currency exchange

USD/CAD has been trading downside and I found the breakout of the support cluster at the price of 1.3590, which is good sign for the further downside movement.   Due to the breakout of the support cluster and the increasing in the downside movement, I see potential for the further lower prices towards downside references.   Downside objectives are set at 1.3540 and 1.3490 MACD is showing increasing of the downside momentum, which is good sign for the further lower prices.... Key resistance is set at the price of 1.3650  

Early in the American session, the British pound is trading around 1.2346 below the 21 SMA and within a downtrend channel formed since May 8.   On the 4-hour chart, we can see that the GBP/USD pair is under bearish pressure. We expect that in the next few hours, a break of the small symmetrical triangle could occur, which could give us a bearish direction and the instrument could reach the weekly support zone of 1.2281, the level that coincides with the bottom of the bearish channel.   On the other hand, a break of this symmetrical triangle and a consolidation above the 21 SMA around 1.2357 could offer a recovery move for the British pound and it could reach the 200 EMA located at 1.2437. If this scenario comes true, it could be the beginning of a new bullish sequence and GBP/USD could reach 7/8 Murray in the short term, located at 1.2573.   Additionally, since May 22, the Eagle indicator has been giving a positive signal. It means that if the British pound consolidates above 6/8 Murray located at 1.2451, this could encourage a bullish acceleration so that the price could reach 8/8 Murray located at 1.2695.   Our trading plan for the next few hours is to buy the British pound above 1.2357 with targets at 1.2437 and 1.2573. The Eagle indicator is giving a positive signal which supports our bullish strategy.  

CEE: US dollar remains the region's nightmare The second print of first quarter GDP in the Czech Republic will be published today. Besides the GDP breakdown, we will also see the wage bill, which has been mentioned several times by the Czech National Bank as a potential reason for a rate hike in June.   Tomorrow, inflation for May and the details of first quarter GDP in Poland will be published. We expect headline inflation to fall from 14.7% to 13.0% YoY, below market expectations, mainly due to fuel and energy prices. On Thursday, we will see PMI numbers across the region, where we expect a slight deterioration in sentiment across the board.   Later, we will see state budget data in the Czech Republic, which posted its worst-ever result in April, raising questions about additional government bond issuance. The European Parliament is also scheduled to hold a session on Thursday, which is expected to cover the Hungarian EU presidency and is also likely to touch on the topic of EU money and the rule of law.   The FX market, as usual in recent weeks, will be dominated by the global story and the US dollar. So, even this week, CEE FX will not be in a bed of roses. We still see the Polish zloty as the most vulnerable, which despite some weakening in the past week remains near record highs. The market has built up a significant long position in PLN over the past two months.   Plus, we may hear more election noise. Moreover, the significant fall in inflation should push the interest rate differential lower. Thus, we see EUR/PLN around 4.540.   The Czech koruna remains the most sensitive currency in the region against the US dollar, which should be the main driver this week. On the other hand, the reversal in the rate differential has been indicating a reversal in EUR/CZK for a few days now.   Thus, at least a stable EUR/USD could allow the koruna to move toward 23.600. The Hungarian forint can expect a headline attack from the European Parliament this week, and given the current strong levels, we could easily see weaker levels again closer to 375 EUR/HUF.   However, we believe the market will use any spike to build long positions in HUF again.

The US and UK markets were closed on Monday, but European government bond yields sharply fell, which is a direct consequence of rumors that the Biden administration and the Republican majority in Congress are close to reaching an agreement.   The removal of the US default threat contributes to an increase in risk appetite and, at the same time, a slight decrease in demand for the US dollar as demand for bonds decreases. The dollar is also facing pressure due to the upcoming meetings of the Bank of England and the European Central Bank, where further rate hikes are anticipated, and uncertainty regarding the possible actions of the Bank of Japan at the June 16 meeting.   NZD/USD The Kiwi is facing increasing pressure as the reasons that could prompt the RBNZ to raise rates above the current 5.50% are diminishing, with the main one being the threat of an almost inevitable recession.   Retail sales showed zero growth in April (forecast was +0.2%), a decline of 1.4% in the first quarter, and a decline of 1% in the last quarter of the previous year. This means that consumer activity is declining despite high migration rates. Trade indicators have also deteriorated significantly, with a 3.4% decrease in terms of trade for goods in the first quarter and an expected decline in exports.   While expectations for an increase in the Fed rate are growing and markets are anticipating another hike in either June or July, the Reserve Bank of New Zealand (RBNZ) announced a pause that is expected to last at least until November. Additionally, there is the threat of an economic slowdown amid still uncertain prospects for inflation.   Although inflation is expected to slow down in the second half of the year, it is currently only a forecast, while the threat of a recession is very real, as is the pause taken by the RBNZ.       Overall, based on the data, the demand for NZD is expected to decrease due to worsening trade indicators, pressure on the current account, and an increase in the yield spread in favor of the US dollar.   Positioning on NZD continues to balance at near-zero levels, with slight deviations in either direction. Over the reporting week, the net short position decreased by 107 million to -23 million, reaching a negligible level. The calculated price has shifted downwards.     Last week, we predicted that after the RBNZ decision, the Kiwi would move downwards towards support at 0.6020. This scenario has played out, and it can be assumed that the southward movement will continue. A probable correction will find resistance near 0.6079, where selling may resume.   We expect another test of support at 0.6020 and further movement towards the target of 0.5940/50, and then 0.5900. AUD/USD RBA Governor Lowe, as reported in the Australian media, held a "pessimistic" briefing behind closed doors with the parliamentary economics committee. Sources described the tone as "noticeably more pessimistic due to the emphasis on risks to achieving the bank's forecast targets for inflation and unemployment."   Markets are currently assessing the probability of another rate hike by the RBA and the likelihood of the bank taking a pause approximately equally. The key value will be the tone of Lowe's testimony before the Senate Economics Committee. The NAB Bank estimates the peak rate to reach 4.1%, which will be achieved in August or July.   On Friday, June 2, an important decision will be made regarding the minimum wage. Changes will be announced for two indicators - the minimum wage, which will affect around 200,000 workers, and the volume of bonus payments, which will be significant for 2.4 million workers.   Preliminarily, according to the Treasury, a 7% increase is expected for the first indicator and a 4% increase for the second, which will likely be seen by the markets as a factor fueling inflation. The net short position on AUD decreased by 323 million over the reporting week to -3.244 billion. The positioning remains persistently bearish, with the calculated price below the long-term average and directed downwards.     The bearish impulse we anticipated in the previous review has developed, although the price did not reach the stated target of 0.6466. Nevertheless, there are no grounds to expect a resumption of growth, and any potential upward retracement is likely to be halted in the 0.6560/80 zone, after which selling will resume.   The nearest target is 0.6466, followed by technically significant levels down to the local low of 0.6172.        

Weak Chinese manufacturing data put pressure on the single currency as Europe, particularly Germany, is highly correlated with China.   However, the Eurozone's data is not so bad today. The number of unemployed in Germany rose by 9K, down from 23K and 19K in the previous two months. Unemployment is rising much more slowly than in the recessions of 2009 and 2020, and the unemployment rate (5.6%) is low by historical standards.   Second estimates confirmed a 0.2% q/q and 0.9% y/y rise in French GDP in the first quarter, although private consumption fell by a further 1% in April after a 0.8% decline in the previous two months.   For Italy, the final data pointed to economic growth of 0.6% q/q and 1.9% y/y, 0.1 percentage points higher than previously estimated.   Despite the upbeat economic data, the EURUSD fell to 1.0660 in early European trading, its lowest level since 17 March.

