0448 to 1.1017 (Oct-Nov) EBS rise

• 14-day momentum has turned negative Monday for the first time since October

• Momentum has become increasingly negative each day since Monday

• Daily "cloud twist" just below 1.0670, on Dec. 19, will likely attract spot

• The "cloud twist" is when the cloud extremes, senkou spans A and B, cross

• Offer at 1.0799. EUR/USD Trader TGM2334. Prev update nL1N3D10N6

• Implied volatility gauges realised volatility and determines option premium

• Posted huge gains Wed-Thurs as shorts forced to cover the rapid USD/JPY drop

• 1-week implied volatility 10 to 18, 1-month 8.8 to 11.5 - highs since July

• Downside vs upside strike premium on 1-month risk reversals to July high 1.9

• USD/JPY trades have dominated in Asia Fri - reflect fear of more volatility

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• Cable falls to 1.2563 before US jobs report at 1330 GMT; NFP f/c at 180k

• 1.2563 is low since Thursday's 1.2613 high (1.2614 was Wednesday's high)

• NFP beat could lift the dollar, while a miss might weigh on it nL4N3D20QW

• 1.2546 (Thursday's low) and 1.2527 (Nov 24 low) are GBP/USD support points

• Resistance levels beyond 1.2614 include 1.2650 (Tuesday's high) and 1.2700

• BoE rate decision next week (Dec 14), hawkish hold expected nL8N3D15P9

Adds RSI to second bullet

• Loss consolidation below the 10-day moving average, 1.2633

• Daily momentum readings are finally reflecting the bear bias

• Daily RSI now neutral from over bought territory earlier in the week

• Dec. 21 1.2313-17 cloud twist fighting the bears' corner

• A 38.2% Fibo off 1.2039-1.2733 is at 1.2468

• Weekly action set to buck a three-week bull run

• We lean bearish but stand aside for now

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• EUR/USD opened +0.27% at 1.0793 after USD/JPY collapse dragged USD lower nL1N3D211L

• USD/JPY remained volatile - trading 142.50/144.15 while EUR/USD slumbered

• EUR/USD traded in a 1.0784/99 range and was 1.0790 into the afternoon

• Resistance is at 1.0860/70 where the 10 & 21-day MAs converge

• A close above 1.0870 would ease the downward pressure built up this week

• Support is at the 50% of the 1.0448/1.1017 rise at 1.0732

• Range trading likely ahead of the US non-farm payrolls later today

• Key will be reaction in US Treasury market and impact on Fed expectations

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• -0.1% at the base of a 1.2586-1.2606 range ahead of volatile U.S. payrolls

• UK starting salaries rise at slowest pace in nearly 3 years - REC

• Good news for the BoE into the Dec 14 rate decision - hawkish hold likely

• Charts; 5, 10, and 21-day moving averages coil as momentum studies flat line

• 21-day Bollinger bands contract - technical signals show no strong bias

• Resilient 1.2721. 61.8% of the Jul-Oct fall remains the major resistance

• A close below 1.2467, 38.2% of the October/November rise would be bearish

• 1.2538 21-day moving average and 1.2606 Asian top first support, resistance

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• AUD/USD opened +0.82% at 0.6602 after USD led USD broadly lower nL1N3D2267

• It dipped to 0.6592 early Asia on AUD/JPY selling flows

• USD/JPY fell sharply from 144.00 to 142.50 and USD moved broadly lower

• AUD/USD traded up to 0.6611 before settling back at the opening level

• AUD/USD resistance is at yesterday's 0.6622 high and trend high at 0.6690

• Support is at the 200-day MA at 0.6576 and 21-day MA at 0.6553

• AUD/USD will likely range trade ahead of US non-farm payrolls later today

• Reaction in US bond market and Wall Street to jobs data key to FX moves

• AUD/USD has a positive bias after bullish outside day Thursday

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• USD/SGD extends lower to 1.3359, targets 1.3343 support

• Fri close below that engages Bollinger downtrend channel

• Fresh selling cued by USD/JPY decline resuming, last 142.58

• Further losses possible as bets on BOJ ending easing build

• Though the odds of it are slim, long USD/JPY bets too crowded

• US NFP due later today may cue more USD volatility

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• +0.05% after closing up 0.25%, as yen strength pushed the USD lower

