FX Trading focus: US Thanksgiving weeks can be like any other, history shows. A lot more USD upside needed to call reversal. Big test for stretched kiwi over RBNZ.
We have opened the week on a sour note as China registered the first official Covid deaths there in months and moved to shut down activity in areas that were in the process of normalizing. Hard to believe that this China reopening story will every really arrive until we get a clear signal that the country’s leadership is willing to risk the impact of huge spike in the virus count. USDCNH is the USD pair of note that is perhaps closest to posting a bullish reversal – only needing another percent or so (up through 7.20-25 after trading 7.17 today) – to suggest the late setback for USD bulls is easing more profoundly.
It’s tempting to think that, with US markets closed on Thursday for the Thanksgiving holiday and most of the country out on holiday on Friday as well, that we shouldn’t expect much in the way of volatility or directional moves in the greenback. The most recent historical evidence suggests this is a misguided assumption. In 2020, the weak US dollar of the time continued to set new broad cycle lows, while it saw a powerful resistance-breaking rise on the week of Thanksgiving last year. The context this year is less straightforward: the recent US dollar sell-off was on the heels of an enormous strengthening move and was triggered by that weak CPI data print on the November 10. But since the greenback troughed a short couple of sessions later, we have been largely backfilling, with considerable further room for that to continue without triggering a bullish reversal. That would require that EURUSD work down through 1.0100, GBPUSD through at least 1.1650, and AUDUSD through perhaps 0.6500. This week’s US data is mostly second-tier and is all piled on Wednesday because of the Thanksgiving holiday. (Wednesday sees the final University of Michigan confidence for November, Oct. Durable Goods Orders, Oct. New Home Sales, weekly initial jobless claims, and the FOMC minutes). The more important data, as we have emphasized, only rolls in from November 30 (October PCE) to the November CPI (December 13) with the November jobs report next Friday.
A remarkable run for NZDUSD of late faces an interesting test here with somewhat downbeat risk sentiment and the market’s indecision on whether the RBNZ will hike by 50 basis points once again or will accelerate to a 75-basis point pace after hot inflation data for Q3. Even just a 38.2% retracement of the rally off the lows would see sub-0.6000 levels in play, with the specific level at 0.5941, also near a sticky resistance area on the way up.