Yesterday, the pound showed impressive growth. Similarly, the euro also showed significant gains. Considering that there was no macro data from the UK, unlike the eurozone, it is more accurate to say that the pound followed the euro. However, this growth contradicted all the macro data.   After all, eurozone inflation slowed down significantly more than expected, while employment in the United States increased substantially more than anticipated. So, the dollar should have extended its growth. But the market went in a different direction, and the formal reason for this was the minutes of the European Central Bank's governing council meeting, which mentioned the possibility of more interest rate hikes. However, the meeting itself took place before there were even rough forecasts for the current inflation.   Just a couple of days ago, several ECB officials explicitly stated that the cycle of interest rate hikes may have come to an end. So, the rise of the euro and, along with it, the pound, goes against common sense. Unless we consider the excessive overbought condition of the dollar, which became the main reason why European currencies increased.   However, there is a high probability that today everything will return to the values at the start of yesterday's trading. Employment data clearly suggests that the content of the US Department of Labor report will be slightly better than expected. In particular, unemployment, which was expected to increase from 3.4% to 3.5%, may well remain unchanged. But if unemployment does increase, the dollar may continue to lose its positions, primarily due to the persistent overbought condition.       During the intense upward movement, the GBP/USD pair jumped above the 1.2500 level. This served as the primary signal of the pound's recovery process relative to the recent corrective move. Due to the sharp price change, on the four-hour chart, the RSI reached the overbought zone, which indicates that long positions are overheated in the intraday period. On the four-hour period, the Alligator's MAs are headed upwards.   This indicates a shift in trading interests. Outlook In this situation, the sharp price change from the day before is a signal of the pound's overbought conditions in the intraday and short-term periods. The target level is set at 1.2550, around which the upward cycle slowed down, which reduced the volume of long positions and resulted in a stagnation. We can assume that the process of the pound's recovery will be temporarily interrupted by a pullback.   However, if the price remains stable above 1.2550, speculators may ignore the technical signal of overbought conditions. In this case, the pair can rise towards the peak of the medium-term trend. The complex indicator analysis unveiled that in the short-term and intraday periods, points to the pound' recovery process.  

FXMAG.COM: Do you expect any radical moves of EUR/GBP price in the near future? What can cause such fluctuations?  As forex traders keenly observe the EUR/GBP currency pair, there is speculation surrounding the likelihood of substantial price movements in the near future. Examining the underlying factors that can trigger notable fluctuations is essential for making informed decisions in the market.   Macroeconomic indicators, including GDP growth, inflation rates, and employment figures, offer valuable insights into the potential for significant moves in the EUR/GBP price.   Based on the latest available data for Q1 of 2023, Eurozone GDP growth experienced a 1.3% increase, while the UK maintained a stable growth rate of 0.10%. Political developments exert a considerable impact on the EUR/GBP exchange rate. Notably, events such as the recent UK election or updates related to Brexit have proven to be catalysts for volatility.   Staying well-informed about key political developments is crucial, as they can significantly influence the price of this currency pair. Central bank policies play a pivotal role in shaping the EUR/GBP exchange rate.   The European Central Bank (ECB) and the Bank of England (BoE) periodically announce monetary policy decisions that affect this currency pair. It is important to keep a close watch on interest rate adjustments, quantitative easing programs, and forward guidance statements.   As of the latest interest rate decision on February 2, 2023, the ECB maintained rates at 3%, while the BoE held rates at 4.5% with a slight increase of 0.25% on May 11, 2023. Global economic trends and market sentiment can also influence the EUR/GBP price.   Trade relations between the Eurozone and the UK, as well as global economic conditions, can cause significant fluctuations. Monitoring geopolitical events, risk appetite indicators, and market sentiment can provide valuable insights into potential radical moves in this currency pair.   Predicting significant shifts in the EUR/GBP price is a complex task. However, analysing key factors such as macroeconomic indicators, political developments, central bank policies, and global economic trends can enhance your understanding of potential fluctuations. As of the latest available data on May 23, 2023, at 12:51, the EUR/GBP exchange rate stands at 0.87057. Stay well-informed about the latest news and events to navigate the market effectively and make informed trading decisions.

Hawkish ECB and soaring risk appetite sink dollar Both the Federal Reserve and the ECB struck hawkish surprises last week. However, the latter hiked rates while the former did not, and markets chose to believe facts, rather than rhetoric.   The dollar sold-off sharply against every major currency in the world, with the expectation of the Japanese yen, hurt by the Bank of Japan's insistence on pretending it is still 2020. The British pound was the week's winner, soaring by more than 2% against the dollar and topping the week's charts. So far this year, Latin American currencies remain the stars, with the Colombian and Mexican pesos and the Brazilian real all up by double digits against the US dollar. The UK will be in focus this week. As in the US last week, the Bank of England meeting on Thursday will be preceded by the release of the May inflation numbers. There is near unanimity that the MPC will hike rates by another 25bps on Thursday and signal that more hikes are likely on the way. Later in the week we get the flash PMIs of business activity worldwide. The week will be uncharacteristically quiet in the US, and the spotlight will be elsewhere, primarily on sterling.    

Board pushes for longer rate stability Given that the upside risks to inflation mentioned by the CNB should be under control, the main theme for the summer months will be for the central bank to fight the market's dovish expectations. For June, we expect inflation to fall to 9.5% YoY and move below 9.0% later on. Disinflation is set to slow significantly in the autumn months due to the base effect and we may even see a slight pick-up towards the end of the year - reflecting the base effect and government measures introduced late last year.   This trajectory is the central bank's main concern at the moment, in our view. In our base case, we expect the first cut to take place in November, when the CNB will have a new forecast including a Nowcast for inflation for the rest of the year. By that time the impact of the base effect and energy repricing in January will be clearer, and inflation could reach the tolerance band of the CNB's inflation target. The risks we see are that rates will remain unchanged for the rest of the year and that the cutting cycle will not start until February, when the CNB will release its next forecast, or in March, when the board will already have January inflation to hand.   What to expect in FX and rates markets The Czech koruna has been trading at weaker than expected levels in recent weeks, but we still believe EUR/CZK should go lower. On a global level, the CZK should benefit most from a rebound in EUR/USD, while the CNB will try to postpone dovish market pricing, which should support interest rate differentials. On top of that, market positioning is rather light compared to PLN and HUF and carry is still decent. We expect the koruna to move below 23.70 EUR/CZK in coming days.   Market expectations did not change much after the CNB press conference, despite higher volatility. The market at the moment expects a first rate cut of 25bp in September and more than 100bp by the end of the year. Our expectations and the risks together mean that we believe the market is too dovish. It will be hard for CNB to change market expectations in the coming weeks and we cannot expect a complete pricing out of rate cuts this year. Moreover, over the longer 3-4y horizon, the market is pricing in a near return to 3%, the CNB's equilibrium rate. From this perspective, we do not think the short end of the curve has much room to price in more rate cuts and see more of a case for higher rates in the market.

Romanian National Bank preview: on autopilot for a while The Romanian National Bank (NBR) will announce its latest policy rate decision on 7 August. We expect the key rate to be maintained at 7.00% with no forward guidance. A new Inflation Report will be approved and presented a few days later which should largely confirm the central bank's previous inflation forecasts. With the inflation dynamic largely matching the NBR’s expectations, the central bank’s focus might shift a tad from inflation to growth, with the latter starting to give more and more credible signs of slowing down rather abruptly. Having said that, there is actually not much that the NBR can do here on top of what has been done already, which was to allow a hefty liquidity surplus in the money market and make the deposit facility the de-facto policy rate. Given that there are still no depreciation pressures for the Romanian leu, it is likely the current policy stance will be extended well into the year-end.   Persistent liquidity surplus   A new Inflation Report should reconfirm the previous forecasts Maybe more interesting than the monetary policy decision itself will be the presentation of the May Inflation Report which should take place a few days later and incorporate the NBR’s latest inflation projections. It is most likely to be the second report in a row which doesn’t differ much from the previous forecasts. The NBR currently sees CPI inflation at 7.1% in December 2023 and 4.2% in December 2024, not far from our estimates of 6.9% and 4.1% respectively. We might see the official forecasts getting into the 1.5-3.5% target range at the end of the two-year forecast horizon, while in our scenario it looks most likely to hover around 4.0%. Moreover, core inflation could prove stickier and remain above the headline figure for most of this timeframe.   Stickier core inflation   We believe that the NBR will stay on course on 7 August and for the rest of the year, despite the more frequent dovish statements coming from other central banks in the region. We maintain our view of a first rate cut in the first quarter of 2024 with a key rate of 5.5% by the end of 2024. The easing cycle will be justified by the lower inflation but likely tempered by core and regional yields, as the interest rate differential cannot narrow excessively. On the domestic front, the new fiscal measures announced in order to contain the budget gap are unlikely to meaningfully change the situation on the issuance front, where the Ministry of Finance is in a comfortable position (more on this here).   What to expect in FX and markets The liquidity surplus fell only marginally in June, remaining at a near-record RON25.2bn, indicating scant central bank activity. EUR/RON briefly broke through 4.920 last week, again likely due to high demand for Romanian government bonds (ROMGBs) and has been higher since but still well below any line in the sand set by the central bank. FX implied yields have also risen a bit in the last two months but still remain firmly anchored. We expect the NBR to take the opportunity to withdraw some liquidity from the market if EUR/RON moves higher. In the long term, we expect the NBR to move the bar up for EUR/RON at least once more and we should see the 5.02 level by the end of the year. ROMGBs eased the pressure a bit in July and we see current valuations as more justified. The spread against Polish government bonds has returned above 100bps in the 10y tenor and even against other CEE peers, the levels seem more fair. The funding story remains unchanged. According to our calculations, the MinFin has secured about 82.5% of this year's planned issuance, the highest figure in the CEE region. We also saw strong activity in retail issuance in July, making the overall funding situation the best in the region. On the other hand, we see potential incoming problems on the fiscal side. The government is discussing further measures to improve the state budget and we should hear more in the coming days. Despite the fiscal issues, we should see a reduction in the supply of ROMGBs. However, we expect MinFin to want to stay on the safe side given the uncertainty and if market demand continues the MinFin will be open to issue more than indicated.

