Synopsis:

Morgan Stanley shares a tactically bullish stance on the USD, citing strong US data and trade policy risks. The EUR faces headwinds from weak domestic growth and tariff-related risks, while the GBP benefits from fiscal-driven growth and high rate differentials.

Key Points:

• USD:

  • View: Bullish.
  • Rationale: Strong US data and potential repricing of trade policy risks support continued strength in the USD.
  • Skew: Bullish.

• EUR:

  • View: Neutral with a bearish skew.
  • Rationale: Weak domestic growth, tariff-related risk premium, and declining rates compared to peers weigh on the EUR.
  • Skew: Bearish.

• GBP:

  • View: Neutral with a bullish skew.
  • Rationale: Fiscal-driven growth and persistent inflation keep the BoE on a gradual easing path. High front-end rate differentials remain supportive for GBP.
  • Skew: Bullish.

Conclusion:

Morgan Stanley expects the USD to maintain its upward momentum due to robust data and trade policy repricing. The EUR faces challenges from growth and rate differentials, while the GBP is poised for gains supported by fiscal resilience and attractive rate differentials.

The latest jobs data out of Canada should embolden the well-owned bearish Canadian dollar trade.

The headline employment increase beat expectations at 50.5k, but a sizeable increase in Canada's unemployment rate to 6.8% from 6.5% cements the case for another 50bp rate cut (now a 70% chance), opening the door for USD/CAD to retest recent highs just under 1.42.

Since the beginning of the year, the unemployment rate has risen from 5.7% to 6.8%, a level last seen in September 2021.
The speed of the move will be somewhat alarming for BoC policymakers, particularly with Canada being among the more sensitive economies to high interest rates.

As a result, downside momentum in the Loonie is likely to gather pace in the lead up to next week’s BoC policy decision.

Elsewhere, with the threat of tariffs from President-elect Donald Trump, rebounds in CAD are likely to be short and shallow as we head towards the Jan.
20 presidential inauguration.

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Synopsis:

ANZ recommends two medium-term trades for 2025 based on growth differentials, monetary policy divergence, and trade sensitivity. They expect EUR/GBP to weaken as the eurozone lags the UK in growth and the ECB eases more aggressively. Similarly, GBP/NZD is forecast to rise, supported by stronger UK growth compared to New Zealand.

Key Points:

• Sell EUR/GBP on Rallies Above 0.84:

  • Target: 0.80 by year-end 2025.
  • Growth Differential: UK GDP is forecast at 1.5% y/y versus 1.3% y/y for the euro area in 2025.
  • Monetary Policy: The BoE is expected to end 2025 with rates at 3.5%, while the ECB is forecast at 1.5%, making the trade carry positive.
  • Trade Sensitivity: The UK is less exposed to tariffs than the eurozone, with 60% of UK exports in services as of September.

• Buy GBP/NZD Below 2.13:

  • Target: Exits around 2.16–2.18.
  • Recent Performance: GBP/NZD appreciated from 2.00 to a high of 2.19 in 2024.
  • Growth Differential: UK GDP is forecast at 1.5% y/y versus 0.8% y/y for New Zealand in 2025.
  • Monetary Policy: Both the BoE and RBNZ are expected to end 2025 with rates at 3.5%, but the UK’s stronger growth favors GBP.

Conclusion:

ANZ expects EUR/GBP to decline amid weaker eurozone growth and a more aggressive ECB easing cycle, while GBP/NZD is poised for gains as UK growth outpaces New Zealand. These trades align with structural and macroeconomic dynamics, offering medium-term opportunities for 2025.

The Swiss franc could see solid demand in December, as usual.
USD/CHF has fallen in 17 of the past 24 Decembers, notably the December 2008 drop of 12%, according to EBS prices.

While USD/CHF's trend in December points to a market that has a tendency to fall, seasonal trends should not be considered in isolation, but when combined with other factors, they can be a useful tool.

Last month USD/CHF gains faltered well ahead of the 0.9023 Fibo, a 76.4% retrace of the 0.9223 to 0.8375 (2024) drop, and spot has been weak in November so far.
Fourteen-month is negative, reinforcing the underlying bearish market structure.

A head and shoulders reversal pattern has formed on the daily chart, with USD/CHF's Thursday close under the neckline near 0.8800, adding to the downside risk.
There is scope for spot to drop towards the 0.8600 level which is near the head and shoulders measured objective, especially if there is a bout of risk aversion.
The Swiss franc usually serves as refuge during market worries.

