#15 - The Trump Trend

For the week of 18 November to 24 November, here is a summary of market news that may help you gain clarity and make informed decisions in the foreign exchange market.

If there's a particular point that interests you or if something is missing from this newsletter, feel free to let me know by commenting on this article!

DYX - EUR/USD

EUR/USD fell to 1.0335 last Friday, its lowest level since November 2022, before rebounding and closing at 1.0418. This steep drop was driven by a series of bad news for the euro that occurred in quick succession last Friday.

However, on Friday, October 22, the pair was in recovery mode, climbing toward 1.05 just before the release of France’s PMI figures. Then the streak of negative events began:

1. Worse-than-expected French PMI.
2. Worse-than-expected German Services PMI.
3. Comments from Luis de Guindos (ECB Vice President): “The reduction of 25 or 50 basis points by the ECB in December is not the most important factor.”

This last statement was interpreted as a strong signal by traders that the ECB could cut rates by 50 basis points during its December meeting.

Following this, the euro entered a freefall, dropping to 1.0335. The euro was massively sold off and faced little resistance around the technical and psychological barrier at 1.04. Several possible reasons explain this:

1. Likely a concentration of put knock-out options that became void when a specific level was reached (here, 1.04).
2. Triggering of numerous stop-loss orders placed below 1.04, adding selling pressure on the euro.
3. A liquidity vacuum: once stop-loss orders were executed, no buy-side liquidity remained as no one wanted to step in to buy, leading to momentum trading.

The market bottomed out at 1.0335 before recovering and stabilizing around a long-term support level near 1.0430.

GBP/USD

The cable looks undervalued at last Friday’s closing level. Inflation rose to 2.3% in November (MoM), mainly due to its largest contributor: energy prices.

AUD/NZD

The Kiwi reached a two-year high against the Aussie. The pair climbed to 1.1180 last Friday, its highest level since October 2022. The Kiwi also hit its lowest level against the US dollar since November 2023. Futures indicate a high probability that the Reserve Bank of New Zealand (RBNZ) will cut its benchmark rate by 50 basis points, while the Reserve Bank of Australia (RBA) is expected to keep rates stable until March or April 2025.

USD/CNH

CNH Hibor rates remain high this week to prevent further CNH depreciation. At the same time, China may need a weaker CNH to counter higher US tariffs. However, these elevated rates cannot be maintained indefinitely given China's weakening economy and are primarily aimed at addressing one-way trading pressure.

Source : macromicro.me

Key Events to Watch This Week:

1. RBNZ Interest Rate Decision - Wednesday 9 am HKT
2. Core PCE Price Index (MoM) - Wednesday 11 pm HKT
3. FOMC Meeting Minutes - Thursday 3 am HKT
4. German CPI (MoM) (Nov) - Thursday 9 pm HKT
5. EU CPI (YoY) (Nov) - Friday 6 pm HKT