The New Zealand dollar has extended its slide for a fourth straight day. In the European session, NZD/USD is trading at 0.6005, down 0.26%. New Zealand It’s been an awful ride for the New Zealand currency, which is down 1.50% this week. NZD/USD hasn’t posted a winning week since early July and has plunged 270 basis points since then. The latest setback for the New Zealand dollar is the soft data out of China, which is New Zealand’s biggest trading partner. China’s highly-touted recovery has been a bust. The government abruptly shifted its Covid policy from zero tolerance to reopening the economy, and the hope was that economic activity would soar. Instead, domestic demand has been weak and a soft global economy has meant less demand for Chinese goods. This week’s trade release indicated in a decline in China’s exports and imports. The economy has slowed to such an extent that the country is officially in a deflation phase – CPI for July declined for the first time since February 2021. A slowdown in China is especially bad news for commodity currencies like the New Zealand dollar, which has fallen sharply this week due to the soft trade and inflation reports out of China. If the Chinese economy weakens further, I would expect the New Zealand dollar to lose even more ground. The Reserve Bank of New Zealand meets on August 16th and there is a strong likelihood that it will hold rates for a second straight month. The RBNZ has been signalling that its rate-tightening cycle is over but that it will maintain rates in restrictive territory. This could well mean an extended pause until the central bank feels that conditions are ripe for rate cuts. New Zealand inflation has been moving in the right direction, but the current 6% clip is much too high. The key question is whether high rates will filter into the economy and continue to push inflation lower without the need for additional rate hikes. The RBNZ will be keeping a close eye on inflation and employment numbers in order to determine its future rate path.   US inflation rises, but Fed expected to pause US headline inflation rose in July to 3.2%, above the June gain of 3.0% but below the 3.3% consensus estimate. Core CPI nudged lower to 4.7% in July compared to the June reading of 4.8% which was also the estimate. The report was within expectations and should cement a pause in rates in September, with the odds of a rate hike at just 10%, according to the CME FedWatch. . NZD/USD Technical NZD/USD is testing support at 0.6031. Below, there is support at 0.5964 0.6129 and 0.6196 are the next resistance lines  

Norges Bank hikes rates and signals a final move in September Norway's central bank is poised for one final rate hike in September, and with other major central banks either at or close to the peak for policy rates, the impetus to raise rates further is fading. The domestic backdrop continues to improve for the krone.   Norges Bank hikes to 4% Norway’s central bank has hiked rates by 25 basis points to 4%, and is continuing to signal that it has one final move left in the tank for September. None of this will come as a huge surprise, given that since Norges Bank’s (NB) larger 50bp hike in June, the krone has appreciated and is currently running 1.5% stronger on a trade-weighted basis than NB had assumed in its most recent projections. Inflation has also come in broadly in line with its expectations, and importantly has tentatively begun to come down from the 7% peak reached by underlying inflation in June. The latest statement points to an increasingly neutral bias for rates, with policymakers hinting at additional hikes if krone weakness returns, or earlier/steeper rate cuts if the economy starts to creak. While we don’t get a new rate projection this month, the last set of forecasts saw the policy rate peaking at 4.25% later this year and there’s little reason to doubt that. With other central banks likely to have either finished hiking already (Federal Reserve) or getting close (ECB), the impetus to keep hiking beyond September is likely to fade.   More good news for the krone NOK is moderately stronger after the Norges Bank announcement, largely due to markets having underpriced the chances of more rate hikes beyond August. External factors are set to remain dominant for the illiquid NOK, but a period of stabilisation in risk sentiment can make domestic drivers emerge and dramatically increase the attractiveness of the krone. We remain constructive about a broad-based rally in the undervalued NOK before the end of the year and in early 2024, and the commitment to more tightening by Norges Bank likely limits the scope of any large corrections. We expect the 11.00 level in EUR/NOK to be tested before the end of the year.

The Japanese yen faced considerable losses on Monday as USD/JPY surged to 146.23 during the North American session, marking a 0.57% increase for the day. The US dollar's strength has propelled it dangerously close to pushing the yen below the critical 146 line, a scenario witnessed last week when the robust US dollar drove the struggling yen to a nine-month low. Once synonymous with deflation, the Japanese economy has undergone a significant transformation in the era of high global inflation. With Japan's inflation hovering slightly above 3%, a level that many major central banks would eagerly welcome, the landscape has shifted. Notably, inflation remains relatively high by Japanese standards, as both headline and core inflation have consistently outpaced the Bank of Japan's (BoJ) 2% target. Japan's inflation data is closely scrutinized as the prospect of elevated inflation sparks speculations that the BoJ might need to tighten its lenient policy stance. Although the central bank has maintained that the high inflation is transitory, it's worth remembering that other central banks have made similar claims only to backtrack later. The Federal Reserve (Fed) and the European Central Bank (ECB) come to mind as examples. In the previous week, July's Consumer Price Index (CPI) remained steady at 3.3% year-on-year, while Core CPI experienced a slight dip to 3.1% year-on-year from the previous 3.3%. Looking ahead, Tuesday brings the release of BoJ Core CPI, the central bank's favored inflation metric, which is projected to decrease to 2.7% for July, down from June's 3.0%.   USD/JPY pushes above 146 line Bank of Japan’s Core CPI is expected to ease to 2.7% The Japanese yen has posted significant losses on Monday. USD/JPY is trading at 146.23 in the North American session, up 0.57% on the day. The US dollar has looked sharp and is within a whisker of pushing the yen below the 146 line, as was the case last week when the strong US dollar pushed the ailing yen to a nine-month low. The Japanese economy was once synonymous with deflation, but that has changed in the era of high global inflation. Japan’s inflation is slightly above 3%, a level that other major central banks would take in a heartbeat. Still, inflation is relatively high by Japanese standards and both headline and core inflation have persistently been above the Bank of Japan’s 2% target. Japan’s inflation reports are carefully monitored as higher inflation has raised speculation that the BoJ will have to tighten its loose policy. The central bank has insisted that high inflation is transient, but the BoJ wouldn’t be the first bank to make that claim and then backtrack with its tail between its legs. Remember the Fed and the ECB? Last week, July’s CPI remained unchanged at 3.3% y/y. Core CPI dropped to 3.1% y/y, down from 3.3%. On Tuesday, Japan releases BoJ Core CPI, the central bank’s preferred inflation gauge, which is expected to dip to 2.7% in July, down from 3.0% in June. China’s economic troubles have sent the Chinese yuan sharply lower, with the Chinese currency falling about 5% this year against the US dollar. A weak yuan makes Chinese exports more attractive, but this is at the expense of other exporters including Japan. As a result, there is pressure in Japan to lower the value of the yen in order to compete with Chinese exports.   USD/JPY Technical USD/JPY pushed above resistance at 145.54 earlier today. The next resistance line is 146.41 There is support at 144.51 and 143.64    