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• Payrolls likely to add volatility into EUR/USD: options could contain

• Option expiries for the New York cut include very large deals

• EUR 12.4 billion between 1.0450 and 1.0655: EUR 1.4 bln 1.0650-55s

• Next week sees large deals from Tuesday through Friday

• Tues EUR 6.36 bln, Wed EUR 3.9 bln, Thurs EUR4.85 bln and EUR 16.4 bln Frid

• The strikes running from 1.0375 through 1.0600

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• EUR/GBP was due a correction following a sharp seven day decline

• Thursday's modest bounce eased some of the over sold condition

• Bearish confirmation on most studies but slow stochs are still stretched

• Early Friday and potential for a bearish resumption

• Wednesday's 0.8270 low the initial support point

• We lean bearish and will look for better entry levels to the short side

• EUR/GBP Trader TGM2343

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• Thurs slide erased all of our long play gains

• USD/CAD hit a 1.4011 low, a pip above our entry level

• Modest early Friday gains keeping the trade alive

• Fourteen day momentum has flipped back to positive and RSI is rising

• Need to see a climb above 1.4083, Dec. 4 high to put bull run back in play

• Weeklies bullish but legacy of last wk's long upper shadow still being felt

• USD/CAD Trading Page TGM2345

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• EUR/USD's mid-Nov failure under 1.0402 Fibo, shows the m-term bias on upside

• 1.0402 Fibo is a 50% retrace of the 0.9528-1.1276 (2022-2023) rise

• However, it failed to sustain last week's break above 1.0563 Fibo: bearish

• 1.0563 Fibo is a 38.2% retrace of the 1.0937 to 1.0332 November (EBS) drop

• We remain short at 1.0500 in anticipation for eventual losses to 1.0350

• EUR/USD Trader TGM2334. Previous update nL2N3N6079

• Could EUR/USD rise for the eighth December in a row? nL2N3N60BY

• German Oct industrial output slumped 1% when expected to rise 1.2%

• Outcome was below the -0.9% to +2.2% range of 29 forecasts

• Industrial production was -4.75% yy in Oct - weakest since July

• EUR/USD has bounced 1.0332 to 1.0597 following steep drop from 1.1214

• The rebound has alleviated an oversold situation

• Peak 20-day Bollingers at 1.0654 is likely limit for the recovery

• Trump's big tariff plan could support USD next year nL5N3N40SW

• GBP bull run stalling at the daily kijun line, 1.2761

• We are long from 1.2640 for 1.2810 with a trailing stop at 1.2675

• Target is just ahead of the 200-day moving average, 1.2821

• The 10-day moving average provides support at 1.2680

• key support and potential reversal point at 1.2619, Dec. 2 low

• Long lower weekly candle shadow backs up last week's bullish candle signal

• Friday action corrective but will look for signs of a stronger pullback

• GBP/USD trader TGM2338

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• 0.1% lower in a 1.0566-1.0588 range, as the safe-haven USD weighed

• Russia's Lavrov ready to use any means in the Ukraine conflict

• German IP, trades, EZ revised GDP have a modest impact - US jobs will be key

• France's Macron says he will appoint a new prime minister in the coming days

• Life goes on in France - EZ credit markets will be the barometer for EUR

• ECB to cut rates by 25 bps on Dec 12 - four more cuts expected in 2025

• Charts - daily momentum studies climb as 21-day Bollinger bands contract

• 5, 10 & 21-DMAs coil, weekly moving averages fall - a modest bearish setup

• The 1.0610 range top since mid-Nov is the pivotal resistance for next week

• This week's 1.0461 base and the November 1.0331 low are initial supports

• 1.0550 946 mln, and 1.0600 1.237 BLN close strikes for December 6th

  For more click on FXBUZ

• -0.1% in a 1.2742-1.2760 range on Korea - Russia led safe-haven USD strength

• UK employers cut 2025 growth forecasts as tax hikes weigh on economy

• PM Starmer pledges measurable 'milestones' to rebuild UK after rocky start

• Without tier 1 UK data or BoE events, offshore factors led by US jobs lead

• Techs - daily momentum studies climb, 21-day Bollinger bands contract

• 5, 10 & 21-day moving averages coil - neutral daily setup, bearish weeklies

• This week's 1.2619 low, then the 1.2475 November trend low initial supports

• Thursday's 1.2770 top then 1.2841, 0.382% September/November fall resistance

• A close above 1.2841 would be a bullish signal for next week

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• AUD/USD -0.4% as weakness returns on South Korea news & risk aversion hits

