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Daily Pivots: (S1) 1.0495; (P) 1.0531; (R1) 1.0565; More...

EUR/USD is staying in range trading and intraday bias remains neutral. On the downside, break of 1.0471 support will suggest that corrective recovery from 1.0330 has completed, and fall from 1.1213 is ready to resume. Intraday bias will be back on the downside for 1.0330 first, and then 61.8% projection of 1.0936 to 1.0330 from 1.0629 at 1.0254. Also, in this case, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2737; (P) 1.2758; (R1) 1.2791; More...

GBP/USD is still bounded in sideway trading and intraday bias stays neutral. Rebound from 1.2486 short term bottom could still extend higher. But outlook will stay bearish as long as 55 D EMA (now at 1.2840) holds. On the downside, below 1.2615 minor support will bring retest of 1.2486 first. Firm break there will target 1.2298 cluster support zone. However, sustained break of 55 D EMA will argue that the near term trend has reversed, and targets 1.3047 resistance for confirmation.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.

Daily Pivots: (S1) 0.8787; (P) 0.8810; (R1) 0.8853; More…

Intraday bias remains on the upside for the moment. As noted before, corrective fall from 0.8956 could have completed at 0.8735 after hitting 55 D EMA. Further rally is in expected to retest 0.8956 high first. Firm break there will resume the whole rise from 0.8374. This will remains the favored case as long as 0.8735 support holds, in case of retreat.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

BoC cut its overnight rate by 50 basis points to 3.25% as anticipated, but a notable shift in tone suggests a loosening of its easing bias. The central bank stated that interest rates have been reduced "substantially" since June, signaling that future cuts would be evaluated "one decision at a time." This marks a clear pivot toward a more cautious, data-dependent approach, and rate reduction is no longer in auto-pilot.

Also, in the accompanying statement, BoC highlights a number of factors that introduce uncertainty surrounding both growth and inflation outlook, including the array of policy measures introduced by the federal and provincial governments.

The reduction in immigration targets is expected to dampen GDP growth next year. While this lower growth could temper inflationary pressures, the Bank noted that the effect would likely be "more muted" due to immigration's impact on both demand and supply. Additional measures, such as the suspension of the GST on certain goods, direct payments to individuals, and adjustments to mortgage rules, are expected to create temporary fluctuations in demand and inflation.

The statement also highlighted increased uncertainty surrounding trade. The possibility of new tariffs from the incoming US administration adds a layer of complexity to the economic outlook, particularly given Canada’s reliance on exports to its southern neighbor.

Full BoC statement here.

The Bank of Canada today reduced its target for the overnight rate to 3¼%, with the Bank Rate at 3¾% and the deposit rate at 3¼%. The Bank is continuing its policy of balance sheet normalization.

The global economy is evolving largely as expected in the Bank’s October Monetary Policy Report (MPR). In the United States, the economy continues to show broad-based strength, with robust consumption and a solid labour market. US inflation has been holding steady, with some price pressures persisting. In the euro area, recent indicators point to weaker growth. In China, recent policy actions combined with strong exports are supporting growth, but household spending remains subdued. Global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar.

In Canada, the economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports. In contrast, consumer spending and housing activity both picked up, suggesting lower interest rates are beginning to boost household spending. Historical revisions to the National Accounts have increased the level of GDP over the past three years, largely reflecting higher investment and consumption. The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force. Wage growth showed some signs of easing, but remains elevated relative to productivity.

A number of policy measures have been announced that will affect the outlook for near-term growth and inflation in Canada. Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply. Other federal and provincial policies—including a temporary suspension of the GST on some consumer products, one-time payments to individuals, and changes to mortgage rules—will affect the dynamics of demand and inflation. The Bank will look through effects that are temporary and focus on underlying trends to guide its policy decisions.

In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.

CPI inflation has been about 2% since the summer, and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected. Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. Measures of core inflation will help us assess the trend in CPI inflation.

With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range. Governing Council has reduced the policy rate substantially since June. Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time. Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.

Information note

The next scheduled date for announcing the overnight rate target is January 29, 2025. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.

The Consumer Price Index (CPI) rose 0.3% month-on-month (m/m) in November, after rising 0.2% m/m in each of the previous four months. On a twelve-month basis, CPI ticked up to 2.7% (from 2.6% in October).

• Energy prices rose 0.2% m/m, led by an uptick in prices at the pump (+0.6% m/m), while food prices rose 0.4% m/m, following a gain of 0.2% m/m in October.