Canadian retail sales post weak 0.1% gain Markets eye Jackson Hole Symposium as tightening cycles near end The Canadian dollar remains under pressure on Wednesday. In the North American session, USD/CAD is trading at 1.3554, up 0.04%. Earlier, the Canadian dollar fell below the 1.36 line for the first time since May 31st.   Canada’s retail sales stagnant in June Canada’s retail sales for June barely moved, with a gain of just 0.1% m/m. This was unchanged from the May reading, which was downwardly revised from 0.2%, and just above the consensus estimate of zero. On a yearly basis, retail sales slipped 0.8% in June, compared to a gain of 0.2% (revised downwards from 0.5%) and shy of the estimate of 0.3%. The data indicates that consumer consumption is cooling down as higher interest rates continue to filter through the economy. Canada’s GDP in the first quarter was solid at 3.1%, but second-quarter growth is expected to be much more modest, at around 1%. Consumer spending has been a key factor in the Bank of Canada’s rate decisions. Earlier in the year, stronger-than-expected consumer spending resulted in the BoC raising interest rates in June and July. Today’s soft retail sales figures will provide support for the central bank to take a pause at the September 6th meeting, with GDP the final key release ahead of that meeting.   Markets await Jackson Hole There has been a whole lot happening this week and investors will be hoping for some interesting comments from central bankers who are meeting this week in Jackson Hole, Wyoming. Many of the major central banks, including the Federal Reserve, are winding up their rate-tightening cycles and Jackson Hole has often served as a venue for announcing shifts in policy. That said, Fed Chair Powell has insisted that the fight against inflation is not done, although the dark days of high inflation appear to be over. There is talk in the markets of the Fed trimming rates next year, but I doubt that Powell will mention any cuts to rates, when he is yet to acknowledge that the Fed is done tightening.   USD/CAD Technical USD/CAD put strong pressure on the resistance at 1.3606 earlier. Above, there is resistance at 1.3660 1.3522 and 1.3468 are providing support    

GBP: Table top mountain The UK rates curve softened by 9-10bp yesterday on comments by Bank of England Chief Economist Huw Pill, that the policy rate profile would look more like a "table mountain" – the inference here is that high rates would be kept for longer than the need to take rates much higher per se. However, the market still prices another 50bp of tightening into next year, which is 25bp too much in our opinion. The risk of re-pricing looks greater for the BoE than the ECB curve and keeps us positive on EUR/GBP. Levels in the 0.8500/8550 area should be good for corporates to hedge GBP receivables or EUR payables.  

MXN: Banxico expressing a view over a strong peso Unlike Chinese authorities which are battling renminbi weakness and cut the FX deposit required reserve ratio last night, Mexican authorities are seemingly expressing a view that the peso is too strong. Here USD/MXN spiked more than 2% last night after Banxico announced that it would allow its "hedge book" or short USD/MXN position in the FX forward market to roll off rather than be extended.  By way of background, Banxico has intervened to support the peso during two periods (February 2017 and March 2020) and has done this by auctioning dollars through the FX forward markets using one-month to 12-month tenors. The total size of those positions is now around $7.5bn. Banxico announced yesterday that it would allow this position to roll off gradually, effectively over the next 12 months. Investors have read this as Banxico expressing a view that the peso has come far enough. And given the peso has been a prime beneficiary of the carry trade, we should not underestimate the risk of a further correction higher in USD/MXN ahead of this long US weekend. Yet USD/MXN has traded below 17.00 for very good reasons, including high carry and nearshoring trends. And given our view that the dollar does turn lower next year, we see the Banxico move as slowing rather than reversing the USD/MXN trend. Two further quick points: returns on the MXN carry trade may now come more from carry than nominal MXN appreciation, and speculation may grow in the TIIE market (Mexican swap curve) that Banxico may prefer early rate cuts after all if it does not want its currency to strengthen much more.

Flash HICP in August 5.3% (5.1% expected, 5.3% in July) Flash core HICP in August 5.3% (5.3% expected, 5.5% in July) Key moving average provides resistance once again   Eurozone economic indicators this morning have been something of a mixed bag, although traders seem enthused on the back of them rather than disappointed. We’ve seen regional data over the last couple of days which gave us some indication of how today’s HICP report would look and a drop in the core reading in line with expectations combined with no decrease in the headline seemed to make sense. Unemployment, meanwhile, remained at a record low despite an increase in the number of those unemployed. Perhaps there’s some relief that the headline HICP rate didn’t tick a little higher while the core did decline which combined with expectations for the coming months gives the ECB plenty to debate. Another hike in September still strikes me as more likely than not but on the back of this release, markets are swinging the other way, pricing in a near 70% chance of no increase.   ECB Probability   That’s helped the euro to slide more than 0.5% against the dollar this morning – similar against the yen and a little less against the pound while regional markets are seemingly unmoved and continue to trade relatively flat.   Further bearish technical signals following the eurozone data While the fall against the pound was a little less significant, it has enabled it to once again rotate lower off the 55/89-day simple moving average band, reinforcing the bearish narrative in the pair. EURGBP Daily   Source – OANDA on Trading View It’s run into resistance on a number of occasions around the upper end of this band, with the 100 DMA (blue) arguably being a more accurate resistance zone over the summer. Regardless, that still leaves a picture of lower peaks and relatively steady support around 0.85. While that may simply be consolidation, the lower peaks arguably give it a slight bearish bias, a significant break of 0.85 obviously being needed to confirm that.    

Swiss retail sales decline by 2.3% Swiss inflation expected to dip to 1.5% US unemployment claims drop to 228,000 US PCE Price Index rises by 3.3%     The Swiss franc has lost ground on Thursday. In the North American session, USD/CHF is trading at 0.8835, up 0.59%. Thursday’s Swiss retail sales for July looked awful, falling 2.3% m/m. This follows a revised gain of 1.5% in June. Market attention has now shifted to Swiss inflation, which will be released on Friday. Swiss inflation dropped to 1.6% in July, the lowest level since July 2022. The downtrend is expected to continue in August with a consensus estimate of 1.5%. Policy makers at the Swiss National Bank have to be pleased with the inflation rate. Switzerland boasts the lowest inflation rate in the developed world and both headline and core inflation are comfortably nestled in the central bank’s inflation target range of 0%-2%. Still, the SNB remains wary about inflation, with concerns that increases in rents and electricity prices could push inflation back up to 2%. Food inflation remains high and rose from 5.1% to 5.3% in July. Unlike other major central banks, the SNB meets quarterly, which magnifies the significance of each rate decision. At the June meeting, the central bank raised rates to 1.75% from 1.50% and hinted that further hikes were coming. The SNB has projected inflation will hit 2.2% in 2023 and 2024, above its target. That means the SNB expects to have to continue raising rates, although, as is the case with many other central banks, the peak rate appears to be close at hand. In the US, unemployment claims dropped to 228,000 last week, down from a revised 232,000 and below the estimate of 236,000. All eyes will be on Friday’s job report, with nonfarm payrolls expected to dip to 170,000, down from 187,000.   The Fed’s favourite inflation gauge, the PCE Price Index, increased in July by 0.2% for a second straight month, lower than the estimate of 0.3%. On an annualized basis, the PCE Price Index climbed 3.3% in July, up from 3.0% in June. Service prices rose by 0.4% in July, up from 0.3% from the previous month. The numbers indicate that the Fed’s battle with inflation is far from over, and the final phase of pushing inflation down to 2% may prove the most difficult. . USD/CHF Technical USD/CHF is testing resistance at 0.8827. Above, there is resistance at 0.8895 0.8779 and 0.8711 are providing support

The euro is lower on Thursday, after a 3-day rally which pushed the currency 1% higher. In the European session, EUR/USD is trading at 1.0861, down 0.57%.   Eurozone CPI steady, core CPI falls Eurozone inflation was a mixed bag in August. Headline inflation was unchanged at 5.3%, missing the consensus estimate of a drop to 5.1%. There was better news from Core CPI, which dropped from 5.5% to 5.3%, matching the estimate. The ECB will be pleased with the decline in core inflation, which excludes food and energy and provides a more accurate estimate of underlying press pressures. Many central banks, including the Federal Reserve, have taken pauses in the current rate-tightening cycle, but the ECB has raised rates 13 straight times. Will we see a pause at the September 14th meeting? The answer is far from clear. Inflation remains above 5%, more than twice the ECB’s target of 2%. The central bank is determined to bring inflation back down to target, but that would require further rate hikes and the weak eurozone economy could fall into a recession as a result. ECB member Robert Holzmann said today’s inflation report indicated that inflation remained persistent and admitted that the latest inflation numbers pose a “conundrum” for the ECB. The markets aren’t clear on what to expect from the ECB, with the odds of a pause at 67% and a 25-basis point hike at 33%. ECB President Lagarde hasn’t provided much guidance, perhaps because she’s as uncertain as everybody else about the September rate decision.   Germany’s numbers continue to point downwards, as the eurozone’s locomotive has become an economic burden. The latest release, July retail sales, declined by 2.2% y/y, sharply lower than the revised -0.9% reading in June and below the consensus estimate of -1.2%. . EUR/USD Technical EUR/USD is testing support at 1.0831. Below, there is support at 1.0780 1.0896 and 1.0996 are the next resistance lines

