• 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

• EUR/USD extended its drop from Wednesday's high after a brief overnight lift

• NY opened near 1.0915, 1.0950 then hit on EBS but sellers emerged

• US yields, US$ gained despite econ data which may have the Fed lean dovish

• German-US spreads US2DE2=RR widened; US$ yield advantage over euro upped

• USD/CNH rally to 7.1569 (D3), equity ESv1 & gold drops weighed on EUR/USD

• Pair hit 1.0888 on EBS then neared 1.0900, was down -0.64% late in the day

• Daily techs worry longs; RSI sinks, drop after 11/29 doji, pair below 10-DMA

• Rising monthly RSI & hold above 200-DMA give longs comfort however

• China Nov. Caixin mfg PMI, US Nov. ISM mfg PMI are data risks for Friday

• Fed Chair Powell's fireside chat at Spelman College a key event risk Friday

• For more click on FXBUZ

Synopsis:

Barclays provides an outlook on the Swiss Franc (CHF), suggesting that its peak strength is likely behind us. The bank forecasts a gradual move towards parity with the Euro (EUR/CHF) in the coming months.

Key Points:

• Peak CHF Strength Passed: Barclays believes that the CHF has reached its peak strength and anticipates a shift in its valuation.
• EUR/CHF Forecast: The bank envisions the EUR/CHF trading at around 0.96 until Q1, after which a gradual trend towards parity (1.00) is expected to begin.
• Swiss National Bank (SNB) Policy Influence: The stronger-than-preferred CHF implies a limited scope for further interest rate hikes by the SNB, despite recent hawkish statements from SNB officials.
• Negative Carry Drag: Due to the expected currency trends and policy stance, Barclays anticipates a persistent negative carry drag for long CHF positions, making it challenging to achieve positive total returns.
• FX Reserves Selling: The SNB is likely to continue selling foreign exchange reserves, but this action is seen primarily as a way to manage the pace of CHF depreciation rather than a shift in fundamental monetary policy.

Conclusion:

Barclays' outlook on the CHF suggests a weakening trend following its peak strength. The forecasted movement towards parity with the Euro reflects the impact of limited scope for further SNB rate hikes and the challenges for positive returns in long CHF positions. The SNB's continued intervention in the FX reserves market is expected to be a tactical approach to moderate the pace of CHF depreciation, in line with the broader trends anticipated by Barclays.

• GBP/USD hit a 3-month high Wednesday then turned lower, a daily doji formed

• Doji turned out to be a warning for longs as a price drop followed today

• Daily RSI falls from overbought after not confirming Wednesday's high

• A 3-session low was struck Thursday & key 1.2580/95 support is threatened

• Sept. 6 daily high, Nov. 27 daily low, 10-DMA all sit within that zone

• Break below those impediments may trigger stops for weak longs

• Test of the 200-DMA and support near 1.2450 may then follow

• For more click on FXBUZ

Synopsis:

Bank of America (BofA) shares its 2024 outlook for GBP/USD and EUR/GBP, suggesting that the GBP is unlikely to break out from the ranges established in 2020. The bank's forecast is shaped by the UK's economic challenges and the broader global economic context.

Key Points:

• GBP Trading Within Established Ranges: BofA anticipates that GBP will continue to trade within the "reset" ranges set in 2020, due to the persistent structural issues in the UK economy, such as weak growth and high inflation.
• Impact of Economic Backdrop on GBP: The combination of weak growth and high inflation in the UK is seen as unfavorable for the GBP's performance in the FX market. BofA asserts that the sterling’s recovery this year has been driven more by lower risk premium rather than fundamental strength.
• Global Economic Influences: The global economic outlook, particularly whether the US can achieve a soft landing, is expected to impact broader high beta FX currencies. However, even in this scenario, BofA is skeptical about GBP being the currency of choice.
• Political Factors: The looming general election in the UK adds to the uncertainty, with volatility expected to reflect views on the potential outcomes.

Forecasts for 2024:

• GBP/USD: BofA has revised its forecast for GBP/USD to end 2024 at 1.31, down from the previous forecast of 1.35.
• EUR/GBP: The EUR/GBP forecast has also been revised, with the pair expected to end 2024 at 0.88, up from the previous forecast of 0.85.

Conclusion:

BofA's 2024 outlook for GBP/USD and EUR/GBP reflects a cautious view on the GBP, influenced by the UK's ongoing economic challenges and the uncertain global economic landscape. The bank anticipates that the GBP will remain within its established ranges and may not stand out as a strong performer in the FX market, even if global conditions improve. The revised forecasts indicate a slightly weaker GBP/USD and a stronger EUR/GBP by the end of 2024.