Excluding food and energy, core inflation rose 0.3% m/m, matching the monthly gain in each of the prior three prior months, and in line with the consensus forecast. The twelve-month change held steady at 3.3% while the three month-annualized ticked up to 3.7%.

Price growth on core services were up a 'soft' 0.3% m/m (0.28% unrounded), following a 0.35% m/m gain in October. On a year-ago basis, services prices were up 4.6% or roughly two percentage points above its pre-pandemic pace of growth when inflation was running closer to 2%.

• Primary shelter costs rose 0.2% m/m, the slowest monthly gain since April 2021, as both rent of primary residence (+0.2% m/m from 0.3% m/m) and owners' equivalent rent (+0.2% m/m from 0.4% m/m) decelerated last month. On a 12-month basis, primary shelter remains elevated at 4.8%, but is well off its 2023 high of over 6%.
• Non-housing services inflation (aka "supercore") remained firm, rising 0.4% m/m. The uptick was largely driven by a sharp rise in lodging away from home (+3.2% m/m) and still firm price growth for recreation (+0.7% m/m) and medical care (+0.4% m/m) services. Other areas of past inflationary pressure including airfares and vehicle insurance were relatively negligible in November.

Core goods prices rose 0.3% m/m – its strongest monthly gain in 17 months – following a flat reading in October. New and used vehicle prices (up, 0.6% and 2.0%, respectively) were a major contributor to last month's gain.

Daily Pivots: (S1) 151.18; (P) 151.69; (R1) 152.47; More...

Intraday bias in USD/JPY remains mildly on the upside for the moment. Corrective pullback from 156.74 could have completed at 148.64, and larger rise from 139.57 might be still in progress. Further rally would be seen to retest 156.74 first. Firm break there will target 161.94 high next. For now, this will be the favored case as long as 148.64 support holds.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Dollar showed minimal reaction, other than some initial jitters, to November’s US CPI data, holding steady within its range as the report largely aligned with expectations. Headline inflation edged up, while core inflation remained flat, refusing to trend lower. With no surprise, the data cleared the way for a 25bps rate cut by Fed next week, with Fed fund futures pricing a near-certainty at 99.9%. However, the real focus has shifted to January, where the likelihood of a pause remains high at over 75%. Fed’s outlook, therefore, appears relatively unchanged, with policymakers likely to reassess conditions early next year amid ongoing uncertainties surrounding fiscal and trade policies under the incoming US administration.

In contrast, Japanese Yen is facing broad declines despite stronger-than-expected wholesale inflation data. November’s Corporate Goods Price Index rose by 3.7% yoy, accelerating from October’s 3.6% and marking the fastest pace since mid-2023. This suggests renewed inflationary pressures in corporate prices, creating a dilemma for BoJ, which continues to face subdued consumption despite robust wage growth. after all, Markets anticipate another rate hike imminently, whether at this week’s meeting or in January. Ultimately, the timing of the move may not significantly alter Yen’s trend.

Overall for the day so far, Swiss Franc is currently the strongest one. Canadian Dollar is the second, awaiting BoC's rate cut while Dollar is third. Yen is the worst for now. Aussie and Kiwi follow next on speculations that China would allow Yuan to weaken next year to cushion some of the impacts of renewed tariff war with the US. Euro and Sterling are positioning in the middle.

Australian Dollar will be the focus again in the upcoming Asian session, with Australian job data featured. Aussie continues to struggle, weighed down by a confluence of negative factors. The RBA’s surprise dovish policy shift has added to speculation of a possible February rate cut, though May remains the base case for many analysts. Furthermore, China’s stimulus pledges have failed to inspire sustained confidence, and markets are now grappling with concerns that Beijing may allow the Yuan to weaken further in 2025 to counter US tariffs. Traders are now awaiting Australia’s job data, which could tilt the balance further toward an earlier easing by RBA if it signals significant labor market loosening.

Technically, AUD/USD will soon enter into an important medium term support zone of 0.6169/6269 on next fall. Strong support could be seen there, at least on first attempt, to bring rebound. While AUD/USD would stay bearish even with a rebound, it would be hard for it to break through 0.6169, not until RBA's easing has commenced and we'd know the pace.

In Europe, at the time of writing, FTSE is up 0.31%. DAX is up 0.03%. CAC is up 0.37%. UK 10-year yield is down -0.0156 at 4.314. Germany 10-year yield is down -0.021 at 2.102. Earlier in Asia, Nikkei rose 0.01%. Hong Kong HSI fell -0.77%. China Shanghai SSE rose 0.29%. Singapore Strait Times fell -0.54%. Japan 10-year JGB yield rose 0.006 to 1.072.

