Dollar started the week on strong footing, buoyed by a combination of technical factors and geopolitical developments. Technically, the greenback bounced after failing to break through near-term support level against Euro last week. Escalating political and trade tensions is giving further fuel to Dollar’s rise.
Over the weekend, US President-elect Donald Trump stirred market attention with a direct demand to BRICS nations, calling for a halt to any plans for a new currency alternative to Dollar. Trump warned on social media that such moves would trigger “100% tariffs” and potentially end these nations’ ability to sell into the “wonderful US economy”, underscoring his intent to preserve the “mighty US dollar” as the dominant global currency.
Adding to Dollar’s momentum, reports indicate that the US is launching Biden administration’s final large-scale efforts on China’s semiconductor industry. According to sources cited by Reuters, the new measures include restricting exports to 140 Chinese companies, imposing curbs on shipments of high-bandwidth memory chips critical for AI training, and limiting advanced chipmaking tools and software. The initiative, targeting sectors critical to artificial intelligence and military advancements, underscores ongoing US-China trade tensions, which persist across multiple administrations.
In terms of currency performance, Dollar is currently the strongest, followed by Australian Dollar and Canadian Dollar. Japanese Yen is the weakest performer, trailed by Euro and Swiss Franc, while British Pound and New Zealand Dollar are holding middle positions. Global financial markets are bracing for significant volatility this week, with top-tier US economic data releases on the horizon, including ISM manufacturing and services indexes and non-farm payroll report.
Technically, USD/CNH jumped notably today as near term rally from 6.9709 resumed through 7.7276. This development aligns with the view that medium term correction from 7.3679 (2023 high) has completed with three waves down to 6.9709. Further rise is expected as long as 7.2279 support holds. Break of 7.3111 resistance will pave the way to 7.3679 or further to 7.3745 (2022 high). A key to watch is whether the next decline in Yuan’s exchange rate would prompt the Chinese government for some form of intervention.
In Asia, at the time of writing, Nikkei is up 0.66%. Hong Kong HSI is up 0.20%. China Shanghai SSE is up 0.93%. Singapore Strait Times is up 0.29%. Japan 10-year JGB yield is up 0.0264 at 1.079.
Japan’s PMI manufacturing finalized at lowest since March, but optimism grows for 2025 recovery
Japan’s Manufacturing PMI was finalized at 49.0 in November, down from October’s 49.2, marking its lowest reading since March. The decline reflects ongoing challenges, with weaker demand leading to sustained declines in new orders and production levels.
S&P Global Market Intelligence’s Usamah Bhatti described the sector’s performance as “downbeat,” noting subdued capacity pressures and firms reducing employment for the first time in nine months due to the lack of demand-driven growth.
Cost inflation remained elevated in November, prompting manufacturers to increase selling prices at a stronger rate to protect margins.
However, firms remain optimistic about the future, with confidence reaching its highest level since August. Optimism is supported by expectations of domestic and global economic recovery, alongside planned new product launches that could drive future sales.
Separately, capital spending rose 8.1% yoy in Q3, exceeding expectations of 6.7% yoy and accelerating from Q2’s 7.4% yoy growth. This marks the fastest annual growth in investment since Q4 last year, providing a silver lining amid subdued manufacturing activity.
Australia’s retail sales beat expectations with 0.6% mom growth in Nov
Australia’s retail sales increased by 0.6% month-on-month to AUD 36.7B in November, surpassing the forecasted 0.4% mom rise. On a year-on-year basis, sales grew 3.4% yoy, supported by early Black Friday promotions.
Strong gains were seen in non-food categories, with other retailing up 1.6% and household goods retailing rising 1.4%, driven by demand for electronics like televisions. However, declines were noted in clothing, footwear, and personal accessories (-0.6%) and department stores (-0.3%).
Food-related sectors also performed well, with cafes, restaurants, and takeaway services rising 0.3% for the third consecutive month. Food retailing rebounded 0.3%, led by a 1.7% jump in liquor sales, returning turnover to July 2024 levels.
