Japanese Yen Rises Ahead of BoJ Inflation

Japan’s core inflation rate has been moving higher. Last week, the nationwide core CPI rose to 2.9% for October, up from 2.8%. On Tuesday, we’ll get a look at BoJ Core CPI, which is one of the Bank of Japan’s preferred inflation gauge. The indicator has been steadily rising from a 2023 low of 2.7% back in February. The market consensus for October stands at 3.4%, unchanged from the September print.

Dollar Could Get Caught Between Soft Data and Hawkish Fed Talk

Whilst CPI inflation suffered a setback from the oil price rally earlier in the year, PCE inflation has maintained a downward trajectory, bolstering expectations that the Federal Reserve will begin cutting rates by the middle of 2024. Specifically, the core PCE price index that the Fed attaches the most weight to for its policy decisions has come down markedly in recent months after stalling around 5% at the start of the year.

Markets Daily

US bond yields fell substantially despite only minor data, weighing on the US dollar. AUD/USD traded above 0.6600 for the first time since August. Today’s data includes Australia October retail sales and US November consumer confidence, while RBA Governor Bullock takes part in an HKMA-BIS panel.

Yields Drop Further

FI: Global yields declined gradually yesterday as markets priced in more rate cuts from major central banks to be delivered in 2024. No single factor appeared to be driving the move. Bund yields closed down by 10bp across the curve, while the 10-year US Treasury yield fell 8bp throughout the session. German ASW spreads widened marginally along with European credit spreads during the day. Markets are now pricing the ECB to cut rates by 88bp next year, up from 80bp last Friday.

Dollar Still Looks Vulnerable Short-Term

The dollar still looks vulnerable short-term. A break of 1.0960/65 opens the way to the 1.10 big figure even as we remain cautious on sustained EUR/USD gains further out. UK BRC shop prices (November) this morning eased further (cf infra). For now it didn’t hurt the ST sterling momentum. EUR/GBP 0.8650 (ST neckline) serves as intermediate support.

Euro Continues to Rise, But Further Gains Questionable

EURUSD was falling slightly during the early European trading session. The latest data showed that consumer confidence in Germany improved in November but remained at a rather low level. Later today, traders should pay attention to the U.S. Consumer Confidence Index at 3:00 p.m. UTC. Higher-than-expected figures will likely reverse the bullish trend in EURUSD.

Crypto Deepens Correction

Bitcoin was down 0.5% overnight to $37.0K, approaching the lower boundary of one month’s ascending channel. A classic upside correction from the October lows suggests a pullback to $34K. Higher turning points could be the $36.7K area (recent local lows) and $35.6K (76.4% support and last week’s low).

NZD/USD Eyes RBNZ Rate Meeting

The Reserve Bank of New Zealand meets on Wednesday and is likely to maintain the cash rate at 5.5% for a fourth straight time. The central bank’s stance appears to be one of “higher for longer”, which will provide policy makers the flexibility to raise or lower rates as needed.

FX Market Temporarily Looking Past Weakness in Euro Area Data

Worrying news on the Eurozone economy continues to come in, although this is not hurting the single currency so far, which is trading at fifteen-week highs at 1.0950.

Sunset Market Commentary

On FX markets the dollar is still looking for a bottom on its recent setback. EUR/USD (1.0980) is breaking the 1.0960/65 resistance. DXY is setting a minor correction low below 103.18, but follow-trough price action stays modest for now (103.0). USD/JPY (148.3) holds in the ST 147.15/149.75 corridor. Sterling’s recent outperformance halted today, with EUR/GBP at 0.868, holding above the 0.8650 ST neckline.