US CPI accelerates to 2.7% in Nov, core CPI unchanged at 3.3%

November’s US inflation data came in line with expectations, showing no significant progress toward easing price pressures further. Headline CPI rose 0.3% mom, supported by a 0.3% mom rise in the shelter index, which accounted for nearly 40% of the monthly increase. Food prices rose by 0.4% mom, while the energy index rose 0.2% mom. Core CPI, excluding volatile food and energy prices, also rose by 0.3% mom.

On an annual basis, headline CPI ticked up from 2.6% yoy in October to 2.7% yoy in November, aligning with market forecasts. Core CPI, excluding the volatile food and energy components, remained steady at 3.3% yoy. Among key categories, food prices increased 2.4% yoy, while energy prices remained a deflationary force, falling -3.2% yoy.

RBA's Hause: Australia more seriously affected by global trade war because of China reliance

RBA Deputy Governor Andrew Hauser addressed the implications of US President-elect Donald Trump’s proposed tariffs at an event today. He highlighted that while higher global tariffs could depress activity across supply chains, the full extent of the effects would depend on various factors, including currency adjustments and fiscal responses in affected economies.

“Given this uncertainty, it is important that we don’t prejudge the implications of tariffs for policy but monitor developments closely and stand ready to respond appropriately as the facts emerge,” Hauser stated.

Hauser pointed out Australia’s unique vulnerability due to its trade exposure, with over 80% of its iron ore exports destined for China, which accounts for three-quarters of global iron ore imports.

This heavy reliance on China increases the risk of significant disruptions if Beijing becomes the target of punitive tariffs or if global trade realigns along geopolitical lines.

“This seems to suggest that Australia could find itself more seriously affected by a global trade war than some of the average exposure data suggest,” Hauser noted.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 151.18; (P) 151.69; (R1) 152.47; More...

Intraday bias in USD/JPY remains mildly on the upside for the moment. Corrective pullback from 156.74 could have completed at 148.64, and larger rise from 139.57 might be still in progress. Further rally would be seen to retest 156.74 first. Firm break there will target 161.94 high next. For now, this will be the favored case as long as 148.64 support holds.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

The Canadian dollar is drifting on Wednesday, ahead of the Bank of Canada rate decision later today. In the European session, USD/CAD is trading at 1.4181, up 0.10% at the time of writing.

BoC expected to slash rates by 50 basis points

The Bank of Canada is widely expected to end the year on a bang with a dramatic 50-bp cut at today’s rate meeting. The markets have priced in a 50-bp cut at 90%, so it would be a massive surprise if the BoC opts for a modest cut of 25 basis points. The BoC has cut interest rates four times this year, including a jumbo 50-basis point rate cut in October.

BoC policymakers can point to low inflation and a cool labor market to support the case for an oversized 50-bp cut. At the same time, the central bank doesn’t want to get too aggressive in its easing cycle, as core inflation remains around 2.5%, above the BoC’s target of 2%. If the BoC delivers a 50-bp cut, we could see the Canadian dollar lose ground.

Investors are keeping a close eye on the US inflation report which also will be released today. The November report is expected to show that CPI ticked higher. The market estimate stands at 2.7% y/y (vs. 2.6% in Oct.) and 0.3% m/m (vs. 0.2% in Oct.). This is somewhat about the Federal Reserve’s target of 2% but that hasn’t prevented the Fed from cutting rates twice this year. The Fed meets on Dec. 18 and the odds of a 25-bp cut are 86%, according to the CME’s FedWatch tool. A surprising drop in inflation would raise expectations of a 50-bp cut but the Fed appears on track for a modest 25-bp cut.

USD/CAD Technical

• USD/CAD is testing resistance at 1.4178. Next, there is resistance at 141.99
• 1.4160 and 1.4139 are the next support levels

November’s US inflation data came in line with expectations, showing no significant progress toward easing price pressures further. Headline CPI rose 0.3% mom, supported by a 0.3% mom rise in the shelter index, which accounted for nearly 40% of the monthly increase. Food prices rose by 0.4% mom, while the energy index rose 0.2% mom. Core CPI, excluding volatile food and energy prices, also rose by 0.3% mom.

On an annual basis, headline CPI ticked up from 2.6% yoy in October to 2.7% yoy in November, aligning with market forecasts. Core CPI, excluding the volatile food and energy components, remained steady at 3.3% yoy. Among key categories, food prices increased 2.4% yoy, while energy prices remained a deflationary force, falling -3.2% yoy.

Full US CPI release here.