China’s Caixin PMI manufacturing rises to 51.5, confidence grows but challenges in jobs persist
China’s Caixin Manufacturing PMI climbed to 51.5 in November, up from 50.3 in October and surpassing expectations of 50.5. This marks the fastest pace of growth since June, driven by a rebound in new orders, which rose at their quickest pace since February 2023, alongside renewed export growth. Output price inflation reached a 13-month high, and business confidence strengthened to its highest level in eight months.
Wang Zhe, Senior Economist at Caixin Insight Group, highlighted that manufacturers increased supply to meet expanded demand, with businesses purchasing more to build inventories. Input costs and output prices also rose, while supply chains remained stable.
However, employment continued to contract, underscoring lingering challenges. Wang noted that the economy faces “prominent downward pressure,” with the government’s stimulus measures yet to significantly impact the labor market and workforce expansion.
Markets Focus on U.S. Payrolls, Global Data as Central Banks Weigh Next Moves
As Fed’s final rate decision of the year looms, markets are gearing up for a pivotal week of economic data. Among the highlights is the US non-farm payrolls report, which will heavily influence the Fed’s next move. Currently, fed fund futures suggest a 66% chance of a 25bps rate cut to 4.25-4.50%, but these expectations could shift sharply after the NFP release. October’s lackluster job growth of just 12k was widely attributed to disruptions from hurricanes and strikes, making November’s data critical in determining whether the labor market’s underlying strength persists. Additionally, ISM manufacturing and services indexes are also on the radar
Globally, attention turns to Swiss CPI, Australian GDP, and Canadian employment figures, each of which could drive significant policy and market reactions.
In Switzerland, deflation risks persist due to strong Franc and weak demand from the EU. SNB President Martin Schlegel recently remarked, “When Germany has a cold, Switzerland has the flu,” underscoring Switzerland’s reliance on its largest EU trading partner. With these pressures, another SNB rate cut in December is expected. The key question is whether the adjustment will be more aggressive.
In Australia, RBA remains steadfast in its restrictive stance, as reinforced by its recent minutes. RBA emphasized that significant cooling in the labor market is needed to balance demand and supply, which would also temper wage growth. While this could slow economic expansion, inflation concerns keep rate cuts off the table for now.
Meanwhile, in Canada, BoC is likely to remain on its fast track toward neutral interest rates, with another 50bps rate cut expected next week. Continued soft employment data, particularly a rising unemployment rate, would solidify this expectation.
Here are some highlights for the week:
- Monday: New Zealand building permits; Japan capital spending, PMI manufacturing final Australia retail sales, building approvals; Swiss retail sales, PMI manufacturing; Eurozone PMI manufacturing final, unemployment rate; UK PMI manufacturing final; US ISM manufacturing.
- Tuesday: New Zealand terms of trade; Japan monetary base; Australia current account; Swiss CPI.
- Wednesday: Australia GDP; China Caixin PMI services; Eurozone PMI services final, PPI; UK PMI services final; US ADP employment, ISM services, factor orders, Fed’s Beige Book report.
- Thursday: Australia trade balance; Swiss unemployment rate; Germany factory orders; France industrial production; UK PMI construction; Eurozone retail sales; Canada trade balance, Ivey PMI; US Challenger job cuts, trade balance, jobless claims.
- Friday: Japan labor cash earnings, household spending, leading indicators; Germany industrial production, trade balance; Swiss foreign currency reserves; Eurozone GDP revision; Canada employment; US non-farm payrolls, U of Michigan consumer sentiment.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.0548; (P) 1.0572; (R1) 1.0603; More…
EUR/USD dips mildly ahead of 1.0609 resistance, but stays well above 1.0330 support. Intraday bias remains neutral first. For now, further decline is still in favor with 1.0609 resistance intact. On the downside, break of 1.0330 will resume the fall from 1.1213. Also, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication. Nevertheless, firm break of 1.0609 will confirm short term bottoming, and turn bias back to the upside for 1.0760 support turned resistance first.
In the bigger picture, immediate focus is now on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.
