Today's FX Comment

November 22, 2024?

Good morning and TGIF. We are one week away from "Black Friday" and I have seen an uptick in Wayfair ads touting Black Friday deals on tv. I have told my wife, anything purchased with more than eight pages of assembly instructions is going right back.....

It has been a winning week for stocks but as we head into the weekend today might be shaping up to be a bit of a give back kind of day. Equity markets in Asia were mixed with Australia and Japan higher while the Hang Seng was lower. Stocks in mainland China were hit particularly hard (-3%) with softer local tech earnings being blamed alongside the usual Trump tariff fears. The market also remains disappointed by the lack of stimulus specifically targeted to increase consumption with reports that China may not add any new support measures until next March. The PBOC continues to fix the Yuan much stronger than market estimates and local press reports state that the Yuan may gain strength as the USD "wanes". I'm not too sure about that but it makes for an interesting headline.

The good news for Europe: no new escalation in Ukraine or new threats from Russia. The bad news: just about everything else. We saw softer retail sales and PMI data out of the UK and really dreadful PMI data out of the Eurozone this morning (big misses in France, Germany and the EU as a whole). Somehow stocks are managing to shrug off the bad news, at least partially with indices mixed this morning. Maybe the thought of more aggressive rate cuts from the ECB and BOE is lending some support this morning.

Futures point to a slightly lower open in North America but we'll see where we end up today. Trump trades are hanging in there with the US Dollar on the upswing again and Bitcoin hitting another new high. On another note, WSJ reporter Nick Timiraos published an article saying that Kevin Warsh is back as the number one pick for US Treasury Secretary. It has been noted that Warsh has previously criticized protectionist trade policies, so it seems (potentially) less likely he would support aggressive tariffs (except against China maybe). Perhaps the markets are soothed if he is indeed the next Treasury Secretary. Timiraos usually has the inside track on his stories but Trump's aides have warned that his decisions are subject to change (no kidding) so Warsh isn’t a done deal yet.

FX thoughts;

JPY - The Yen is holding its own versus the US Dollar this morning. We saw CPI data out of Japan last night and while in was mostly inline the core number came in a touch higher than expected at 2.3% YoY with all measures remaining above the BOJ's target. PM Ishiba is set to announce a $140bio stimulus package and of course there is talk of Japan's largest unions asking for wage settlements in the 5% range again next year. Feels like we're moving closer to another BOJ rate hike. Support 153.30 followed by 151.30-50. Resistance 156.

AUD - No change here, same old story. The RBA will keep rates steady while most other CB's are cutting, that helps the Oz. Stocks are also doing quite well, that typically helps AUD also, of course thoughts of Trump tariffs on China continue to weigh on the currency. For now support .6440, resistance .6580

GBP - The UK data has held up pretty well, that is until this morning where we saw downside misses in PMI (composite number just into contractionary territory) and retail sales (on the bright side retail sales is still up 2.4% YoY). Some say the PMI data was weighed down by the measures in the recent UK budget notably the planned increase in employers’ National Insurance contributions. Regardless, the data won't move the needle for the BOE next month. 1.2445 is support in Cable.

EUR - What is there to love about the Euro right now - not much and the currency remains an easy target. Today's PMI data was dreadful with services, manufacturing and composite data all in contractionary territory and German GDP was revised lower to boot. Odds of a 50bp rate cut from the ECB next month have jumped and with geopolitics always having the potential to weigh on Europe plus Trump tariff fears it feels like the Euro will remain a favourite target over the near term. The currency has fallen a long way in a short period of time so you have to remain a bit wary of a short squeeze but it does feel like it will remain offered on any kind of rally. Support 1.0360 and 1.0230.

CAD - A rising tide lifts all boats and broader US Dollar strength has seen Funds push a bit higher this morning. CAD is still doing well on the crosses though with EURCAD and GBPCAD at nine and three month lows respectively. We have CAD retail sales later this morning which is expected at +.4% MoM. That is old news though, the new news is of course PM Trudeau's latest Christmas gift in the form of $250 cheques and a GST holiday starting next month. It feels like consumer spending and retail sales will be supported right into early next year, especially when you combine it with expected Bank of Canada rate cuts. Maybe improved sentiment and economic data for Canada in the pipeline? Resistance 1.4000 and 1.4040. Support at 1.3960 is still very good but extended short CAD positioning and seasonality may see us eventually break down. Next support is 1.3880.

Have a great weekend.

Good luck.