Forex Major Currencies Outlook (Nov 29 – Dec 3)

USD 

PCE data for the month of October continue to show price pressures mounting in the US. Headline number came in at 5% y/y vs 4.6% y/y as expected and up from 4.4% y/y in October. Core PCE number came in at 4.1% y/y as expected, up from 3.7% y/y the previous month. The biggest contributor to price rises was energy goods and services category which jumped astonishing 30.2% y/y. Food prices notched a jump of 4.8% y/y. Personal income rose 0.5% while personal spending jumped 1.3% as Americans started their holiday shopping early.

The White House has re-nominated Jerome Powell to a new four-year mandate as a Fed Chairman. Lael Brainard was nominated to be a vice-chairman in the Fed Board of Governors, thus replacing Richard Clarida. This outcome ensures that monetary policy will stay on its course with QE tapering. Markets are pricing in two full rate hikes in 2022, most likely at September and December meetings. San Francisco Fed President Mary Daly, considered a dove, stated that the case for speeding up the taper can be seen. When a well-known dove comments in a hawkish way markets listen. Her comments should keep USD supported. 

This week we will have ISM PMI data as well as NFP on Friday. Headline number is expected to come around 550k with the unemployment rate slipping to 4.5%. 

Important news for USD: 

Wednesday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
• ISM Non-Manufacturing PMI 

EUR 

Eurozone preliminary PMI data for the month of November surprised to the upside. Manufacturing came in at 58.6 vs 57.3 as expected and up from 58.3 in October. Services came in at 56.6 vs 53.5 as expected and up from 54.6 the previous month which pushed composite to 55.8 vs 53.2 as expected and up from 54.2 in October. Both German and French readings were showed improvements from last month with new orders subindex expanding further. Supply chain disruptions are still causing issues for the manufacturing sector and Markit notes that potential new lockdowns across the continent may hurt rebound seen in services sector. Costs component in PMI data continued to increase and it dovetails nicely with the comment from ECB’s Executive Board member Isabel Schnabel, given in a Bloomberg interview, that “the risks to inflation are skewed to the upside”. Her remark may be indicating that ECB is preparing to gradually remove loose monetary policy stance and that we can expect confirmation of PEPP program ending in March of 2022 at the December meeting. 

German Ifo business climate for the month of November came in at 96.5 as expected, down from 97.7 in October. Current conditions and outlook came in line with expectations (99 and 94.2 respectively), but were both down from the previous month (100.1 and 95.4 respectively). Business climate and outlook are falling for the fifth consecutive month while current conditions notched three consecutive months of declines. Ifo economist Klaus Wohlrabe stated that falls in Ifo indexes give cause for concern adding that supply bottlenecks are still ongoing and putting pressures on companies. Increasing number of companies plans to transfer price pressures to consumers. Finally, he sees Q4 GDP stagnating. 

This week we will have a preliminary November inflation reading, expected to continue rising. 

Important news for EUR: 

Tuesday:

• CPI 

GBP 

Preliminary November PMI data was mixed compared to the previous month, but all of the readings beat the expectations. Manufacturing PMI improved to 58.2 from 57.8 in October while services slipped to 58.6 from 59.1 the previous month. Composite also slipped down to 57.7 from 57.8 in October. According to Markit, output continued to grow in both services and manufacturing with new businesses accelerating growth indicating a strong December as well. Supply chain issues persist and price pressures continue to mount as we get closer to the year-end. 

AUD 

Q3 Capex slumped -2.2% q/q vs -2% q/q as expected. Q2 reading was revised down from 4.4% q/q to 3.4% q/q. Australia experienced heavy lockdowns during Q3 and it reflected on investment, particularly in equipment, plant and machinery which showed a decline of -4.1% q/q vs 2.7 q/q in Q2 as well as in building and structures which came in at -0.2% q/q vs 4.2% the previous quarter. Preliminary retail sales for the month of October showed a high jump to 4.9% m/m vs 2.2% m/m as expected and up from 1.3% m/m in September showing that consumer will guide economic rebound in Q4 after the lockdown impacted Q3. 

This week we will have Q3 GDP data from Australia and both official and Caixin PMI data from China. 

Important news for AUD: 

Tuesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Wednesday:

• GDP
• Caixin Manufacturing PMI (China)

Friday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China) 

NZD 

RBNZ has raised the official cash rate (OCR) by 25bps as was widely expected. The rate now stands at 0.75% and board members noted that it is appropriate to continue with reducing monetary stimulus in order to keep inflation low and achieve maximum sustainable employment. The bank has put out new projections which see OCR at 0.94% in March of 2022 vs 0.86% previously and at 2.14% in December of 2022 vs 1.62% previously indicating that they are firmly on the rate hike path. Inflation is seen at 3.3% by the end of 2022, it was 2.2% in previous projection and assessment is that inflation will peak at 5.7% in Q1 of 2022 before returning toward 2% in the next couple of years. Governor Orr stated in a press conference that the 25bp rate hike gives them more options and that due to a high debt load, the bank needs to be cautious. Retail sales for Q3 came in at -8.1% q/q vs -10.5% q/q as expected. New Zealand was under lockdown during Q3 and it reflected in retail sales numbers. Still the reading managed to beat expectations showing additional strength of the economy and consumer. 

CAD 

Canadian dollar had another slow week with USDCAD falling for the fifth straight week and moving closer to the 1.28 level. The decline was exacerbated with a discovery of new covid strain, named Omicron, which sent oil prices dropping below $70 and dragging CAD down. 

This week we will have Q3 GDP data as well as November employment report. 

Important news for CAD: 

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate 

JPY 

Preliminary November PMI data showed improvements across the board. Manufacturing climbed to 53.5 from 53.2 in October while services went deeper into expansion and posted a second consecutive month above the 50-level coming in at 52.1. Composite was thus pushed up to 52.5 from 50.7 the previous month. Output and new orders components showed stronger growth while new orders mostly pointed to growth. Input prices point to a stronger inflation while employment slowed down and outright declined in the service sector. Markit notes that "private sector companies were strongly optimistic that business activity would rise in the year ahead. Positive sentiment was the strongest on record". 

Inflation for Tokyo area in November improved to 0.5% y/y vs 0.1% the previous month on the back of rising energy prices. Both ex fresh food category and ex fresh food, energy came in at 0.3% y/y. With inflation running rampant around the world even Japan managed to post increase in overall prices. JPY gained strength as the new covid variant, called Omicron by the WHO, originating in South Africa. It is thought to have the most mutations off all of the existing variants. It has brought a risk-off environment in the markets and JPY was the biggest benefactor of it with thin liquidity market conditions adding to the magnitude of moves. 

CHF 

SNB total sight deposits for the week ending November 19 came in at CHF719.3bn vs CHF719.2bn the previous week. This is a rather surprising data point since EURCHF dropped below the 1.05 level in the previous week and SNB did not intervene. Q3 GDP data show that economy grew by 1.7% q/q vs 2% q/q as expected and 4.1% y/y vs upwardly revised 8.6% y/y in the previous quarter. The details of the report show accommodation and food category doubling from Q2 while big growth was also seen in arts, entertainment and recreation.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}