Key Events This Week: November 23rd – 28th:
Monday: JPY BOJ Minutes
Tuesday: USD US Gross Domestic Product US Consumer Confidence
Wednesday: GBP UK Gross Domestic Product USD US Private Consumption Expenditures
Thursday: JPY Japan Consumer Price Index EUR German Consumer Price Index
Friday: EUR Eurozone Consumer Price Index
Market maintains a bullish USD view over the medium term, we would continue highlight the risk of a position-driven near-term corrective setback. Hence, we recommend caution with sizing on new USD long positions for the next few weeks. However, over the medium term, we still believe that USD should benefit from the growth in the US economy being stronger than the rest of the world. In particular, we will be watching the durable goods orders and PCE, Yellen’s preferred measure of inflation.
While we remain bearish on EURUSD over the medium term as we expect relative central bank policy, inflation differentials, and growth divergence to all move in favour of USD, we see scope for a tactical correction higher in EURUSD. EUR positioning has been at extreme levels recently, and as we approach year end investors may look to take profit on some of their positions. However, we would still favour selling rallies. CPI will be a key print for EUR this week.
USDJPY continues to push higher, expect USDJPY to continue to head higher. The political situation has developed with the sales tax delayed and an election called. Note that JPY positions still remain fairly light, while option volatility has been picking up suggesting that much of the new JPY positioning may be via a the options market.
While the UK’s inflation report sounded more doveish the latest set of BoE minutes suggested that the committee itself is more divided, with some members concerned that slack in the economy could erode quickly, driving inflation higher. Nonetheless, we expect GBP to remain weak as there is scope for the market to push back the timing of the first hike further.
We expect AUD to continue to sell off due to both a decline in commodity prices and signs of a slowdown in China. Iron ore prices have fallen nearly 5% since the start of the month. At the same time, we are seeing signs of weaker demand in China, as evidenced by the latest declines in lending and inflation. Aussie caught a breather Friday on the back of the PBOC rate cut.
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