We assume the US greenback has put in a big excessive. However, the near-term technical readings are stretched. The greenback’s bounce from November 15 to November 21 met or approached minimal retracement targets, however the momentum indicators didn’t right. These conflicting impulses must be navigated within the days forward. On stability, we search for a firmer buck, which we see as corrective. That is the prism via which we have a look at the value motion.
At the identical time, we search for US 10-year yield to get well from the seven-week low barely beneath 3.65% seen earlier than the weekend. The two-year yield slipped beneath 4.42% briefly forward of the weekend. It, too, seems poised to get well within the days forward. We will not be persuaded that the FOMC minutes revealed something the market didn’t already know or assumed. The effort by the media and a few analysts to play up some sort of stress between Fed Chair Powell on the one hand and Vice Chair Brainard on the opposite appears exaggerated. A 50 bp hike in December, after 4 three-quarter-point strikes, is hardly a dovish pivot. The September dot plot (Summary of Economic Projections) had anticipated this base case, which the market has kind of accepted after flirting briefly with one other 75 bp hike, which some Fed presidents refuse to rule out. Ahead of the subsequent batch of key information (jobs on December 2 and CPI on December 13), the Fed funds futures market has a couple of 12% probability of a 75 bp hike discounted.
Dollar Index: We have advised that the transfer being corrected is the buck’s decline from November 10, which was impressed by the softer-than-expected US CPI. Last week’s bounce stopped just a little shy of the (50%) retracement goal close to 108.15. It was bought again down however held the November 15 low and the 200-day transferring common (~105.35). The MACD is caught in its trough in oversold territory, whereas the Slow Stochastic has recovered barely. The risk-reward, we expect, doesn’t favor new greenback shorts but. While the 108.00-15 could be the first hurdle, we’re on the lookout for a transfer towards 108.80 or so.
Euro: The euro ran from about $0.9935 to just a little above $1.0220 on November 10 on the again of the softer US CPI. The rally was prolonged to virtually $1.0480 on November 15. The pullback bottomed barely beneath $1.0225 on November 21. The (50%) retracement goal was nearer to $1.0205. The subsequent bounce, which was greater than we anticipated, reached practically $1.0450. The momentum indicators stay stretched, warning of the chance of additional corrective motion. Support forward of the weekend was seen by $1.0355. A break of $1.03 could also be wanted to verify that the corrective part continues. While we see potential towards the $1.0150-70 space, a break of $1.0225 may spur discuss of a double-top that initiatives nearer to parity. We notice that non-commercial positions (speculators) within the futures market have the biggest web lengthy euro place because the center of final yr. It presents an almost threefold improve since mid-October. On the upside, above $1.0480, the $1.0515-$1.0615 band would appear to be the subsequent goal.
Japanese Yen: The buck fell from about JPY146.60 earlier than the November 10 CPI to a low close to JPY137.70 on November 15. Last week’s bounce stalled at JPY142.25, barely above the (50%) retracement goal. The subsequent pullback discovered assist forward of JPY138. The MACD is at its lows for the yr, whereas the Slow Stochastic has barely emerged from oversold territory. A transfer above JPY140.15 could enhance confidence a low is in place. The key remains to be US charges, and a restoration in US yields may assist elevate the greenback again into the JPY143-144 space. The rolling 30-day correlation between the change within the alternate charge and the 10-year US yield reached new highs for the yr final week (~0.71).
British Pound: Sterling reached a brand new three-month excessive final week close to $1.2155. The MACD is at highest degree in additional than 4 years. The Slow Stochastic has been overbought because the center of the month. Sterling stalled in entrance of the 200-day transferring common (~$1.2185). It has not traded above the 200-day transferring common since early January and has not closed above it since September 2021. If the transfer continues, the subsequent goal is within the $1.22-1.23 space. A break now of $1.20 could be the first signal of the correction we anticipated. A transfer beneath $1.1965 may spur a 1-2-cent decline. Despite the practically 17.5% rally in sterling because the report low in late September, the speculators within the futures market are web brief round 30k futures contracts as of November 22.
Canadian Dollar: The US greenback’s bounce in opposition to the Canadian greenback was a bit stronger than we anticipated. Indeed, it surpassed the (61.8%) retracement of the drop from November 10 (discovered ~CAD1.3440) and examined the neckline of the pinnacle and shoulders sample (~CAD1.35) that we’ve got been monitoring. The neckline held, and the buck was turned decrease. It discovered assist forward of CAD1.3300. The MACD has flatlined in oversold territory, and the Slow Stochastic has turned up. A transfer above CAD1.3440 would doubtless spur one other run at CAD1.3500. Above CAD1.3520, we might see the buck strategy CAD1.3600. On the draw back, a break of CAD1.3200-25 would renew the concentrate on the pinnacle and shoulder’s measuring goal close to CAD1.30. The rolling 60-day correlation of adjustments within the alternate charge and adjustments within the S&P 500 (~0.77) is the strongest in a decade.
Australian Dollar: The pullback within the Australian greenback retraced (50%) of the rally started on November 10 (close to $0.6385) and peaked on November 15 (barely shy of $0.6800). That retracement was close to $0.6590, and the Aussie bounced again to $0.6780 forward of the weekend. The MACD is at seven-month highs. The Slow Stochastic has pulled again barely beneath the overbought threshold however has moved sideways just lately. A push above $0.6800 may spur a take a look at on the September excessive (~$0.6915) and the 200-day transferring common (~$0.6935). A break of the $0.6590 and the 20-day transferring common (~$0.6585) may sign a double prime that may mission again to $0.6400.
Mexican Peso: The greenback was bought to virtually MXN19.25 on November 15, its lowest degree since March 2020. The bounce carried it to just about MXN19.60 on November 21, the higher finish of the vary since November 10. The 20-day transferring common was additionally discovered there, and the buck has not closed above this transferring common since October 19. The greenback settled on its lows for the week and appears set to retest the low from mid-November. The MACD is transferring sideways just a little above its trough, whereas the Slow Stochastic is stalling close to the place it peaked in late October. The carry stays attracted. Mexico’s one-month cetes yield practically 10%. The 4-week US T-bill pays about 3.9%. If we’re right and US yields agency, lengthy peso and brief yen positions look enticing once more.
Chinese Yuan: Surging infections to new highs lays to relaxation concepts that Beijing was, in any significant approach, transferring away from its zero-Covid coverage. At the identical time, extra measures have been introduced for the property market, which looks as if a tacit acknowledgment just lately 20 measures weren’t enough. We had thought it potential final month, however the PBOC introduced a 25 bp lower in reserve necessities efficient December 5. It frees up an estimated CNY500 bln (~$70 billion). The yuan fell for the second week in opposition to the greenback. Its practically 0.65% loss was the biggest in 5 weeks. The greenback briefly poked above CNY7.18 forward of the weekend, its greatest degree since November 11 and the place the 20-day transferring common is discovered. The greenback has retraced barely greater than half of this month’s decline (~CNY7.1765). If we’re right that the yuan now’s buying and selling intently with the yen and euro in opposition to the greenback and that the greenback nonetheless has the technical potential to right larger, then the buck could take a look at the CNY7.2100-7.2500 band.
Editor’s Note: The abstract bullets for this text have been chosen by Seeking Alpha editors.