The US dollar is showing signs of stabilization against the majority of G10 currencies today following its recent downturn. As the North American markets prepare to open, the greenback is showing slight gains against the G10 currencies, with the exception of the Japanese yen and Australian dollar. The flow of news is minimal. The market has increased the likelihood of a Bank of Japan rate hike later this month, while a surge in October household spending in Australia has ignited speculation in the futures market regarding a potential rate increase by the central bank within the next year. Most emerging market currencies are exhibiting weakness. In a surprising development, the Indian rupee has emerged as the strongest currency following intervention by the central bank, after previously hitting a record low. The PBOC established the dollar’s reference rate at its lowest point since last October.

Equities are generally showing strength. The Nikkei surged 2.3% in Japan, taking the lead in the region. Among the major exchanges, South Korea’s Kospi was the sole index that did not experience a rally today. In China, the CSI 300 experienced an increase, while both the Shanghai and Shenzhen composites saw a decline. Europe’s Stoxx 600 is experiencing its most significant increase of the week, approximately 0.3, and is advancing for the eighth time in the last nine sessions. US index futures are essentially unchanged. Japanese bonds experienced a sell-off, as the 10-year yield increased by four basis points, while the yields for the 30- and 40-year bonds saw a decline. European yields are showing slight firmness, although the two-basis point drop in the 10-year Gilt stands out as an exception. The 10-year US Treasury yield is approximately 1.5 basis points higher, nearing 4.08%. Gold remains relatively stable near $4200. Currently, January WTI is positioned within the $58-$60 range that has been prevalent over the last few sessions.

The Dollar Index experienced further declines yesterday during early North American trading, following the release of disappointing data indicating a loss of 32,000 private sector jobs in November, as reported by ADP. The recent data indicates a concerning trend, marking the third consecutive month of job losses. The reported decline of 32,000 positions represents the most significant drop since mid-2020, coinciding with the pandemic’s onset. Following the initial low, which was noted just under 99.90, the Dollar Index remained below 99.10 and declined to nearly 98.80 during late North American trading sessions. The asset has shown minimal trading activity above 99.00 today and has revisited the 98.80 level in Europe, aligning with the (38.2%) retracement of the upward movement since the low recorded on September 17 for the year. We are currently observing the potential formation of a double top pattern that suggests a target around 97.70, while the 61.8% retracement of the rally that began on September 17 is slightly higher, approximately 97.80. Today, we anticipate additional jobs data, including the Challenger Job Cuts and the weekly jobless claims report. Tomorrow, we will observe the release of September’s personal income, consumption, and deflators; however, the relevance of this data is diminished due to its age. The preliminary consumer confidence and inflation expectations for December from the University of Michigan will also be reported.

The euro achieved a value close to $1.1680 yesterday, marking its highest point since October 17, when it last exceeded $1.17, and it has maintained a position just above that level today. The 1.1695 area represents the 50% retracement of the euro’s losses since the year’s high was recorded on September 17, approximately at 1.1920. A higher close today would extend the euro’s rally for nine consecutive sessions. The daily momentum indicators remain positive, although the euro has tested the upper Bollinger Band, currently located around $1.1675. However, the momentum has slowed during the European morning, and the 2.5 billion euro options set at $1.1650 may become relevant again prior to their expiration at 10:00 AM. Meanwhile, the US two-year premium over Germany has declined to a new low (~144 bp) since September 2024. The low from the previous year was approximately 135 basis points, while the low for 2023 stood at around 112 basis points. The unchanged October aggregate retail sales (reported in volume terms not price) persist in the disappointing trend, although September’s 0.1% decline has been revised to a 0.1% gain.

The dollar declined to new lows not seen since last October yesterday, hitting CNH7.0540 during North American trading hours. The current trading range is between CNH7.0560 and CNH7.0680, remaining within the parameters established yesterday. The PBOC has been facilitating this shift by consistently lowering the dollar’s reference rate. Nonetheless, certain newswires indicate that state-owned banks were purchasing dollars. Is it possible that they are engaged in commercial activities and that all their transactions in the foreign exchange market are not conducted on behalf of the government, as we have consistently argued? The PBOC established the dollar’s reference rate at CNY7.0733 (CNY7.0754 yesterday), marking a new low since last October. There has been a decline in eight of the last ten sessions. It is essential to maintain a balanced view of the movement. Since April, when the current campaign seems to have commenced, the dollar’s reference rate has decreased by nearly 2%. This year, up to yesterday, the onshore yuan has seen an appreciation of approximately 3.35%, while the offshore yuan has increased by about 4%. The inflation differential between the United States and China stands at approximately 3%.

