Today's FX Comment

November 11, 2024?

Good morning, I hope you had a nice weekend. It is Remembrance Day in Canada and Veteran's Day in the US. A good time to say thank to all the members of our armed forces and of course to remember all those who fought so we can have the freedom we enjoy today.

Overnight, Asian indices were mixed with the Hang Seng ending the session about 1.5% lower. There is definitely still some disappointment over China's recent stimulus package weighing on sentiment. Chinese inflation data was released over the weekend and it remains almost non-existent with CPI running at +.3% YoY and PPI running at -2.9% YoY (PPI has been negative for about two years now). Two things: 1. China will continue to export disinflation around the globe with that negative PPI and 2. It sure seems like there is plenty of room for more stimulus in China given the complete lack of inflation.

Sentiment brightened in Europe with equity markets in the green across the board this morning. When you think of it, I'm not sure why. Trump is still talking tariffs which aren't great for an already fragile European economy, Russia and Ukraine hit each other with the largest drone strikes since the start of the war and Germany looks headed for a non-confidence vote and an election (maybe that is good news in the end?). There seems to be plenty of uncertainty here.

It could just be a case of a rising tide lifts all boats. Futures point to gains on the open in North America and if the S&P and Nasdaq keep rising they'll help drag everything up alongside them. Trump trades are still rippling across the markets (at least in part) with stocks supported by thoughts of corporate tax cuts and de-regulation. With Trump talking about firing SEC Chair Gensler Bitcoin and crypto in general are ripping as well. Interesting to note though that the House has yet to be decided and although the Republicans are closing in on a majority it won't be as large as once thought. With little room for error it might not be quite so easy for the Trump administration to push everything in their agenda through.

FX thoughts;

JPY - The BOJ released their summary of opinions over the weekend and I think the most important snippet was the warning that FX and markets in general could see large fluctuations with the BOJ and Fed moving in opposite directions. Japan's Parliament voted to keep Ishiba as PM as expected and politics may keep the BOJ on hold for a little while but eventually they will be hiking again. Watch for verbal (and maybe actual) intervention toward 155.

AUD - On the plus side, employment remains strong, China is stimulating their economy and the RBA will not be cutting rates anytime soon. The negative is of course the thought of Trump tariffs, the impact on China's growth and the knock on effect on the Australian economy. Support .6515, resistance .6690 (100 day MA).

EUR - The market is thinking there is a possibility of a 50bp ECB rate cut in December, the market is also thinking about a potential trade war with the US. Uncertainty around Germany's leadership probably isn't helping either. When you add everything up it points to a lower Euro. There should be bids ahead of 1.0600.

GBP - I think the BOE might end up moving slower with respect to rate cuts and I also think the UK will be one of the last places targeted for Trump tariffs. That lends Sterling some support but probably safer to be short EURGBP if you like the Pound. Pretty big level here at .8275.

CAD - The market already has about 40bps of a BOC rate cut priced in for December, that market is already very short the Canadian Dollar as well. That doesn't mean USDCAD can't go higher but it will be a grind. Resistance right here at 1.3950-60 with more ahead of 1.4000.

Good luck.

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