Risk rebounds as USD closes at fresh cycle low

Headlines

* US weekly jobless claims increase slightly, Q3 GDP growth trimmed

* US 30-year mortgage rate slides to 6.67%, lowest since June   

* US inflation report to show Fed’s battle is now all but complete

* UK retailers report weak December sales, downbeat about January

FX: USD finally caught up with the new lows in Treasury yields by selling off down to recent cycle lows. The mid-December bottom is 101.77. Below here is a minor Fib level at 101.24. US inflation data in the form of the core PCE report is out later today.

EUR is once again trying to push above 1.10 after bullish consolidation yesterday. We had more ECB officials saying it was too early to talk about cutting rates. Guindos also highlighted wage growth as something that could delay the process. The recent top is 1.1017. A decisive break above here targets levels just under 1.11.

GBP dipped to 1.2612 before closing nearer to its highs for the day close to 1.27. There are few catalysts driving cable, apart from the dollar leg. Resistance sits at 1.2791/4.

USD/JPY fell through the 200-day SMA at 142.69 after its bearish inside day yesterday. The recent low is at 140.94. Attention will be on the November CPI figures released today. Fed cut pricing ramped up with six Fed cuts now fully priced.

AUD pushed north to fresh highs. The rebound in iron ore prices lifted sentiment. A strong close this week could see the summer highs around 0.69 challenged. USD/CAD dropped to more fresh lows below 1.33. Next support sits at 1.3262.

Stocks: US equities pared some of the previous day’s losses. The S&P 500 added 1.03% to settle at 4,747. The tech-heavy Nasdaq 100 finished 1.23% higher at 16,757. The Dow was up 0.87% at 37,404. Apple pulled watches from online stores to meet the US-ordered ban, according to Bloomberg.  A ban on Apple watches has been ordered in a patent technology fight. Wearables are meant to be the key focus for the tech giant next year, ahead of its iPhones.

Asian futures trade in the green. APAC stocks traded mostly lower after the downbeat Wall Street session. The ASX 200 briefly fell under 7,500 with the biggest losses in tech and gold.

Gold is looking to break decisively resistance around $2040 again. The falling dollar is helping gold bugs as are yields on the 10-yar Treasury well below 4%.

Day Ahead– US and Japan Inflation data

Consensus expect to see US PCE inflation cooling further in November after similar outcomes seen within the CPI and PPI reports. WSJ’s Fedwatcher Nick Timiraos says core PCE inflation is projected to have been a very mild 0.06% last month. That could see core PCE fall to 3.1% from 3.5% in October. It would also imply that the six-month annualised rate would have eased to 1.9%, below the Fed’s 2% price goal. A softer data print will put pressure on the dollar to break recent lows.

Japan national core CPI is forecast to cool to 2.5% in November from 2.9% in October. These expectations come as the November Core Tokyo CPI, which is seen as a preview of the nationwide release, saw a cooling of a similar magnitude from October. The drop is chiefly down to energy prices but will inform the BoJ on how persistent price pressures are. The yen could target recent lows on a stronger report.

Chart of the Day – USD/CHF drops to long-term support

The Swiss franc is the best performing G10 currency this year, ahead of GBP and EUR. Safe haven demand has spurred some buyers through the year as the Israel-Hamas conflict continues to simmer. Prices dropped in July through a previous spike low from early 2021 at 0.8757. the bounce got to a Fib level before sellers stepped in. We are now back at major support again. The next major level below is the 2015 spike low around 0.83.

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