Today's FX Comment

November 8, 2024?

Good morning and TGIF. Big weekend for me, I am off to see Bruce Springsteen with ten of my old high school/university friends on Saturday night. Yes, it is our own version of "Glory Days"…..

For the market, the week isn't really wrapping up on a positive note. Equities in Asia were mixed with stocks in Hong Kong and China finishing the session lower. As expected, China announced a CNY 10trillion fiscal stimulus plan to ease local government debt but after all the hype there was disappointment as the stimulus was near the lower end of expectations. After recent talk of a CNY 12 trillion plan which would include measures to boost consumption it became a rather buy the rumour/sell the fact type moment.

The disappointment out of China fed through into European sentiment with indices in the red across the board this morning. There really isn't much to cheer about I suppose, China has somewhat disappointed, German politics are in a bit of disarray and the market's focus seems to have squarely turned back toward those Trump tariffs and thoughts of a trade war this morning.

Futures point to small losses on the open in North America, call it the best of a bad lot today. I suppose that while the market worries about the impact of Trump policies around the globe, US equities have possible deregulation and corporate tax cuts to look forward to. Even Fed Chair Jerome Powell admits he is "feeling good" about the US economy. By the way, I'm not sure what you thought about Powell yesterday but to me he still sounded rather accommodative. He went out of his way to highlight the fact that three and six month core PCE measures are running lower and close to target (around 2.3%), he seemed to dismiss the jump in inflation that is expected over the next couple of months due to some lower year ago prints falling out of the calculation, he highlighted that 80% of core PCE measures are comfortably back on target and again went out of his way to say the Fed does not want to see the labour market weaken from here. Certainly not hawkish sounding in my opinion, December Fed cut still expected by me.

FX thoughts:

JPY - USDJPY is trading lower this morning as once again we heard warnings about the value of the Yen, this time from Japanese Finance Minister Kato who reiterated he sees one sided FX moves at the moment. 155 might be a line in the sand for Japanese officials and Trump trades might be a bit crowded. Maybe time to play from the short side here. 150.80 is support, resistance 153.80.

AUD - Disappointment around the China stimulus package is weighing on the Oz this morning making it the worst performer among the majors. In the end, some stimulus is better than none though isn't it and the Chinese economic data seems to be getting a little bit better. I don't think it will be 60% across the board Trump tariffs either. I still like the Oz, maybe best to get long/stay long AUDNZD though and take the US Dollar out of the equation.

GBP - The BOE was not dovish sounding enough yesterday to have the market pricing in another rate cut in December. Yields feel supportive here and the economic data out of the UK has been ok. It also feels like the UK will be one of the last places Trump puts in his tariff crosshairs. .8300 is big support in EURGBP but maybe it finally caves and that is the play...Support in Cable at 1.2870

EUR - China disappointment/German politics/Trump tariff fears, take your pick they are all weighing on the Euro this morning. Support right here at 1.0760 followed by 1.0710, resistance 1.0835.

CAD - The Canadian Dollar takes center stage with the release of the employment report shortly. Expectations are for a +27k print and one thing we know, forecasters rarely seem to get this one right. The levels remain the same, resistance at 1.3950 with support around 1.3830-40. I would note, IMM data shows the market already quite short the Canadian Dollar and of course the market also has 40bps of a BOC rate cut priced in for December. I'm not saying we will get one, but you would have to guess a stronger print would get a larger reaction here.

Have a great weekend.

Good luck.