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FX Update: USD bounces back to kick off December
John J. Hardy
Chief Macro Strategist
Résumé: The US dollar gapped lower to start trading this week on the news that Trump will pick Scott Bessent for Treasury Secretary, a critical post for policy. Also, the very weak euro and whether a low is in for now.
The US dollar has jumped higher out of the gates as we have turned the page on a new calendar month, suggesting that Friday’s big dip and local low in US treasury yields, coupled with a weaker US dollar were a product of end-of-month portfolio rebalancing and rate fixing and not signs of something bigger developing. Friday’s USD lows are certainly now an important technical chart point, particularly in EURUSD as discussed below. The USDJPY action was particularly revealing, as USDJPY leaped back above 150.50 at one point in early European trading this morning after closing Friday at 149.63 despite Ueda suggesting that a BoJ rate hike is “nearing” and JGB yield jumping higher to start the week. Elsewhere, USDCNH jumping to new local highs may have been a key USD driver here as China’s 10-year yield dipped below 2% for the first time since 2002 and observers noted a failure by the politburo to comment on its recent meeting as key mid-December meetings lie ahead. 7.31-37 is the last bit of the range, versus 7.28 as of this writing.
Below, we have a look at the key data points in the week ahead, with everyone wondering how much the US data should even be weighed for now, given that global markets are bracing for the impact of a Trump 2.0 administration. Elsewhere, watching how the Euro might deal with a government collapse in France as Le Pen has thrown down the gauntlet and we could risk a Wednesday no-confidence vote, with zero visibility on what shapes up for the country politically if the fragile minority government is taken down.
Chart: EURUSD
The final trading day of November saw critical levels tested in EURUSD, namely the major early 2024 low near 1.0600 that was broken earlier in the month. The brutal run lower saw the pair briefly testing below the prior major low from 2023 near 1.0450. While the size of the descent from the 1.1200 sell-off and even the second wave sell-off from above 1.0900 suggest that a move to 1.0700 or even higher wouldn’t threaten the downtrend in a local context, the 1.0600 old range low nonetheless remains one critical potential bull-bear line level to watch in coming days and through to year-end. The opening today is a comfort for the EURUSD bears as it suggests that the USD weakness in thin US trading late in the Thanksgiving holiday week may have been on end-of-month fixing.
In technical developments, last week’s most interesting beside the EURUSD 1.0600 test and the JPY generally cementing its bullish trending status was perhaps the sharp reversal in AUDNZD on the back of the RBNZ meeting, which delivered the expected 50-basis point cut and promised more to come, if only “provisionally” on data. This looks to have put a firm cap on the AUDNZD after the climax reversal rejected all of the price action above 1.1100-1.1150. Given that hawkish RBA chief Bullock is doing all she can to hold up the Aussie, it would appear that only large-scale Chinese stimulus that boosts the prospects for Australia’s key commodities exports would support a change of view on the AUD. The AUDUSD chart has worked into the extremely important support zone that stretches down to sub-0.6200 levels, although there is arguably an important trend line that currently comes in around 0.6400.
Top highlights for the week ahead: (times are GMT where shown):
The week ahead features most of the most important data going into the December 18 FOMC meeting, including especially Friday’s jobs report.
- US ISM Manufacturing (Mon 1500) – Expected at 47.6 vs. 46.5 in Oct. Manufacturing usually gets little attention in the US – but wondering in coming quarters whether this could change under Trump 2.0 if the manufacturing reshoring takes off? Among the regional surveys this month, only the Empire Manufacturing survey showed a massive surge, supposedly as manufacturers front-ran Trump tariffs with large orders.
- US Fed’s Waller, voter, to speak in keynote address (Mon 2015)
- US Fed Vice Chair Williams to speak (Mon 2130)
- Switzerland Nov. CPI (Tue 0730) – The SNB is priced to head most of the way to the zero bound by mid-next year. EURCHF an important coincident indicator there (more pressure below 0.9500 adds to cutting pressure)
- US Nov. JOLTS Job Openings survey (Tue 1500) (expected 7510k vs. 7443k in Sep.) This one has occasionally seen significant market reaction. Last month’s reaction to a weak reading somewhat muted as we got a very strong US Consumer Confidence reading at the same time (politically inspired by election anticipation of Trump victory?)