Mexican peso corrects: Don't panic! USD/MXN has spiked higher on news that Banxico wants to start unwinding its short dollar position acquired through FX intervention. While the market may be correct in thinking that Banxico does not want the peso to be a lot stronger, we think that after some temporary weakness in September, the peso will still outperform its steep forward curve. Unwinding the intervention Late yesterday, Mexico’s central bank, Banxico, announced its plans to unwind the outstanding balances of its FX hedging programme, a programme launched in February 2017 to support the beleaguered peso. During two intervention episodes - February 2017 and March 2020 - Banxico effectively acquired short USD/MXN positions in the FX forwards market when spot was trading over 20 and 24, respectively. In its press release, Banxico clarified that $5.5bn of its forward position was built during 2017 and another near $2bn during the March 2020 episode to leave the current outstanding balance near $7.5bn. Banxico has said that it will let these short USD/MXN positions in the forward market (held in the one to twelve-month tenors) roll off gradually. In practice, this means rolling only 50%, not 100%, of the shorter-dated positions and allowing the longer nine and twelve-month positions to mature on schedule.   There are probably three reasons why USD/MXN spiked so sharply on the news. The first is that the Mexican peso has been investors' EM darling this year and that long MXN positions are crowded. The second is that Banxico’s decision to unwind this hedge programme could mean Banxico’s tolerance of peso strength has reached some kind of limit. The third is the technical aspect that the biggest impact on the FX market could come this month. If, as Banxico says, only 50% of this month’s reported $4.8bn in maturing forwards is rolled, that means the FX market has to absorb the sizeable impact of a $2.4bn Banxico dollar offer disappearing. While all of the above concerns have merit, we are less concerned than some and take Banxico’s press release at face value. In it, Banxico said it was now unwinding these positions because market conditions are now orderly and liquidity conditions are good (they weren’t when the intervention took place). And that, by unwinding these positions now, Banxico allows banks on the other side of these trades to do so in an orderly manner.

Peso positives remain in place Physically it looks like the majority of this hedge unwind will hit the USD/MXN market in September. However, the hedge unwind does nothing to reduce one of the key driving factors of peso strength this year – which is the risk-adjusted carry. Even Banxico in its meeting minutes highlights how the risk-adjusted yield is the dominant force in driving the peso. As we highlight below, the peso offers the higher carry-to-risk ratio in the EM space. This is the nominal implied yield available through the deliverable/non-deliverable FX forward market, adjusted by implied volatility from the FX options market. Unless Banxico plans to slash nominal rates or engineer some local factor that would command significantly higher implied volatility for USD/MXN, then this carry-to-risk ratio will remain a major boon to the peso.   EM currencies 'carry-to-risk' ratio and YTD performance versus USD   On the subject of potential rate cuts, it was noticeable that the Mexican TIIE swap curve barely budged on this announcement. If the FX market thinks Banxico may potentially even want to cut rates to put a floor under USD/MXN, the rates market is not buying the story. And Banxico this week has, in fact, said it will not be rushed into early rate cuts. Recall that Banxico had kept policy rates 600bp+ over the Fed to keep USD/MXN stable. We would be more worried for the peso if Banxico did threaten large, early rate cuts. New FX policies from central banks?     We tend to view this as more a commercial and financial stability-led decision from Banxico rather than a formal red flag to further peso strength. As an aside, Brazil’s central bank – the BCB – has a $100bn short USD/BRL position through the FX forwards following intervention and probably would not go near unwinding it for fear of crashing the Brazilian real. Chile’s central bank happens to be buying FX at the moment – but that looks a function of financial stability as it tries to rebuild FX reserves after losing half of them last year. In short, we do not think Banxico’s move is part of an effort to cap the strength in Latin currencies. Instead, we think Mexico’s high carry, decent growth, strong sovereign position and positioning for geo-political nearshoring should mean strong demand for the peso on any weakness this month. Additionally, foreign positioning in Mexcio’s local currency MBONO bond market is not particularly extreme; Mexico should be well positioned to receive funds when bond markets eventually come back into favour given its large 10% weight in the JPM GBI-EM local currency bond index. We currently forecast USD/MXN trading down through 16.50 next year when the broad dollar turns lower on a larger-than-expected Fed easing cycle. We do not think this Banxico announcement necessitates a forecast change, and the peso will comfortably outperform its steep forward curve.          Non-resident holdings of Mexican government securities  

Swedish economic and FX update: Pessimism reality check Sweden is facing some rather severe economic headwinds, and recent evidence of negative growth paired with lingering concerns about a fragile real estate sector have contributed towards keeping the Swedish krona under pressure. From some angles, however, investors may be overestimating the downside risks to Sweden’s activity outlook. In this bundle, we take a deeper look into the country’s economy and how we're expecting the Riksbank to respond. On the FX side, the krona is trading at all-time lows. We suspect that more pain may be on the cards in the near term as the environment for pro-cyclical currencies remains challenging. EUR/SEK may touch or even break 12.00 soon, but the Riksbank will likely play a key role in halting the rally. Looking ahead, we expect a SEK rebound. The question is more timing than direction since the krona is very undervalued. External, more than domestic drivers, hold the key to that rebound.

 EURUSD below key support eyeing 1.05GBPUSD testing key support at 1.2175. Will it hold?EURGBP testing 0.87 resistance set to movbe higherDollar Index testing key resistance at 105.80. Correction time before higher levels? EURUSD After a couple of tries EURUSD has closed below key support at around 1.0635. RSI has cancelled its divergence indicating likely lower EURSUD levels. Next support at around 1.05 If 1.05 is reached expect a correction but the underlying sentiment and trend is down as indicated by alle daily Moving Averages are declining. Adding to that the 55 Moving Average is just a few days from breaking below the 100 Moving Average. Medium-term EURUSD is currently indicating bearish trend. If EURUSD is closing the week below 1.0635 and if weekly RSI is closing below 40 threshold. To demolish the short-term bearish trend a close above 1.0770 is needed.        

Bike24, earnings guidance, revenue, EBITDA profitability, market environment, industry overselling, share price, sales decline, overvalued, recapitalization, platforms, Wiggle, bankruptcy. Event: Monthly sales growth to key clients at +27% yoy in August 2023; monthly sales growth in July 2023 at +22% yoy (down from +57% yoy reported earlier). Yesterday, after the market close, the Company released a monthly sales growth dynamic to key clients in August that reached +27% yoy. Additionally, Cloud Technologies informed that a monthly sales growth in July was adjusted and instead of high 57% reported on September 18 it was 22% yoy actually.       Expected impact: Negative. Monthly data are calculated based on US$-denominated revenues. Given the US$ weakening vs PLN between August 2022 and August 2023 (by 12% yoy) they imply a yoy dynamic at c.12% for the figures denominated in PLN while we expected +30% yoy for 3Q23. Besides, it turned out that a sales growth in July was actually lower than reported earlier: +22% vs +57%. Accounting for FX changes (the US$ weakening vs PLN between July 2022 and July 2023 at c. 14% yoy) this implies merely a 5% yoy growth in July for the figures denominated in PLN. This strong adjustment down requires the Company’s management explanation. On October 26, the Company will take part in WSE Innovation Day starting at 9.00 a.m.  

