Olivia

Quiet week ahead as FX markets enter holiday season. Spotlight will fall mostly on some Japanese releases. Most importantly, liquidity will be in short supply. Yen awaits Bank of Japan signals Another devastating year for the Japanese currency is coming to an end. Despite mounting a comeback in recent months, the yen is still on track to close the year with losses of around 8% against the US dollar, mostly because of the Bank of Japan’s refusal to raise interest rates. Indeed, the latest recovery in the yen has been driven mostly by speculation that foreign central banks in the United States and Europe will slash interest rates aggressively next year. Hence, currencies like the dollar and the euro have lost some of their interest rate advantage over the yen. Despite a streak of high inflation readings, the Bank of Japan is still reluctant to raise rates because it is not yet confident that this inflation impulse will be sustained. For that to happen, BoJ officials need to see an acceleration in wage growth. This puts extra emphasis on the spring wage negotiations between big businesses and big labor unions. Markets currently assign an 80% probability for the BoJ to… Read More »Week ahead – Markets wind down for holidays, mind the liquidity gap

EUR/USD went into a consolidation phase near 1.1000 early Friday. US PCE inflation data could drive the USD valuation in the American session. Thin trading conditions ahead of Christmas holiday could limit the pair’s action. EUR/USD gathered bullish momentum and climbed above 1.1000 on Thursday as the US Dollar came under bearish pressure following the mixed data releases. The pair holds steady at around 1.1000 early Friday ahead of the Personal Consumption Expenditures (PCE) Price Index data from the US.  The US Bureau of Economic Analysis (BEA) announced on Thursday that it revised the annualized third-quarter Gross Domestic Product (GDP) growth lower to 4.9% from 5.2%. The GDP Price Index in the same period was also lowered to 3.3% from 3.5%, showing that inflation had a smaller effect on the GDP growth than initially estimated.  Although other data from the US revealed that there were 205,000 Initial Jobless Claims in the week ending December 16, compared to the market expectation of 215,000, the USD weakened against its rivals in the American session.

After a day in negative territory, markets have regained holiday cheer, with all three major U.S. indices staging a rally on Thursday. The S&P 500 recorded a 1% gain, with market participants buying up dips in the Tech sector. The immediate cause seems relatively straightforward, with yesterday’s sell-off appearing more about a cohort of speculative algorithmic machines running for cover than any macroeconomic concerns, all the while the Fed rate cut beat goes on. Key highlights included a substantial 8.6% surge in shares of memory-chip maker Micron, driven by the company’s issuance of more optimistic guidance for the current quarter than initially expected. Additionally, with U.S. yields experiencing a decline, the stage was set for yet another round of dip buying, resulting in a “Magnificent 7 rally.” If recent trends hold, stocks are poised for an upward trajectory in the typical “Santa Claus Rally.” However, given the substantial gains that have already transpired, investors may find themselves content with the early Santa stocking stuffer rather than risk the proverbial lump of coal if the US PCE data comes in hotter than expected.

Almost one year ago, we labeled 2023 as ‘a year of transition to what?’ based on the view that inflation would decline, that official interest rates would reach their peak and a concern that the disinflation process could be bumpy. 2023 has brought us many surprises: the resilience of the labour market in the US and the Eurozone, the extent of monetary tightening, the risk appetite of investors. The biggest surprise was the growth performance of the US economy. Towards the end of the year, the changing message from the Federal Reserve -and to a lesser degree of certain ECB governing council members- with respect to the monetary policy outlook has brought us a another favourable surprise and a hopeful note for 2024. As the year draws to a close, the time has come to look back and ahead. We will do the latter in our first issue of 2024 and focus in this editorial on 2023. Almost one year ago, we labeled 2023 as ‘a year of transition to what?’. The word transition referred to our belief that inflation would decline and that official interest rates would reach their peak. Subdued growth -we expected that the US and the… Read More »2023: A year of transition with many surprises

Gold price touches a three-week high on Friday amid rising bets for a March Fed rate cut. A modest USD uptick caps gains for the XAU/USD ahead of the crucial US PCE Price Index. The fundamental backdrop favours bullish traders and supports prospects for further gains. Gold price (XAU/USD) rises to a near three-week high, around the $2,055 region earlier this Friday, albeit struggles to capitalize on the move amid a modest US Dollar (USD) uptick. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, reverses a part of the previous day’s slide to a near five-month trough touched in the aftermath of a downward revision of the US GDP print. The third and final reading from the US Bureau of Economic Analysis showed that the world’s largest economy expanded by a 4.9% annualized pace vs. a 5.2% rise in the second estimate. The markets were quick to price in a greater chance that the Federal Reserve (Fed) will start cutting rates as early as March 2024 and 155 basis points (bps) of easing by the end of next year. Traders, however, seem reluctant to place aggressive USD bearish bets and prefer to wait… Read More »Gold Price Forecast: XAU/USD bulls pause ahead of US PCE data, trading range breakout in play