- Australia Q3 GDP (Wed 0030) – Australia’s economy dipping to stall speed, expected at 1.1% YoY
- US Nov. ADP Employment Change (Wed 1315) – expected at 165k after 233k in Oct, which showed the remarkable lack of correlation with the official Nonfarm Payrolls Change data for the month, which was a negative -12k, though the former only includes private sector payrolls.
- US Nov. ISM Services (Wed 1500) Expected at 55.5 vs. 56.0 in Oct. After a slide from late last year and into mid-year, the prior two months saw strong readings. Watching the Prices Paid subcomponent as well.
- US Fed Chair Powell to speak in moderated discussion (Wed 1845) To include Q&A
- US Fed Beige Book (Wed 1900) – doesn’t normally generate much of a market reaction, but interesting anecdotal evidence from around the US on the state of the economy.
- Sweden Nov. Flash CPI (Thu 0700) The EURSEK chart could get interesting for bears if we an see a stab back lower if the 11.55+ area remains as resistance.
- US Trade Balance (Thu 1330) Twenty years ago, this data release could move the market – could those days return under Trump 2.0?
- US Weekly Initial Jobless Claims and Continuing Claims (Thu 1330). These data series is getting more interesting with every passing week as the very low initial claims suggest few layoffs, while the steady climb in continuing claims suggests that hiring is weak. Last week’s level of 1907 was another high since the pandemic disruption and higher than any level during 2018 or 2019, for example. Some significant softness in parts of the US economy, or some lingering hurricane impacts or a bit of both? Back in 2005 during storms Katrina and then Rita, the weekly initial claims normalized in seven weeks, much slower than this time after storms Helene and Milton. In 2005, the continuing claims took thirteen weeks to normalize to trend. Helene was nine weeks ago and Milton seven weeks ago, so we should already be seeing continuing claims beginning to drop back if these storms were a key contributor to the rise in continuing claims.
- Japan Oct. Labor Cash Earnings and Scheduled Full-Time Pay (Thu 2330) – the Labor Cash earnings number is far more volatilte than the scheduled full-time pay data series, which has risen from a pre-pandemic range (data only goes back to 2016) of 0.2-1.1% to a peak of 3.0% in July. Expected at 2.9%
- Germany Oct. Industrial Production (Fri 0700) The workday adjusted figures are terrible here - down -4.6% in September and falling over 15% in absolute terms since the pre-pandemic peak.
- Canada Nov. Employment Data (Fri 1330) A key figure together with US data on whether USDCAD can get comfortable above 1.4000.
- US Nov. Nonfarm Payrolls Change (Fri 1330) Expected +200k vs. +12k in Oct.. As always, watch the revisions of the prior two months of data.
- US Unemployment Rate (Fri 1330) Expected This household survey was more positive in October than the establishment survey – important for any signal strength on the US labor market for the ISM Services Employment sub-index, this survey and the ADP and Nonfarm payrolls (and maybe even the weekly claims) to point all in the same direction, whether positive or negative.
- US Fed’s Bowman, voter, to speak (Fri 1415)
- US Dec. preliminary University of Michigan Sentiment (Fri 1500) – Odd to note the very depressed “current economic conditions” portion of this index below 65. These levels and lower have only been hit twice since a 1981 – during the financial crisis and in mid-2022 (clearly due to the presence of inflation-related questions on the survey relative to the Conference Board survey, which did not suffer this extreme dip at the time)
Table: FX Board of G10 and CNH trend evolution and strength.
Note: the FX Board trend indicators are only on a relative scale and are volatility adjusted. Readings below an absolute value of 2 are fairly weak, while a reading above 3 is quite strong and above 6 very strong.
A powerful Japanese yen reading dominates the FX Board trend readings – judging from the overnight action, it certainly helps the JPY bulls for yields to continue to consolidate lower globally independent of BoJ hike anticipation. The Euro is the weakest major currency as we watch French politics this week.
Table: FX Board Trend Scoreboard for individual pairs.
The volatility (hot ATR readings) only found in the precious metals and in the JPY pairs, although USDCNH heating up again with today’s session as we all ponder China’s policy moves as counterpoint to whatever Trump 2.0 delivers.