• Slides to a low of 0.6420 after opening at 0.6455 in Asia

• Undermined by reports of another martial law declaration in South Korea

• Scaled up RBA rate cut expectations continue to weigh; cenbank meets Mon-Tue

• U.S. jobs report Friday, Trump NBC interview Sunday also loom as risk events

• Strong support at 0.6400-05, clear break opens 0.6348-62

• Resistance 0.6450-55, 0.6470-75, 0.6500-05; Asia range 0.6420-0.6455

• For more click on FXBUZ

• AUD/USD down 0.4% as South Korea news sparks risk aversion

• South Korea's main opposition part says lawmakers on high alert

• Many reports of another martial law declaration -YONHAP

• Scaled up RBA rate expectations after weak GDP Wed continue to weigh on Aus

• U.S. jobs report Friday, Trump NBC interview Sunday also risk events

• Strong support at 0.6400-05, clear break opens 0.6348-62

• Resistance 0.6450-55, 0.6470-75, 0.6500-05; Asia range 0.6420-0.6455

• For more click on FXBUZ

• Steady after closing +0.45% with the USD off 0.6% - US payrolls key tonight

• Over half UK firms plan to raise prices, cut jobs after budget - BoE survey

• PM Starmer pledges measurable 'milestones' to rebuild UK after rocky start

• The UK government needs to sell it's policies more effectively

• Techs - daily momentum studies climb, 21-day Bollinger bands contract

• 5, 10 & 21-day moving averages coil - neutral daily setup, bearish weeklies

• This week's 1.2619 low, then the 1.2475 November trend low initial supports

• Thursday's 1.2770 top then 1.2841, 0.382% September/November fall resistance

• A close above 1.2841 would be a bullish signal for next week

For more click on FXBUZ

• Steady after closing up 0.75%, pushing the USD to close 0.6% lower

• French bonds, and stocks took a breather after the government collapse

• Macron to appoint a new prime minister soon - uncertainty reigns

• EUR shorts covered into the often volatile U.S. jobs data

• ECB to cut rates by 25 bps on Dec 12 - four more likely in 2025

• Charts - daily momentum studies climb as 21-day Bolli bands contract

• 5, 10 & 21-DMAs coil, weekly moving averages fall - a modest bearish setup

• The 1.0610 recent range top is the pivotal resistance for next week

• This week's 1.0461 base and the November 1.0331 low are initial supports

• 1.0550 946 mln, and 1.0600 1.237 BLN close strikes for December 6th

For more click on FXBUZ

Synopsis:

Danske anticipates nonfarm payrolls increasing by 160k in November, reflecting a recovery from October's temporary disruptions but remaining at the lower end of market expectations. Negative seasonality and a cooling labor supply could temper broader employment growth.

Key Points:

• November Nonfarm Payrolls Forecast:

  • Expected increase: +160k, rebounding from October's weak print.
  • The reversal of temporary factors, such as strikes and hurricanes, will contribute to the gains.

• Seasonality Headwinds:

  • Negative seasonal effects are likely to weigh on employment figures in both November and December.

• Labor Supply Factors:

  • An earlier immigration-driven positive labor supply shock appears to be fading.
  • This could signal slower average payroll growth heading into 2025, especially as Trump's policies may further restrict labor supply dynamics.

Conclusion:

Danske expects the jobs report to highlight a moderate recovery in November, driven by the resolution of temporary disruptions. However, structural and seasonal factors, along with potential policy headwinds, point to the risk of weaker employment trends in 2025.

• AUD/USD opens 0.35% higher as USD slips across the board ahead of US NFP Fri

• Boosted by higher-than-expected US jobless claims which rise to 1-month high

• Supported by higher offshore yuan and stable AXJ currencies

• Upside limited on scaled up RBA rate cut expectations after weak GDP on Wed

• 25 bps RBA rate cut fully priced in now for April; Odds of Feb cut at 51%

• Support 0.6425-30, stronger at 0.6400-05, clear break opens 0.6348-62

• Resistance 0.6470-75, 0.6500-05; Friday range 0.6422-0.6454

• For more click on FXBUZ

The dollar fell against most of its G10 counterparts on Thursday as positions were adjusted ahead of Friday's U.S. payrolls report, and the euro strengthened following France's no-confidence vote as President Emmanuel Macron sought to swiftly appoint a new prime minister.

Treasury yields were marginally higher after mixed jobless claims data.
Billionaire Elon Musk and former presidential candidate Vivek Ramaswamy met with Republican lawmakers whose support they will need to win to enact sweeping government spending cuts.

Commodity currencies generally lagged their peers amid lower oil and metal prices.
WTI crude fell after OPEC+ pushed back the start of oil output rises by three months until April and extended the unwinding of cuts due to weak demand and booming production outside the group.

British Prime Minister Keir Starmer said that he had not watered down the his ambition for Britain to become the fastest growing economy in the Group of Seven, as he set out ways to measure the government's progress.

Treasury yields rose up 4 basis points as the curve flattened.
The 2s-10s curve was down about 2 basis points to +2.5bp.