Bank of Japan disappoints markets again despite another YCC tweak It seems the Bank of Japan has opted for a little bit of everything by changing its reference rate for YCC, revising up inflation outlooks and scrapping daily fixed-rate bond purchase operations. However, markets appear disappointed with the BoJ's willingness to keep its YCC framework, with initial reactions showing USD/JPY and JGB yields moving higher.   Perhaps today's tweak is not that minor after all Following a local media leak on a possible adjustment to the Bank of Japan's Yield Curve Control (YCC) framework, market sentiment quickly shifted from no change in YCC to some change – such as lifting the upper limit ceiling from the current 1.00% to 1.25%, or even higher. The BoJ's verdict was eliminating the effective upper ceiling of 1%, but keeping 1% as a reference (raised from 0.5%) and ending daily fixed-rate bond purchases. This will give the central bank more flexibility but adds more uncertainty to the market. Many market participants probably think that today's BoJ tweaks are minor, as major policy settings remained unchanged, the reference rate was kept at 1%, and the fiscal year 2025 (FY25) inflation outlook remained below 2%. While it's true that the BoJ tweaked the wording from the upper ceiling to the reference, 1% is still 1%. However, in our view, ending the daily bond purchase program is a major step taken by the Bank of Japan today. It means that it won't explicitly fix the rate any more and will let the market decide. The BoJ can now allow the JGB 10Y yield above the reference, but certainly will not let it get too far. The revised inflation outlook also hints at possible policy changes in the future, but it has yet to be reached with confidence as the FY25 outlook was kept below 2%. For the time being, the BoJ will continue to maintain its YCC policy and buy more time to anchor long-tenor yields down to support the economy until it confirms continued wage growth beyond this year. Governor Kazuo Ueda also said at its press conference that next spring's wage negotiations are a key event.    BoJ's newest outlook report suggests a pivot is coming There are two surprises in the newest outlook report that caught our eye. The inflation outlook for FY24 is too high, but too low for FY25. The fiscal year 2023 and 2024 inflation outlooks were upwardly revised to 2.8% from the previous 2.5% and 1.9% respectively, and inched up only to 1.7% from the previous 1.6% for 2025. We had expected to see an above 2% inflation outlook for FY24, but the following year's outlook should remain untouched. Now, the Bank of Japan forecasts that inflation will likely rise steadily at 2.8% in FY23 and FY24, suggesting that it is set to remain above target throughout FY24. The BoJ seemingly tried to send a message to the market that it considers the current overheated inflation to be transitory by keeping its outlook for FY25 below the 2% target – but at the same time, the higher projection may secure room for the central bank to be flexible on how to respond to higher inflation next year.    Inflation will likely remain high throughout FY 24   The next quarterly outlook report will be out in January, and perhaps the Bank of Japan can scrap the YCC at this point. It will heavily depend on global bond market trends. By then, market rates are expected to step down in line with UST moves, and the BoJ will have the right opportunity to abandon YCC as pressure on the JGB also subsides a bit. With today's policy decision, we have revised up our JGB 10Y forecasts for the fourth quarter of 2023 onwards. The BoJ's bond purchase operations will likely increase to keep market rates not too far from the reference rate of 1%. We're also maintaining our long-standing first rate hike call for the central bank in the second quarter of next year. We have argued for sustainable inflation, the closing of negative output gaps and healthy wage growth as prerequisites for the BoJ's action, and we believe that the central bank's last puzzle of healthy wage growth could be met by the second quarter of 2024.   FX: USD/JPY will keep policy makers busy A disappointingly modest adjustment to the BoJ's YCC strategy has seen USD/JPY push back above 150. As above, it seems like the BoJ did not want to risk a JGB market meltdown by opting for larger steps today. Unless US data softens sharply or the Federal Reserve surprises by dropping its hawkish bias, it looks like USD/JPY can push onto the 152 area – marking last October's intra-day spike high. Depending on how USD/JPY gets to 152 – quickly, or in a slow grind – this will probably determine how quickly Japanese authorities intervene. In total, Tokyo sold $70bn in September and October last year, with around half of that coming when USD/JPY spiked to 152 in late October. On the subject of FX intervention, we had been expecting the Ministry of Finance to release FX intervention figures for October today, but have not seen anything yet. We think that Japanese authorities, like the Chinese authorities, are praying for a turn in the dollar to take pressure off their own currencies. And whilst the dollar stays strong, intervention (or in China's case, funding squeezes) will be used to ride out the strong dollar storm. Today's Bank of Japan move suggests USD/JPY continues to trade around 150 into year-end and has a better chance of turning lower in the first quarter of next year when the dollar should be softer and the BoJ could exit YCC more forcefully.

CZK: CNB to start its cutting cycle We expect the Czech National Bank (CNB) to start the cutting cycle today with its first 25bp move. This seems fully in line with market pricing and economist consensus. However, surveys suggest it is a close call. And of course, upward pressure on commodity prices and tensions in the Middle East may be reasons to wait a little longer for the CNB. But we believe the new forecast plus weak economic data this week will be sufficient reasons to cut rates today. In addition to the decision itself, we will also see new numbers that should be revised towards a worse economic outlook, lower inflation, a weaker CZK and a faster pace of rate cuts. However, for the markets, today's cut has become a done deal and the collapse in PRIBOR in recent weeks indicates that more than 25bp is priced in for today's meeting. At the same time, the entire curve has shifted lower, making essentially the entire cutting cycle already priced in 1y horizon. We see a significant deterioration in the risk/reward of being received in rates at current levels versus a scenario of no rate cut today. In the FX market, we see the situation getting a lot easier. In the event of a rate cut being delivered, we expect EUR/CZK higher in the 24.80-25.00 range supported by a new CNB forecast indicating levels above 25.00 and still room to price in further rate cuts in the longer term, which would lead to a deterioration in the interest rate differential. Otherwise, we think the potential for CZK appreciation is limited and EUR/CZK may touch 24.50 only temporarily.

No surprise in November The National Bank of Hungary (NBH) reduced its base rate by 75bp to 11.50% at its November rate setting meeting. At the same time, the entire interest rate corridor was lowered by 75bp, maintaining the symmetry of the +/- 100bp range. Although this was again a unanimous decision, the menu seen in October was also present at this rate-setting meeting. That is, the Monetary Council decided between a 50, 75 or 100bp cut. The statement and press conference made it clear what the reasoning was for sticking with the proverbial golden mean.   The pros and cons canceled each other out A hawkish shift compared to the October meeting was dropped due to favourable incoming macroeconomic data. Hungarian inflation returned to single-digit territory, with the underlying monthly repricing pattern showing similarities to 2019-2020 (pre-shock pattern). The improvement in the external balance continued on the back of rising export capacity, supported by shrinking domestic demand, which reduced import needs and the energy balance also improved. Last but not least, together with the ongoing disinflation, the Hungarian economy exited the recession and the incoming high-frequency data suggest that the year-on-year print could return to positive territory from the fourth quarter of 2023. However, all these positive changes have been accompanied by significant external risks. Geopolitical tensions and sanctions are still with us, and we can't rule out another shock to energy and commodity markets as a result. The armed conflicts in Ukraine and Gaza keep the economic landscape highly unpredictable. On the macroeconomic side, there are ongoing labour market tensions and recessionary fears in the international environment. Against this background, the Monetary Council decided to maintain its cautious approach and closed the door on the dovish 100bp easing option.   Steady as she goes Even before today's official and explicit forward guidance, we expected the National Bank of Hungary to stick to the recent step size as the baseline pace of further rate cuts. During the background discussion, Deputy Governor Virág made it clear that – based on the latest information – the policy rate could fall below 11% by the end of the year and reach single digits in February 2024. We wouldn't go so far as to say that this is a pre-commitment, but it's certainly the closest thing to it. Such a rate path would imply a continuation of 75bp rate cuts up to (and including) the February rate-setting meeting. In general, the statement and the press conference did not bring any changes either in the tone of monetary policy or in the main functions that influence monetary policy decisions. As a result, today's rate-setting meeting can be described as a well-managed non-event.   Our market views After the NBH meeting, everything seems to be in line with market expectations and rates have not moved much. This is good news for the HUF, which has re-established a relationship with rates over the last three days and has weakened to 380 EUR/HUF before the meeting. Still, the recent rally in rates points to weaker HUF levels, but this will probably not be the case for now. A stable NBH and higher EUR/USD could offset this, plus we could see some progress in negotiations with the EU in the near term. Overall, today's meeting thus seems to be positive for HUF, which will halt the weakening from recent days. In the short term we probably need to see some catalysts for new gains, e.g. the EU story, but overall we remain positive on the HUF. If everything goes in a positive direction, then we believe EUR/HUF will move into the 370-375 range before the year ends. On the other hand, the current weakness probably hasn't changed the market's long positioning much and we should still keep that in mind if bad news comes. Rates have rallied a lot in recent weeks and have closed the biggest gaps between market pricing and our forecast. But something is still missing to perfection and we still see the whole curve lower but rather flatter later. At the short end of the curve, we think the market needs to accommodate the set pace of 75bp rate cuts as the central bank confirmed today, while the long end remains significantly elevated also because of high core rates. Thus, as we mentioned earlier, the long end in our view has more potential to rally further and the curve has steepened too early and too quickly, closing the gap with the region.

