Head of FX Strategy
Summary: The US dollar has been doing all it can to avoid throwing off any impression that it is ready to make a directional move recently, but cannot avoid making a statement over the coming two weeks as important levels are bound to come into view and incoming data the week after next will inevitably spark volatility. Elsewhere, SEK is trying once again to get interesting in mounting a charge higher and a key support is coming into view in AUDNZD.
FX volatility continues to fall, with a new record low near 5.0% for the EURUSD 6-month volatility posted today. But the pair will inevitably bump up against important levels one way or another and is looking heavy into the close of trading this week. Will we suffer another week of uncertainty on the dollar in this low volatility environment next week, which is a US holiday week (most off work Thu-Fri) as we await the key ISM survey data and November jobs report the following week, or does the dam break already next week on USD developments – tough to say but we’re not far from levels that will require decisions to be made and trigger stop-based flows.
EURUSD – heavy but lacking momentum
Recently, EURUSD found support around the important 1.1000 level we highlighted in our prior Tech chart post, but the subsequent impulse has proven rather weak and we have yet to take out the recent cycle highs, and in fact the momentum is pushing back lower, with the tactical 1.1050 area facing an attack today as we continue to eye that very important 1.1000 level. Another attack on the 1.1000 area pivot level might take the pair toward the cycle lows and even beyond as the descending channel formation of the last 15+ months continues to dominate until this pair blasts at least through 1.1200.
AUDUSD – heavy again despite strong risk appetite
AUDUSD is in a similar situation to EURUSD and another pair for checking in on the USD status in coming sessions. One of the remarkable things about the AUD recently is its lack of correlation with general risk conditions, perhaps as the RBA is in the midst of an easing cycle and on concerns that the US-China trade relationship is not going anywhere fast. A close below the local pivot could set up a charge for the sub-0.6700 lows again, though we ‘ve not yet seen a close below that level for the cycle – and those lows are the lows for the past decade since the global financial crisis.
AUDNZD - 200-day moving average is here
Speaking of AUD, a look at AUDNZD shows that pair testing the 200-day moving average after the RBNZ failed recently to cut rates. Bulls here need to tread carefully may want to position lightly until better signs emerge of technical support coming in - whether here or around 1.0500 (close to the last important Fibonacci level).
EURSEK – dare we say, here we go again, again?
The EURSEK range is so well established that another challenge of the lows here certainly worth paying attention to as the Riksbank is likely headed for a December rate hike – that’s right, hike. EURNOK showed us last week the frequent danger of signals that unfold on a Friday, so we’ll need a status check on this attempted break below the 10.61 area on Monday for whether the undervalued SEK can finally develop some momentum and work its way out of this range versus the EUR. Note that the spike below 10.60 in yesterday’s session is a mis-feed (actual low was above 10.64), and a close today near current levels would be the lowest daily close in over three months.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
