The US Dollar is experiencing slight softness today, primarily maintaining the levels established in yesterday’s trading against the G10 currencies. The Australian dollar is at the forefront, achieving its highest level since September 18. The market has, however, dismissed unexpected data: a notable increase in German factory orders alongside a disappointing decline in household spending in Japan. Most emerging market currencies are showing strength. The Reserve Bank of India, in line with expectations, has reduced its repo rate by 25 basis points to 5.25% and indicated that further reductions may be possible. The PBOC has made a slight adjustment to the dollar’s reference rate; however, it has experienced a decline on a weekly basis since the conclusion of September, with one notable exception.

While major indices outside of Japan experienced a decline of 1%, the large equity markets are showing an upward trend today. In the Asia Pacific region, Shenzhen and the index of mainland shares trading in Hong Kong spearheaded the regional movement with gains ranging from 1.25% to 1.80%. Europe’s Stoxx 600 has increased by approximately 0.25%. If the gains are maintained, it would mark the ninth increase in 10 sessions. Futures for the S&P and Nasdaq are showing an increase of 0.2% to 0.4%. The European bond market exhibits a subdued atmosphere, with the majority of yields showing a slight uptick. During the week, the 10-year Gilt yield has decreased by approximately 4 basis points, whereas Germany’s yield has increased by nearly three basis points. The US 10-year Treasury yield remains steady at 4.10%, reflecting an increase of approximately two basis points compared to the previous week. Gold is maintaining its position during this weeklong consolidation phase. The spot market was settled at $4240 last week and is currently around $4223. January WTI is currently positioned near the upper boundary of the $58-$60 range that has limited pricing this week.

The Dollar Index recorded a slight new low yesterday, dipping just below 98.80, which corresponds to the 38.2% retracement of the rally that began on September 17. The upcoming retracement level at 50% is approximately 98.30. Nonetheless, the downward trend has moderated, and DXY experienced an increase yesterday, marking its first rise in nine sessions. It is currently operating within the range established yesterday. The market exhibits confidence in the Federal Reserve’s potential rate cuts scheduled for next week, recalling the dollar’s rally following the Fed’s decisions in September and October. Short-term participants seem to be adopting a more cautious stance. Today’s September personal income, spending, and deflators lack relevance for policymakers or investors due to their outdated nature. The survey anticipates the headline deflator rising to 2.8% from 2.7% in August. If confirmed, this will represent a new peak for the year, aligning with the highest rate observed since last April’s figure of 2.9%. Last November, it stood at 2.6%. The core rate is expected to show a slight moderation at 2.8%, compared to 2.9%, marking the first change in five months. The futures market indicates an approximate 60% likelihood of a reduction in Q1 26.

Yesterday, the euro achieved a slight new peak since October 17, just surpassing $1.1680. Nevertheless, it experienced a setback and marked its initial daily decline since November 21. The 1.1695 level corresponds to the (50%) retracement of the losses since the year’s high was recorded near 1.1920 on September 20. The euro maintained yesterday’s lows but has struggled to establish a position above $1.1670, even in light of robust German factory orders. The 1.5% increase stands in contrast to the median expectations outlined in survey, which anticipated only 0.3% gains. It follows a 2% increase in September. The recent data indicates the first consecutive rise since March-April. The Bundesbank indicated that the robust performance was driven by substantial orders, particularly highlighted by the 87% increase in orders for transport equipment, which includes aircraft, ships, trains, and military vehicles. On Monday, the figures for industrial production will be released. In September, it experienced a rise of 1.3%, and typically, substantial monthly increases are succeeded by a correction. Lastly, it is important to highlight that a significant vote is approaching in Germany’s parliament regarding the government’s pension bill.

The dollar reached its lowest point of the year on Wednesday, approaching CNH7.0.540. It briefly traded above CNH7.07 during the European afternoon and North American morning yesterday. The dollar exhibited strength against the majority of G10 currencies yesterday, whereas emerging market currencies displayed a more varied performance. The dollar is currently stabilizing against the offshore yuan, fluctuating within the range of CNH7.0630 to CNH7.0720. The PBOC adjusted the dollar’s reference rate upward today to CNY7.0749, following a new low established yesterday at CNY7.0733, marking the lowest level since October 2024. The greenback appreciated approximately 0.1% against the onshore yuan yesterday, marking its most significant single-day increase since November 17. Next week’s data highlights include November trade, with a likely surplus exceeding $100 billion for the first time since August. Inflation metrics are set to be released on December 10, just hours ahead of the FOMC’s decision. The median forecast in survey indicates a year-over-year increase of 0.7% in the CPI. This would represent the highest match of the year, aligning with last year’s peak.

The dollar declined to JPY154.35 today, marking its lowest point since November 14. The daily momentum indicators have declined, and the five-day moving average has crossed below the 20-day moving average this week for the first time in two months. The greenback regained its position, moving back above JPY155.00 during the European morning session. It is important to observe that there is approximately $2 billion in options at JPY155 set to expire today. The dollar continues to trade under the 20-day moving average (~JPY155.65). Despite the news of a significant 3.0% year-over-year decline in October household spending, the yen has shown remarkable resilience. The median forecast in survey projected a 1.0% increase. The decrease was primarily driven by a reduction in expenditures related to transportation and housing. Consumption increased by 0.6% in Q3 and is projected to reach a similar level in Q4, as measured by GDP. In light of the disappointing consumption data at the beginning of Q4, the swaps market continues to show strong confidence in a BOJ rate hike scheduled for December 19, with expectations rising to 90% compared to less than 60% just a week prior.

The dollar experienced an outside day in relation to the Canadian dollar yesterday. The asset fluctuated around Wednesday’s range but ultimately closed within that range, thereby neutralizing the technical implications. It reached CAD1.3925, marking its lowest level since October 29, when both the Federal Reserve and the Bank of Canada implemented rate cuts. Support could be found slightly above CAD1.3900, where the 200-day moving average and the (38.2%) retracement of the rally from this year’s low (June 16, ~CAD1.3540) converge. Approximately $1.1 billion in options are set at CAD1.3990-CAD1.4000, with expiration occurring today. Canada is set to release its employment figures for November today. The impact of US trade policy has negatively affected the Canadian economy this year. It has generated approximately 164,500 jobs this year, in contrast to 250,000 in the first ten months of 2024. In this year, nearly 87,000 of those jobs were full-time positions, compared to 185,000 during the January to October 2024 timeframe. The unemployment rate increased from 6.7% at the end of the previous year to 7.1% during August and September, subsequently declining to 6.9% in October. The median forecast in survey indicates a slight decline in overall job creation, projecting an increase of +66.6k in October, alongside a rise in the unemployment rate to 7.0%. The Bank of Canada convenes just hours ahead of the FOMC decision scheduled for next Wednesday. The likelihood of a policy change is exceedingly low. The pricing dynamics observed in the swaps market indicate a likelihood of maintaining the current stance in the upcoming year.

The recovery of the Aussie has been quite remarkable. It has declined in just a single session since November 20. The Australian dollar reached a three-month low on November 21, approaching $0.6420, before making a notable reversal upward. Today, it achieved a value of $0.6635, marking its highest point since September 18. On September 17, the Australian dollar reached its peak for the year, slightly exceeding $0.6705. The momentum appears robust, yet it may be excessively vigorous. It is moving beyond its upper Bollinger Band (~$0.6625 today), and the daily momentum indicators are becoming increasingly extended. The Reserve Bank of Australia is scheduled to convene on December 9, and it is highly likely that it will maintain its current stance. Indeed, the derivatives market has started to assess the probabilities of an increase occurring around the middle of next year.