Canada’s job growth expected to expand by 15,000 US ISM Manufacturing PMI projected to accelerate to 47.6 The Canadian dollar continues to gain ground against a slumping US dollar. In the European session, USD/CAD is trading at 1.3529, down 0.23%. The Canadian currency is poised to post a third straight winning week against the greenback and soared 2.25% in November. It is a busy Friday, with Canada releasing the employment report, the US publishing the ISM Manufacturing PMI and Fed Chair Powell speaking at an event in Atlanta. Canada’s labour market has softened but remains in good shape and has shown expansion for three straight months. The economy is expected to have added 15,000 jobs in November, slightly lower than the 17,500 reading in October. The market consensus for the unemployment rate stands at 5.8%, compared to 5.7% in October. Canada’s GDP posts negative growth This week’s GDP report was another reminder that the economy remains weak. Third-quarter GDP declined by 0.3% q/q, below the revised o.3% gain in Q2 and the first decline since the second quarter of 2021. High interest rates have cooled the economy and exports were down in the third quarter as global demand remains weak. On an annualized basis, GDP slid 1.1% in the third quarter, compared to a revised 1.4% gain in Q2 and shy of the market consensus of 0.2%. The US wraps up the week with the ISM Manufacturing PMI. The manufacturing sector has been in a prolonged slump and the PMI has indicated contraction for twelve consecutive months. The PMI is expected to improve to 47.6 in November, compared to 46.7 in October. A reading below 50 indicates contraction.   Investors will be listening closely to Jerome Powell’s remarks today, looking for hints about upcoming rate decisions. Powell has stuck to his script of a ‘higher for longer’ rate policy, but the markets have priced in a rate cut in May at 84%. . USD/CAD Technical USD/CAD tested resistance at 1.3564 in the Asian session. Above, there is resistance at 1.3665 1.3494 and 1.3434 are providing support    

EUR: Pushback from the hawks? One of the hottest stories right now is that traders are pricing in, for next year, more rate cuts from the European Central Bank than the Federal Reserve. And traders are pricing in twice the rate cuts for the ECB than the Bank of England next year. We think that the pricing of the ECB cycle is far too aggressive and our forecast is for 75bp of cuts starting in June - rather than the 125bp cuts starting in March/April. We hear from ECB arch-hawk Robert Holzman this morning. Let's see whether he can move markets. Given that extreme pricing of the ECB curve, it may then be that EUR/USD does not need to fall too much further. 1.07 is currently our year-end forecast - largely because our team felt US data could hold up in the fourth quarter. But let's see what tomorrow's US jobs report and next week's Fed and ECB meetings have to say on the matter. We see EUR/USD holding support at 1.0730 today.

CEE: NBP presser should support PLN The National Bank of Poland left rates unchanged as expected. The statement did not change much either. The MPC wants to know more about the new government's fiscal policy and the impact on inflation before its next steps. So the more interesting story today will be Governor Adam Glapinski's press conference. Our economists see stable rates next year, but the story and risks are not so simple. In addition to the NBP, today we will also see monthly data in the Czech Republic, including industrial production which, like yesterday's retail sales, should confirm the weak economy in the fourth quarter. Also this morning, the second reading of Romania's third-quarter GDP data has already been published. In the markets yesterday, rates were catching up with the fall in core rates from the previous days across the CEE region, which somewhat undermines the FX picture in general. This is most visible in the PLN and CZK market. In Poland, however, the hawkish NBP should help the currency today. Thus, we may see a weaker zloty this morning but by the end of the day, we should be back to 4.320 EUR/PLN or lower. On the other hand, in the Czech Republic, the CZK remains without the support of the central bank and rates are pointing more towards the 24.40 EUR/CZK levels where we were a few days ago. Moreover, weaker data may support this move higher. fter the Polish zloty, the Mexican peso has delivered some of the largest total returns over the last month (alongside the Turkish lira!). As we discuss in our 2024 FX outlook, we think the Mexican peso can hold firm - even in the face of rate cuts. On that front, Mexico today releases inflation data for November - where core CPI is expected to drop to a new cycle low of 5.3% YoY. The market is slowly coming round to the view that Banxico could cut rates in the first quarter - perhaps at the March meeting. Pricing of a Banxico easing cycle looks a little conservative and we think MXN rates could soften if next week's Banxico policy meeting sheds more light on an easing cycle - especially if anyone were to vote for a cut.  We think MXN gains will be more of a total return story in 2024 - i.e. attractive interest rates but spot USD/MXN not going too much below 17.00. Indeed, Banxico might well be thinking the peso is a little too strong on a real exchange rate basis. But strong fiscal support should see Mexican growth hold up next year. Another reason we think the peso should continue to outperform.    

December’s ECB cheat sheet: A reality check for ultra-dovish expectations The ECB will almost surely keep rates on hold at the December meeting. The question is to what extent it will align with the market's aggressive pricing for rate cuts in 2024. We suspect it will fall short of endorsing ultra-dovish expectations. There is some upside room for EUR rates and the battered euro.       Heading into the European Central Bank's December meeting, there is growing evidence that the Governing Council is split about the messaging being presented to markets. The generally arch-hawk Isabel Schnabel dropped strong dovish hints by ruling out rate hikes this week, and markets are now pricing in 135bp of cuts in the next 12 months. We see a good chance that the overall message at this meeting will fall short of endorsing aggressive rate cut expectations. Above are the market implications in various scenarios. Our full ECB preview can be found here. A still-cautious ECB may not validate aggressive front end pricing A reassessment of inflation expectations has been in the lead in driving rates lower and raising the expectations of first rate cuts at the end of the first quarter next year. From next summer onwards, market indications point to anticipated headline inflation fixes below 2%. Indeed, the 2Y inflation swap has dropped to 1.8%. It is easy to overlook that at the same time, core inflation is currently still running at an elevated 3.6% year-on-year, giving the ECB enough reason to remain cautious. However, the pushback against aggressive market pricing has been half-hearted at best, with officials’ remarks having put cuts in the first half of next year clearly into the realm of possibility. But whether they're likely is a different question. The ECB may well decide to let the data be the judge – but at the same time, it remains more reluctant to extrapolate to the extent that the market does. Its own inflation forecast may come down next week, but potentially not to the degree that markets are discounting. We see a good chance that the rally in front end rates – which currently discounts a 75% probability of a cut next March – stalls, if not unwinds to some extent. The longer end may see less upward pressure, though. In the extreme, the Governing Council coming across as overly hawkish and brushing off the faster disinflationary momentum could push markets into the belief that a policy mistake is in the making.   ECB rate expectations   Lagarde can throw a lifeline to the unloved euroThe idiosyncratic decline of the euro has been one of the key themes in FX lately, with the common currency being the worst-performing currency so far in G10. The aggressive dovish repricing of ECB rate expectations has been the main driver, and the comments by Isabel Schnabel right before the pre-meeting quiet period have fuelled the bearish narrative further. With 125bp of cuts priced in by October and markets actively considering a start to the easing cycle already in March, it's difficult to see a bigger dovish repricing happening at this stage. That would suggest the euro does not have to fall much further from the current levels. Still, if only short-term rate differentials are taken into account, a decline to the 1.06 area in EUR/USD would not be an aberration. What is already halting the euro slump is the upbeat risk sentiment, which favours pro-cyclical currencies like the euro and caps the upside for the safe-haven dollar. We expect the ECB to continue its transition to a dovish narrative, but that will – in our view – happen at a slower pace than what markets are implying. We see tangible risks that the the central bank will push back against aggressive dovish speculations at this meeting, and the market may be forced to unwind some of those rate cuts bets, offering room for a EUR/USD rebound. That said, a EUR/USD recovery would struggle to extend much longer after the meeting due to the short-term EUR-USD swap spreads still pointing to a lower exchange rate.

Agriculture – Argentina peso devaluation weighs on grains Wheat, soybean and corn traded soft yesterday after Argentina devalued its currency against USD by more than 50%. A lower exchange rate could bring more of Argentina’s supplies (especially inventory) into the market as prices in local currency increase. Meanwhile, the Rosario Board of Trade increased wheat production estimates in the country by around 1mt to 14.5mt for the 2023/24 season on account of favourable weather (rains and cooler temperatures). The Board kept soybean and corn production estimates unchanged for now at 50mt and 56mt respectively.   The latest data from Ukraine’s Agriculture Ministry shows that grain exports so far in the 2023/24 season stood at 14.7mt as of 13 December, a decline of 27% year-on-year. Total corn shipments stood at 7.3mt, down 32.7% YoY, while wheat exports fell 15% YoY to 6.3mt. Recent developments in Russia were reported to have damaged grain storage facilities and warehouses at the Odesa ports, which continue to impact the shipments through the Black Sea Port route.