• Canadian Q3 GDP miss offset by Q2 upgrade, Canada avoids technical recession

• Annualised Q3 GDP -1.1% vs 0.2% f/c. Prior revised to 1.4% vs -0.2%

• Mixed signals from GDP reduces impact on Canadian dollar

• USD/CAD continues to hold above 100DMA support (1.3560)

• Upside risks remain as long as pair maintains foothold above 200DMA (1.3518)

• CA jobs likely to provide a better signal for near-term Loonie outlook

For more click on FXBUZ

Synopsis:

Morgan Stanley provides its 2024 outlook for major currency pairs, including EUR/USD, GBP/USD, and EUR/GBP. The bank's forecast is shaped by expectations of technical recessions in the eurozone, Sweden, and the UK, leading central banks to initiate rate cuts, impacting currency dynamics.

Key Points:

• Technical Recessions and Rate Cuts: The eurozone, Sweden, and the UK are expected to enter technical recessions, prompting their central banks to start cutting rates in the second quarter of 2024.
• Impact on EUR/USD:
  • Anticipated weak growth and falling rates are expected to weigh on the EUR.
  • Morgan Stanley predicts EUR/USD will return to parity (1.00) by Q1 2024 and remain around that level for most of the year.
• GBP/USD Forecast:
  • The GBP has benefited from high carry in the past year. However, Morgan Stanley expects the Bank of England (BoE) to cut rates more quickly and aggressively than currently priced.
  • Low growth and GBP's increased risk sensitivity are expected to lead GBP/USD to fall to 1.14 by mid-2024.
• EUR/GBP Projection:
  • Given the dynamics in the eurozone and the UK, EUR/GBP is expected to rise, reaching 0.90 by the end of 2024.

Conclusion: 

Morgan Stanley's outlook for 2024 indicates significant movements in major currency pairs, largely driven by expected monetary policy shifts in response to economic conditions. The EUR/USD is forecasted to experience a return to parity due to weak growth and rate cuts, while the GBP/USD is projected to decline due to aggressive rate cuts by the BoE and the currency's heightened risk sensitivity. The EUR/GBP is expected to rise as the eurozone and the UK navigate through technical recessions and monetary easing.

Synopsis:

Credit Agricole emphasizes the importance of the upcoming release of Japan's capital spending data for understanding the near-term direction of the Japanese Yen (JPY). The data's potential impact on Japan's GDP and inflation outlook could be significant for the currency.

Key Points:

• Impact on GDP: The Q3 contraction in Japan's GDP has negatively affected the JPY, as it reduced investor expectations for further monetary policy normalization by the Bank of Japan (BoJ) in 2024. A positive surprise in the capital spending data could lead to upward revisions of Japan’s Q3 GDP, possibly influencing the JPY.
• Inflation and Investment Dynamics: Excessive saving by Japan’s corporate sector, resulting in limited investment, is a key factor behind the structural weakness in Japan’s inflation. An increase in capital spending and signs of corporate sector dissaving could indicate a significant structural shift in Japan’s inflation outlook and, subsequently, the BoJ's policy stance.
• Skepticism about Structural Shifts: Credit Agricole's economists are skeptical about a notable shift in these dynamics. They point out that without the weak JPY, the profits of Japanese manufacturers could have declined, suggesting that underlying economic conditions may not support a strong change in investment behavior.

Conclusion:

The upcoming capital spending data from Japan is crucial for investors monitoring the JPY. It has the potential to influence Japan's economic indicators, notably GDP and inflation, which in turn could affect the BoJ's monetary policy decisions. While there is potential for the data to signal a shift in economic dynamics, Credit Agricole remains cautious, noting the interdependence between the weak JPY and Japanese corporate profitability. The implications of this data release are thus critical for understanding the near-term trajectory of the JPY.

• AUD/USD hit 0.6650 in Asia then hit 0.6596 in Europe, NY opens near 0.6600

• Fall aided by US yield US10YT=RR lift & USD/CNH rally to 7.1535 on D3

• AUD/JPY drop below 97.45 & copper HGv1 losses also kept AUD/USD offered

• Below estimate AU CQ3 CAPEX, China NBS Nov. mfg PMI helped weigh on AUD/USD

• Equity ESv1 gains helped improve risk slightly, helps limit AUD/USD drop

• Techs are mixed; daily RSI is falling but monthly RSI is rising

• Price drop following Wednesday's inverted hammer is a concern for longs

• US Oct. PCE, personal consumption/income & weekly jobless claims are risks

• Remarks from Fed's Williams is an event risk in NY's morning

• For more click on FXBUZ

• Cable hits 1.2636 after sliding from 1.2710 (early London intra-day high)

• 1.2636 is lowest level since Wednesday's three-month high of 1.2733

• Drop to 1.2636 influenced by EUR/USD losses and EUR/GBP profit-take flow

• EUR/GBP lifted by profit-taking on shorts after 0.8618 support level held

• Bids may emerge pre-1.2600 if GBP/USD falls further (1.2608 was Tuesday low)

• US Oct core PCE and jobless claims data due 1330 GMT; 3.5% YY and 220k f/c