• Economists now expect the BoE will remain on hold for the first half of 2024

• BoE will be data-driven, so upcoming data will be key for rate moves

• Charts; 5, 10, and 21-day moving averages coil as momentum studies flat line

• 21-day Bollinger bands contract - technical signals show no strong bias

• Well tested 1.2721. 61.8% of the Jul-Oct fall remains the major resistance

• A close below 1.2467, 38.2% of the October/November rise would be bearish

• 1.2538 21-day moving average and 1.2613 NY top are first support, resistance

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• EUR/USD opens +0.27% after huge USD/JPY fall dragged USD broadly lower nL1N3D2267

• It traded as high as 1.0818 before late recovery in USD/JPY helped cap

• EUR/USD not trending - so whippy trading days likely before trend emerges

• Resistance is at 1.0860/70 where the 10 & 21-day MAs converge

• Support is at the 50% of Oct/Nov rise at 1.0732 with bids at 1.0750

• Moves in Asia will likely be driven by USD/JPY volatility

• EUR/USD may stay sidelined ahead of key US jos data later today

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• AUD/USD opens +0.82% after USD broadly eased led by 2.5% fall in USD/JPY nL1N3D2267

• Bounce in key commodities also supported AUD as NY copper rose 1.85%

• AUD/USD completed a bullish outside day reversal to shift pressure to upside

• Resistance is at the Dec 4 and four-month high at 0.6690

• Support is at the 200-day MA at 0.6576 and 21-day MA at 0.6553

• Key today will be Tokyo reaction to large moves in USD/JPY offshore

• Market will also be positioning for the key US non-farm payrolls later today

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• USD/JPY's 127.215-151.92 2023 uptrend is imploding

• The 38.2% Fibo of that rise at 142.48 was breached

• But prices well off 141.60 low and above 142.48 heading toward close

• Roughly 4% drop from Thur's high to the 141.60 low on EBS

• Close below 144.58, 50% Fibo of Jul-Nov rise keeps, 142.48 in play

• That Fibo was breached Thur but close below looks less likely

• The 200-DMA by 142.30 is also in play

• Close below the DMA and Fibo eyes 50% of 2023 rise at 139.57

• That's also by the weekly cloud top and 161.8% Fibo off Nov top

• Daily RSI O/S and lower 10-day Bolli is at 144.36 last

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The yen surged more than 2% higher against the dollar, euro and sterling after comments from BOJ Governor Kazuo Ueda ignited speculation about tighter Japanese monetary policy, dislodging hefty short yen trades amid ongoing discounting of ECB, Fed and BoE rate cuts next year.

Ueda's discussion of policy made a rate hike sound as if it were a fait accompli, whenever it may come.

USD/JPY's plunge began with a dive below its uptrend line from March and Fibo support by December's prior low at 146.235, which then claimed the 50% and 61.8% Fibos of the July-November rise to 32-year highs, with the 141.60 EBS low looking like a fat-finger.

A close below 142.50, particularly if it comes after Friday's payrolls report, could see half of 2023's uptrend erased.

EUR/USD rose 0.4% in choppy trade amid the fallout from the yen's surge and mixed U.S. data.
EUR/JPY's 2% tumble has more speculative fuel to burn due to hefty IMM euro longs and yen shorts that were based on ECB and BoJ policy divergence that is now rapidly converging.

For EUR/USD, Thursday's hiatus from the recent selloff now faces Friday's the U.S. jobs event risk and recalibration of whether the six ECB cuts and five Fed cuts largely priced in for 2024 are too aggressive or too timid.

Fed cut pricing may need soft jobs and CPI data to be sustained, but Treasury yields were slightly lower.

Sterling rose 0.25% in the wake of USD/JPY's collapse and as rapid expected Fed rate cuts get weighed against the more delayed and diminutive BoE cuts futures imply.
Risk-sensitive pound also helped by U.S. equity gains.

Aussie reversed earlier losses and rose about 0.9% as Treasury yields slipped and stocks climbed to help the risk proxy.
That as USD/CAD was flat and in the same boat as the dollar.

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Synopsis:

Credit Agricole anticipates that the European Central Bank (ECB) will not meet the market's dovish expectations for rate cuts in 2024, which may limit the downside risks for the Euro (EUR).