EUR: Gauging the ECB pushback Attention turns to the ECB today. Investors are currently pricing in over 125bp of rate cuts next year, with the first full cut priced for the April meeting. We think that is far too early. However, the question today is how far ECB President Christine Lagarde wants to push back against that. Feeding into the story will be revisions to ECB staff growth and inflation forecasts. The larger the downward revisions to both growth and inflation (e.g. if the 2025 CPI forecast gets cut below 2%), the more euro money market rates will soften, and the euro will lag other currencies as they advance against the softer dollar.  Our ECB market preview felt there were upside risks to EUR/USD going into this ECB meeting. EUR/USD has already enjoyed a strong rally on the back of the softer US rate view, and assuming the ECB does not fully embrace dovish expectations for next year, we would say the bias for EUR/USD lies towards 1.0945/65 and probably 1.10 multi-day. Over recent months, we have been forecasting EUR/USD to end the year somewhere near 1.07. After last night's Fed shift, we expect EUR/USD ends the year closer to 1.10 now. Also, today look out for the Norges Bank and Swiss National Bank meetings. Presumably, the SNB will cut its inflation forecasts. Having consistently sold FX since last year – delivering nominal Swiss franc appreciation and keeping the real Swiss franc stable – we are interested to hear today whether the SNB has been both buying and selling FX. If it confirms it is on both sides of EUR/CHF, rather than just being a EUR/CHF selle, and we suspect EUR/CHF can jump back up to the 0.9550 area.

The Japanese yen is slightly lower on Friday. In the European session, USD/JPY is trading at 141.75, up 0.27%. The US dollar has taken a tumble in recent weeks against most of the major currencies, including the yen. Since mid-November, the yen has jumped 6.4% against the ailing US dollar. This has relieved pressure on Tokyo to intervene in the currency markets, which was a serious concern just six weeks ago when the exchange rate was above 151. The Bank of Japan didn’t adjust its policy settings at the December meeting, although speculation was high that the BoJ might make a shift after Governor Ueda hinted at a change in policy before the meeting. The BoJ could make a move in January or perhaps in April, after the annual wage negotiations in March. The markets are expecting the Fed to hit the rate cut button early and often next year. The markets have priced in a rate cut by March at 86% and anticipate 150 basis points in cuts next year. The Fed is more cautious, and Fed members have urged the markets to lower these expectations. Chicago PMI expected to decelerate The US releases Chicago PMI, an important business barometer, later today. The PMI was unexpectedly strong in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The 50 line separates expansion from contraction.   The upward spike may have been a one-time occurrence due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion. . USD/JPY Technical USD/JPY tested support at 141.16 before reversing directions. The next support level is 140.50 There is resistance at 142.08 and 142.74  

In the world of forex trading, it's essential to grasp the concepts of lots, mini lots, and micro lots before diving into the market. Let's break down these fundamental terms to provide a comprehensive understanding for both novice and experienced traders. What is a Lot? Forex trading involves currency pairs, such as EUR/USD. The value of a currency pair, say EUR/USD at 1.1500, implies that to hold 1 euro, you need to spend 1.15 dollars. Transactions involve buying one currency while selling the other. Lots are units used to measure the amount of money invested in a specific currency pair. One lot equals 100,000 units of the base currency. For instance, buying 100,000 euros against dollars is referred to as purchasing 1 lot of EUR/USD. It's crucial to note the existence of leverage in forex trading, allowing investors to trade more significant amounts than the funds available. With a 1:100 leverage, possessing only 1,000 USD enables trading with 100,000 USD. Mini Lots and Micro Lots While a standard lot is the basic trading unit, traders have the flexibility to open positions in smaller increments. This leads us to the concepts of mini lots and micro lots. Mini Lot: One-tenth of a standard lot, equal to 10,000 units of the base currency. Micro Lot: The smallest tradable amount at most brokers, constituting 1/100 of a lot or 1,000 units of the base currency. Especially for beginners, starting with micro lots is advisable before advancing to mini and standard lots. Lot in Trading Practice With this knowledge, let's delve into a practical example of buying and selling currencies. Consider the EUR/USD pair, assuming an upward trend. Opting to buy 1 lot of EUR/USD at a rate of 1.1505/1.1537 with a target at 1.1880 and a protective stop order at 1.1450, we can calculate the potential profit. In summary: EUR/USD: 1.1505/1.1537 Ask: 1.1537 Take Profit: 1.1880 Stop Loss: 1.1450 Calculating potential profit for 1 lot: (1.1880−1.1537)×10���=3430���(1.1880−1.1537)×10USD=3430USD For a mini lot, the profit would be 343 USD, and for a micro lot, it would be 34.30 USD. Considering potential loss in this example: (1.1537−1.1505)×10���=320���(1.1537−1.1505)×10USD=320USD The loss for a mini lot would be 32 USD, and for a micro lot, it would be 3.20 USD. As illustrated, trading volume significantly impacts both potential gains and losses. Beginning with smaller volumes allows traders to consider not only potential profits but also potential losses, fostering a prudent approach to forex trading.

Forex trading revolves around currency pairs, and a closer examination of a popular pair like EUR/USD provides valuable insights. If the exchange rate for the euro to the dollar is, for instance, 1.1500, it implies that acquiring 1 euro requires an expenditure of 1.15 dollars. In practical terms, initiating a buy order for EUR/USD involves purchasing euros while selling dollars, and vice versa. This fundamental interplay between two currencies defines a currency pair. A "lot" serves as the yardstick for quantifying the amount of money invested when trading a particular currency pair. It denotes a transaction valued at 100,000 units of the base currency. For instance, envision a scenario where you wish to buy 100,000 euros using dollars, designating it as a purchase of 1 lot of EUR/USD. The base currency always takes the lead in the pair, with the second currency being the quote currency. This pairing illustrates the amount of the quote currency needed to obtain a single unit of the base currency. Crucially, the forex market incorporates a financial leverage feature, allowing traders to invest amounts exceeding their account balances. With a leverage ratio of 1:100, a trader possessing only $1,000 can engage in transactions equivalent to $100,000. Mini Lots and Micro Lots While a standard lot provides the baseline unit for trading, traders aren't constrained to opening positions solely with a minimum value of 1 lot. Enter the concepts of "mini lots" and "micro lots." A mini lot equals 1/10 of a standard lot, translating to 10,000 units of the base currency. Conversely, a micro lot represents the smallest tradable amount at most brokers, constituting 1/100 of a standard lot or 1,000 units of the base currency. Especially for beginners, venturing into trading with micro lots is often recommended before progressing to mini or standard lots. In Practice: Calculating Profits and Losses Armed with this knowledge, let's analyze a hypothetical trade in the EUR/USD pair. Suppose a bullish trend prompts a decision to buy 1 lot of EUR/USD at a rate of 1.1505/1.1537, with a profit target set at 1.1880 and a protective stop order at 1.1450. In this scenario, each pip movement – the smallest price change – equates to $10 for a 100,000 EUR/USD transaction. The potential profit calculation involves considering the difference between the entry and target prices, resulting in a pip movement of 343 pips and a potential profit of $3,430. Scaling down to a mini lot, the potential profit would be $343, while for a micro lot, it would amount to $34.30. Conversely, evaluating potential losses for a standard lot entails examining the difference between the entry and stop-loss prices, amounting to a loss of $320 for this trade. For a mini lot, the loss would be $32, and for a micro lot, it would be $3.20. Conclusion: Trading Wisdom This brief exploration underscores that, beyond the allure of potential profits, traders must conscientiously consider potential losses when determining the size of their transactions. Beginning with smaller volumes, such as micro lots, allows traders to acclimate themselves to the intricacies of forex trading, mitigating risks and fostering a more sustainable approach to market participation. In conclusion, the understanding of lots is an integral aspect of a trader's journey, contributing not only to effective risk management but also to the overall comprehension of trade dynamics. As traders navigate the forex market, the judicious selection of lot sizes aligns with the principles of strategic trading, ensuring a balance between risk and reward in this intricate financial landscape.    

CZK: Changing our central bank call to a 50bp rate cut The blackout period for the Czech National Bank (CNB) began yesterday and we will therefore probably not hear anything more. Deputy Governor Jan Frait really moved the market when he said he was open to a larger rate cut, even more than 50bp at the 8 February meeting. We do know that the deputy governor was one of two board members who voted for a rate cut back in November when the CNB left rates unchanged. So the new statements aren't exactly a game changer, but we have confidence that at least two members will push for a 50bp rate cut at next week's meeting. In addition, the board will have a new forecast which we think should show very low inflation of below 3% for the upcoming months. Overall, this leads us to reassess our call from a 25bp to 50bp rate cut next week. The acceleration of the rate cut is bad news for the CZK. However, we believe positioning has been heavily short here for some time and should not be so damaging. Moreover, the market is already pricing in a large portion of the rate cuts. Therefore, we do not expect significant weakness from this, but of course a short trip above 25.0 EUR/CZK is likely next week.