FX: This week may be more than just a wait for next week
Thanksgiving week is not all a holiday
Euro may get hammered as ECB QE conviction firms up
EM and commodity currencies may do well if market buys Fed message
This week could either be a week of uncertainty and hesitancy to trade ahead of the suite of significant event risks next week, or it could be a week that sees the certainty of what is to come (particularly the expected large expansion of the European Central Bank’s quantitative easing programme next Thursday) simply seeing the euro continuing to get pounded as traders fret most of all that they are not positioned for what is to come. Either way, Thanksgiving week in the USA doesn’t have to mean a lack of movement in exchange rates, as so much is at stake heading into the end of the year.
The consensus case is rather clear at this time: it is very clear that the Fed wants to hike and is very likely to hike at the December meeting if the November jobs data is even close to in-line with expectations on Friday week. They will also continue to peddle the “gradual pace” of future hikes message, reincarnating Alan Greenspan’s efforts from the post-tech bubble Fed tightening regime. But what if we see a +300k jobs print? This will challenge the entire attempt at a “dovish hike” (hawkish to hike, but dovish guidance) and the market will need to price in far more from the Fed out the curve.
We shall see – for now the technical situation for the US dollar has not achieved a great deal of clarity over the last week as divergences abound. Most of the USD upside has been against the struggling euro and Swiss franc, while the AUD and NZD have tried to put up a fight, and the JPY has traded indifferently.
If risk appetite catches fire, as mentioned late last week, and the market decides it wants to buy into the Fed’s dovish hike guidance, then EM and commodity currencies might perform best, even as the Euro continues to grind lower toward the 1.0500 area. That’s the message that the market tried to send on Friday, but today’s Asian session and early action in Europe are not seeing traction on this theme just yet – but stay tuned – a follow up move higher in AUDUSD through Friday’s highs, for example, would suggest that this theme is picking up steam again.
Chart: GBPUSD
Cable finally turned tail as we’re left scratching our heads on why the market was so intent on bidding up sterling last week as UK/US rate spreads pushed to the lowest for the cycle. EURGBP is also finding that 0.7000 is a bit of a sticking point so far. From here, barring new data divergences, we would suspect that this pair is vulnerable to a test of the lows for the cycle and the psychologically important 1.5000 area.
USD:
Is the US vulnerable ahead of next week’s event risks if the market buys into the Fed’s attempt at a dovish hike? Possibly, but the greenback continues to look firm against the G-10 weaklings until proven otherwise.
EUR:
Seems only upside potential is on positioning worries or on unanticipated risk aversion (with position unwinding as the main driver – so really the same thing). Today’s preliminary Eurozone PMI numbers were a bit indifferent.
JPY:
The market is struggling for a reason to trade the yen, which remains passive in this market – seems like there is an eventual risk of a transition to the strong side if governor Haruhiko Kuroda makes it clearer that the Bank of Japan hopes that fiscal measures are the preferred way to go from here rather than further BoJ easing.
GBP:
Finally getting a bit of a comeuppance against the greenback, with more potential to the downside toward 1.5000 as discussed in the chart above.
CHF:
Market tried to get something going in EURCHF last week, but it remains bottled up in the range – clear that December’s ECB and Swiss National Bank event risks are critical for whether the pair can pull up and out of the range. Prefer weaker eventually – especially versus the USD.
AUD:
Late week action suggested an interesting potential theme shift for the AUD, as it is has stormed to the upside against the euro and showed signs of spreading to strength against the USD and JPY as well – but waiting for confirmation of this – 0.7150 and 0.7250 are the local pivot levels of interest.
CAD:
weaker on weak oil prices as the highs for the cycle in USDCAD are now not far away. Getting excessively weak in some of the crosses like AUDCAD.
NZD:
Last week ‘s rally appeared to reject the sell-off through 0.6500 – but that rejection not confirmed unless we can rally again and take out the highs just above 0.6600 last week.
SEK:
EURSEK now threatening the range support toward 9.2500 and could have potential within descending channel to challenge 9.20 or slightly lower, but one has to imagine Riksbank rattles its cage below there.
NOK:
EURNOK was trying to threaten the key support, but weak oil prices are holding the krone at bay for now.