The US Dollar continues to slide, unaffected by US data and despite higher yields.  The Fed’s preferred inflation gauge, the Core PCE, will be released on Friday. The AUD/USD maintains a bullish tone amidst thin holiday trading. The AUD/USD rebounded from near 0.6715 and climbed to 0.6800, reaching a fresh four-month high. The key driver continues to be a weaker US Dollar. The rebound in Treasury yields did not help the Greenback.  The US Dollar Index dropped to test monthly lows, falling below 102.00. Treasury yields rebounded with the 10-year yield rising from a fresh monthly low at 3.83% to 3.90%. Economic data from the US showed mixed to negative numbers, with a revision of Q3 GDP from 5.2% to 4.9%, a decline in Initial Jobless Claims, and a slight increase in the Philly Fed. The key report of the week is due on Friday, with the US Core Personal Consumption Expenditure Price Index (Core PCE). It is closely watched as it is a crucial consumer inflation indicator. Expectations are for a 0.2% monthly increase in November, with the annual rate falling from 3.5% in October to 3.3% in November. This number has the potential to impact the market. Australia… Read More »AUD/USD Forecast: Bullish, testing 0.6800

MARKETS U.S. stocks rebounded on Thursday following the most significant daily sell-off in months. The market responded to reinforced expectations for deeper interest rate cuts from the Federal Reserve ahead of crucial U.S. inflation data. The S&P 500 surged at the open, sustaining those gains, partially recovering from the most substantial single-day loss since October. The market’s movement suggests a comeback driven by investors reacting to the possibility of more pronounced interest rate cuts by the Federal Reserve. Wednesday’s decline lacked a clear culprit, and commentators proposed various theories, including concerns about the U.S. economy after FedEx’s pessimistic revenue forecast, year-end profit-taking, and zero-day options trading. While the latter appears to be the more probable cause, a combination of factors likely contributed to the sell-off. It’s important to remember that the decision to sell at 2:00-2:30 in the afternoon in New York, outside of a surprise on Fed Day, is seldom a collective choice driven by a sudden market-wide realization that the rally had extended too far. However, the picture becomes more transparent with insights from zero-day options derivative traders. The most talked-about and controversial derivatives trade of the year, zero-day options, took center stage as the suspected culprits behind… Read More »Asia open insights: Navigating the last major data release of the year

XAU/USD Current price: 2,042.45 The focus shifts to the US Core Personal Consumption Expenditures  (PCE) Price Index. The US Q3 Gross Domestic Product was downwardly revised from 5.2% to 4.9%. XAU/USD maintains the bullish pressure but needs to advance beyond $2,047.90. Spot Gold trimmed losses and trades above $2,040 a troy ounce. The US Dollar met market’s favor throughout the first half of the day amid the poor performance of Wall Street on Wednesday, but softer US Treasury yields limited USD gains. The Greenback changed course ahead of the American session opening, following mixed United States (US) data. Initial Jobless Claims for the week ended December 15 slid to 205K, better than the 215K expected. Additionally, the Q3 US Gross Domestic Product (GDP) confirmed the annualized pace of growth at 4.9%, below the preliminary estimate of 5.2%. The gauge was not enough to spook investors, as Wall Street returned to the bullish path, while government bond yields reached fresh multi-week lows. At the time being, the 10-year Treasury note yields 3.87%, while the 2-year note offers 4.34%. Attention shifts to the US Core Personal Consumption Expenditures  (PCE) Price Index to be released on Friday. The annual reading is foreseen at… Read More »Gold Price Forecast: XAU/USD at the upper end of its weekly range

EUR/USD Current price: 1.0979 The United States will publish the final estimate of the Q3 Gross Domestic Product. The US Dollar remains on the back foot as Treasury yields reach fresh multi-month lows. EUR/USD maintains the upward pressure, aims to test sellers’ strength around 1.1000. The EUR/USD pair recovered its bullish poise on Thursday, and nears the weekly high posted on Monday at 1.0987, as the US Dollar resumed its slide ahead of United States  (US) first-tier data. Wall Street ended its winning streak, and major indexes closed in the red in the previous session, dragging Asian and European indexes lower. The USD could not take advantage of the worsening mood as government bond yields extended their slides. In pre-opening trading, the 10-year Treasury note yielded as low as 3.86%, a fresh multi-month low, while the 2-year note offered a minimum of 4.34%, a level that was last seen in June. Market participants are now waiting for the release of the final estimate of the US Q3 Gross Domestic Product (GDP), expected to confirm an annualized pace of growth of 5.2%. The country will also publish a revision of quarterly Personal Consumption Expenditures Prices and Initial Jobless Claims for the… Read More »EUR/USD Forecast: Bulls take their chances

EUR/USD stabilized near 1.0950 after snapping a two-day winning streak on Wednesday. The near-term technical outlook fails to provide a directional bias. Q3 GDP revisions and weekly Initial Jobless Claims will be featured in the US economic docket. EUR/USD lost its traction in the second half of the day on Wednesday and closed in negative territory for the first time this week. Early Thursday, the pair moves sideways near 1.0950 as investors await macroeconomic data releases from the US. In the late American session, Wall Street’s main indexes turned south, reflecting a negative shift in risk mood. Following an uninspiring performance in the European session amid retreating US bond yields, the US Dollar (USD) Index benefited from souring market mood and registered small daily gains. Early Thursday, US stock index futures trade in positive territory, pointing to an improving market mood. In turn, the USD Index struggles to build on Wednesday’s gains and allows EUR/USD to hold steady. The US Bureau of Economic Analysis will release the final revision to third-quarter Gross Domestic Product (GDP). The US economy is forecast to expand at an annual rate of 5.2%. A downward revision could weigh on the USD with the immediate reaction.… Read More »EUR/USD Forecast: Euro could try to break out of range after US data