Key Points:

• EUR Struggles Amid Rate Cut Expectations: The EUR is facing challenges against both the USD and GBP as Eurozone rates markets have aggressively priced in ECB rate cut expectations, with six cuts anticipated in 2024.
• Market's Extremely Dovish Outlook: The current market expectation is for the ECB to begin easing policies at every policy meeting starting from March 2024.
• Credit Agricole's ECB Outlook: Contrary to market expectations, Credit Agricole predicts that the ECB will undertake only three policy rate cuts in the next year.
• Potential Impact on EUR: This discrepancy between market expectations and Credit Agricole’s forecast suggests that the downside risks for the EUR in 2024 might be limited if the ECB does not ease its policy as aggressively as currently anticipated by the market.

Conclusion: 

Credit Agricole's analysis suggests a more conservative approach from the ECB in terms of rate cuts in 2024 compared to the market's highly dovish expectations. While the market has priced in a scenario of continuous rate cuts starting from March, Credit Agricole foresees only three rate cuts throughout the year. This divergence in expectations could potentially limit the downward pressure on the EUR, offering a somewhat more stable outlook for the currency in 2024.

• EUR/JPY fell 2% Thur as ECB-BoJ policy divergence trade came unglued

• Cross tumbled last week as 1.5% of 2024 ECB rate cuts got priced in

• Thur's plunge fostered by BoJ Gov Ueda laying groundwork for rate hike

• And as the cross broke the up TL off July-October lows at 157.31

• Low so far Thur at 155.18, nearing October's 154.39 spike low on EBS

• Massively O/B weekly RSIs at Nov peak favors a much bigger slide

• As do the lowest 10-year bund-JGB ylds spreads since Sep 2022

• 50% of the rise since ECB's first hike in 2022 at risk at 148.87

• That roughly overlaps 38.2% of rise since first Fed hike at 149.06

• Massive net spec long position at risk as yen short squeeze expands

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Synopsis:

Danske Bank recommends a long position in EUR/GBP for 2024, targeting 0.9050, based on diverging growth outlooks and central bank policies between the Eurozone and the UK.

Key Points:

• EUR/GBP Recent Trends: After declining in spring 2023, EUR/GBP has been climbing during the autumn. Further upside is anticipated over the next year.
• Inflation and GBP Impact: Inflation dynamics present a double-edged sword for GBP. Declining inflation in line with peers could lead to market anticipation of rate cuts, acting as a headwind for GBP. Persistent inflation might temporarily support GBP, but prolonged high rates or a sharp economic downturn by the BoE could negatively impact GBP.
• UK Economy vs. Euro Area: The UK economy is expected to underperform relative to the Euro area, with challenges from fiscal policies and debt sustainability concerns.
• Relative Rate Dynamics: Relative rates between the BoE and ECB support a short position in GBP relative to EUR. Both central banks are expected to initiate 25 basis point cuts in June 2024, with further cuts throughout the year.
• Market Expectations for Rate Cuts: While markets anticipate the ECB's first cut in April, expectations for the BoE's first cut have shifted to August.

Conclusion:

Danske Bank's strategy for a long EUR/GBP position in 2024, targeting 0.9050, is based on divergent economic and monetary policy outlooks between the Eurozone and the UK. The bank foresees inflation dynamics and relative rate movements influencing GBP's performance against EUR, compounded by the UK's broader economic challenges. This outlook, combined with expectations of synchronized rate cuts from the BoE and ECB, forms the basis for the recommendation to go long on EUR/GBP.

• USD/CNH traded 7.1740 on D3 overnight then steadily fell, 7.1530 low hit

• Sharp drop in USD/JPY toward 144.55 helped drag USD/CNH lower

• US yield US2YT=RR drop after weekly claims added bearish pressure

• Pair was down -0.16% in early NY but remains above the 10-DMA

• Long lower wick formed on today's candle after the pair bounced off the low

• USD/CNH still consolidating drop from November's monthly high

• US$ bears need a fresh catalyst to emerge for the down trend to resume

• US Nov. payroll data, Dec. U of Michigan key data risks loom for Friday

• Yields, US$ may sink on weak data, expectations for Fed cut may move up

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Synopsis:

MUFG notes that the Japanese Yen (JPY) has shown strong performance recently, with USD/JPY falling below the 146.00 level. This movement is attributed to increased market speculation that the Bank of Japan (BoJ) might tighten monetary policy at its meeting on December 19th, following reports of discussions between BoJ Governor Ueda and Prime Minister Kishida.