The S&P 500 was little changed in New York afternoon trade.

Gold slipped 0.82% amid firmer Treasury yields.

Copper edged down 0.20% on uncertainty about China's plans for stimulus.

Heading toward the close: EUR/USD +0.53%, USD/JPY -0.22%, GBP/USD +0.28%, AUD/USD +0.06%, DXY -0.37%, EUR/JPY +0.28%, GBP/JPY +0.07%, AUD/JPY -0.14%.

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• GBP$ firm into NorAm close, +0.32% at 1.2740; NorAm range 1.2771-15

• A close above 1.2761 50% of 1.3046-1.2475 should shift momentum to GBP bulls

• Sterling bounce off post-election low continues as UK not in Trump sights

• Fed, BoE policy on similar paths by YE 2025 likely keeps GBP$ stable

• Sterling's room to run hinges on key Fibo nL2N3N60P2

• As high-yielder likely bid amid GBP buying vs CAD, EUR other low-yielders

• Traders focus on Fri U.S. payroll; Fed exp'd -25bp Dec 18, BoE hold Dec 19

• GBP$ res 1.2761 50% of 1.3046-1.2475, 1.2821 200-DMA, 1.2874 Nov. 12 high

• Supt 1.2696 Thursday low, 1.2655 rising 10-DMA, 1.2619 daily low Dec. 2

Synopsis:

Credit Agricole anticipates a substantial jump in nonfarm payrolls (+240k) in November, driven by the reversal of October’s temporary drags from hurricanes and strikes. However, they recommend interpreting the data with caution, averaging recent months for a more accurate trend.

Key Points:

• Payroll Expectations:

  • November nonfarm payrolls forecast: +240k (vs. +12k in October).
  • Temporary boosts from the return of hurricane- and strike-affected workers.
  • Averaging October and November suggests a two-month trend of +125k/month.

• Wages and Unemployment:

  • Average hourly earnings: Expected to rise by 0.3% MoM, slightly lower than September’s 0.4%.
  • Year-over-year wage growth: Likely to tick down to 3.9% from 4.0%.
  • Unemployment rate: Forecast to edge up to 4.2% (from 4.1%), reflecting more stable household survey data.

• Fed Implications:

  • Temporary distortions in the data could complicate Federal Reserve interpretations.
  • A report aligned with expectations supports one more rate cut in December, followed by a pause in January.
  • A stronger-than-expected report could increase the likelihood of a pause in December.

Conclusion:

While the November jobs report is expected to look strong on the surface, Credit Agricole emphasizes the need to focus on broader trends due to temporary factors. The data should keep the Fed on course for a December rate cut unless significant surprises emerge.

• GBP$ firm into London cls, +0.4% at 1.2752; Thursday range 1.2771-1.2696

• USD broadly weak despite front-end UST yield rise, mixed US claims data

• Focus shifts to US NFP on Friday for clues on speed, depth of Fed policy

• Trump trade unwinding, Fed & BoE on similar policy path sees shorts covering

• UK not on Trump's tariff radar as econ service based shields UK trade

• GBP$ res 1.2761 50% of 1.3046-1.2475, 1.2771 Thursday high, 1.2821 200-DMA

• Supt 1.2696 Thursday low, 1.2657 rising 10-DMA, 1.2619 Dec 2 low

Synopsis:

Bank of America (BofA) identifies the euro (EUR) as at equilibrium in real effective exchange rate (REER) terms, but sees EUR/USD undervalued by approximately 18%, with a long-term equilibrium near 1.24. The undervaluation is attributed primarily to USD overvaluation, suggesting that future adjustments will likely occur via USD weakness rather than EUR strength.

Key Points:

• Behavioral Equilibrium Exchange Rate (BEER) Analysis:

  • BofA employs a cointegrating regression model using dynamic ordinary least squares (DOLS) for equilibrium estimates.
  • Monthly and quarterly variables are lagged to avoid "look ahead" bias.

• Current Valuation:

  • EUR is broadly at equilibrium in real effective terms (REER).
  • EUR/USD undervalued by ~18%, with an equilibrium level estimated at 1.24.
  • The EUR is undervalued versus USD and CHF but overvalued relative to JPY and Scandinavian currencies.

• Adjustment Pathway:

  • The undervaluation stems from the USD’s overvaluation rather than EUR weakness.
  • The adjustment towards equilibrium is likely to occur through USD depreciation rather than EUR appreciation.

Conclusion:

While the EUR itself is at equilibrium in REER terms, the significant undervaluation of EUR/USD underscores the potential for adjustment driven by a weaker USD rather than euro strength. Long-term equilibrium for EUR/USD is estimated at 1.24, suggesting meaningful upside over time if USD weakness materializes.