On Monday, the dollar fluctuated within the range of approximately JPY154.65 to JPY156.25. It has consistently stayed within that range over the last two sessions. It neared the lower boundary of the range during the European morning today. Yesterday marked the first session since November 18 where the greenback did not exceed JPY156.00. It maintained its position above JPY155, though just marginally. The five-day moving average surpassed the 20-day moving average in early October but is currently retreating below it in Europe today. A breach of JPY154.65 sets the stage for a move towards the JPY153.55-65 zone next. The daily momentum indicators are on a downward trend. In the latest weekly report from the Ministry of Finance, it was revealed that Japanese investors were net sellers of approximately JPY675 billion in foreign assets last week, engaging in bond sales while increasing their equity purchases. Conversely, foreign investors acquired JPY1.67 trillion in Japanese bonds and stocks.

Sterling reached a four-day low on Tuesday, approaching $1.3180. It rebounded to nearly $1.3355 in North America yesterday and has slightly increased to around $1.3360 today. However, it is currently confined within a narrow range (~$1.3325-60) as the upward momentum appears to be stalling. Sterling has established itself above the 200-day moving average for the first time since late October and is nearing the (50%) retracement of the decline that followed the September 17 peak (~$1.3725). The 1% rally marks the highest increase since May. The upcoming retracement level at 61.8% is approximately $1.3450. The United Kingdom conducts four purchasing managers’ surveys. The manufacturing and service PMIs for November, along with the composite output, exceeded the pivotal 50 threshold indicating expansion. The construction PMI, however, continues to show signs of weakness. This year, the figure has not exceeded 50, and earlier today, the November reading was reported at 39.4, down from 44.1 in October, marking a multi-year low.

The US dollar experienced significant trading activity against the Canadian dollar yesterday. The Antipodeans exhibited stronger performance compared to the Canadian dollar. The greenback maintained the November low established during the final session of the month, just shy of CAD1.3940. The CAD1.3935 level represents the (50%) retracement of the US dollar’s appreciation from the low observed on September 17 (~CAD1.3725). The 200-day moving average currently stands just beneath CAD1.3920. The Canadian dollar managed to achieve gains, even in light of the disappointing services and composite November PMI data. The services PMI decreased to 44.3 from 50.5, marking the lowest level since April. The composite PMI declined to 44.9 from 50.3, marking the lowest level since June. The US dollar is currently experiencing stable trading, fluctuating between approximately CAD1.3950 and CAD1.3970. The IVEY PMI is set to be released today, and it is expected to show stronger performance compared to the S&P PMI. The week’s focal point remains the upcoming release of November jobs data on Friday. The swaps market continues to reflect an assumption that the central bank’s easing cycle has come to an end.

The Australian dollar rose above $0.6600 yesterday, marking its first ascent since late October and achieving the (61.8%) retracement target from the sell-off that began at the September 17 peak (~$0.6705). The Australian dollar approached $0.6620 today. The Australian dollar is experiencing an upward trend for the ninth time in the last ten sessions today. Despite the daily momentum indicators showing an upward trend, the Aussie has closed above its upper Bollinger Band (~$0.6590) for the first time since mid-September. It is currently positioned around $0.6610 today. The October high was approximately 0.6630. Earlier today, Australia released its trade figures for October along with data on household spending. The trade surplus increased to A$4.4 billion, up from a revised A$3.7 billion surplus in September, which was initially reported as A$3.9 billion. The average monthly surplus for this year stands at approximately A$4.0 billion, with an average of around A$5.7 billion observed during the January to October 2024 timeframe. In the month, exports experienced an increase of 3.4%, while imports saw a rise of 2.0%. Household spending increased by 1.3% in October, marking a 0.6% rise, the most significant monthly gain since September 2023. Discretionary spending was the driving force behind this change, showing an increase of 1.6% compared to 0.1% in September and remaining flat in August. The year-over-year increase has risen to 5.6%, up from 5.1%. The pricing observed in the swaps and futures market aligns with the conclusion of the easing cycle. The futures market indicates a complete pricing of a hike in the fourth quarter of 2026.