Key Points:

• JPY Performance: The JPY has outperformed, causing USD/JPY to drop after breaking below the support level from December 4th at 146.23.
• BoJ Policy Tightening Speculation: Heightened market speculation about potential BoJ monetary policy tightening as early as the December 19th meeting is driving this trend.
• Ueda-Kishida Meeting: BoJ Governor Ueda met with Prime Minister Kishida to discuss the state of the economy and monetary policy ahead of the December policy meeting. While Ueda emphasized it was a routine meeting, it has fueled market speculation.
• Ueda's Comments in Parliament: In a semi-annual report on currency and monetary control, Ueda mentioned the lack of certainty in achieving the inflation goal and the continuation of easy policy to support wage gains. However, he also noted that there were various options for the policy rate in case of a decision to raise rates.
• No Specific Rate Level in Mind: Despite discussing potential rate hikes, Ueda indicated that there is no specific new rate level in mind if such a decision is made.

Conclusion:

The recent strength in the JPY and the drop in USD/JPY below 146.00 are primarily fueled by market speculation around a potential shift in the BoJ's monetary policy stance. The discussions between Governor Ueda and Prime Minister Kishida, along with Ueda's comments in parliament, have heightened expectations of possible policy tightening. While Ueda has not committed to any specific rate hikes, the mere consideration of various policy rate options suggests a potential shift from the BoJ’s longstanding easy monetary policy, impacting market sentiments and JPY valuation.

Synopsis:

Bank of America (BofA) recommends a long position in EUR/USD for 2024, targeting a move towards 1.15, with a stop at 1.04. This strategy is based on the expectation of a weakening USD and specific economic developments in the Eurozone and the US.

Key Points:

• End-Year Forecast for EUR/USD: BofA forecasts EUR/USD to reach 1.15 by the end of the year, which is still below the long-term equilibrium estimate of 1.20.
• Weak Eurozone Growth: Despite expectations of continued weak growth in the Eurozone, the EUR/USD pair is anticipated to strengthen.
• US Economic Slowdown: A slowdown in US growth from its strong performance this year is expected to contribute to the EUR/USD strength.
• Impact of Fed Rate Cuts: Predicted rate cuts by the Federal Reserve should push the USD lower, particularly given its current overvalued status.
• November Price Action Support: The EUR/USD price action in response to weak US data in November supports BofA's outlook.
• Stop Loss Strategy: The stop loss for this trade is set below the bottom reached in the current year.
• Support from Quant and Technical Analysis: Both quantitative and technical analyses support this trading strategy.
• Potential Risks: The risks to this trade include a delayed US economic downturn, leading to the Fed not cutting rates next year, or higher energy prices causing a terms of trade shock for Europe. Both scenarios could result in EUR/USD falling below the stop loss.

Conclusion:

BofA's strategy for a long EUR/USD position in 2024 is informed by expectations of a weakening USD amidst a US economic slowdown and persistent weakness in Eurozone growth. The bank sets a target of 1.15 for the pair, with a cautious stop loss at 1.04, taking into account potential risks that could deviate the pair from the forecasted trajectory. The recommendation is bolstered by supportive trends observed in price action and analyses.

• AUD/USD fell to 0.65255 overnight; AUD/JPY drop below 95.00 helped weigh

• US yield US2YT=RR bounce, USD/CNH rally to 7.1740 (D3) weighed as well

• Buyers emerged however as US$ weakened and iron-ore DCIOc2 rallied

• AUD/USD turned positive, hit 0.65725, opened NY near 0.6560, up +0.20%

• Daily techs warn shorts; RSI diverged on today's low, bull hammer formed

• Falling monthly RSI, monthly inverted hammer gives shorts some comfort

• US Nov. Challenger layoffs, weekly & continuing jobless claims risks in NY

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• GBP/USD option flows light but consistent with low volatility/slow GBP gains

• However, they do flag increased realised FX volatility over Fed and BoE

• 1-week expiry implied volatility includes both and trades highs since March

• Broader implied volatility gains tame amid recent 1.2733 to 1.2546 setback

• Risk reversals still close to long term low premium for GBP puts over calls

• BoE expected to be slower to ease rates than Fed which should benefit GBP

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• The cross puts in a base at 0.8554 Wed and records a hammer candle

• Daily momentum readings still reflecting the steep 0.8765-0.8554 decline

• Daily RSI also struggling to confirm the pick-up in price

• Wed hammer gives warning to bears but underlying down-trend remains intact

• Initial resistance at 0.8587, Dec. High

• A minimum correction of the 0.8765-0.8554 drop is at 0.8604

• A potential daily bearish continuation pattern is forming

• We maintain an offer by 0.8625

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