Sample Category Title

Canada’s economy expanded by 0.3% qoq in Q3, down from 0.5% qoq growth recorded in Q1 and Q2.

Household and government spending provided support to overall GDP, but their contributions were offset by slower non-farm inventory accumulation, reduced business capital investment, and a decline in exports.

On a per capita basis, GDP contracted by -0.4% qoq in Q3, marking the sixth consecutive quarterly decline.

Monthly GDP growth for September came in at a modest 0.1% mom, missing expectations of 0.3% mom.

Full Canada Q3 GDP release here.

• Will the NFP data corroborate bets of a Fed pause?
• Loonie traders await employment numbers as well
• Australia’s GDP to verify whether bets of May RBA cut are realistic
• Euro could take directions from ECB President Lagarde

NFP and ISM PMIs to shape Fed expectations

The US dollar took a breather this week, pulling back even after being temporarily boosted by US President-elect Donald Trump’s tariff threats on Canada, Mexico and China.

Perhaps traders decided to capitalize on their previous Trump-related long positions heading into the Thanksgiving Holidays and ahead of next week’s all-important data releases. Market pricing is far from suggesting that investors’ concerns about a Trump-led government are receding.

This is evident by Fed funds futures still pointing to a strong likelihood of a pause by the Fed at the turn of the year. Specifically, there is a 35% chance for policymakers to take the sidelines in December, with the probability of that happening in January rising to around 58%. What’s also interesting is that there is a decent 27% likelihood for the Committee to refrain from hitting the rate cut button at both gatherings.

With that in mind, next week, market participants are likely to pay extra attention to the ISM manufacturing and non-manufacturing PMI data for November, due out on Monday and Wednesday, but the highlight of the week is likely to be Friday’s Nonfarm payrolls for the same month.

With inflation proving somewhat hotter than expected in October, the prices charged subindices of the PMIs may be closely monitored for signs as to whether the stickiness rolled over into November. The employment indices will also be watched for early clues regarding the performance of the labor market ahead of Friday’s official jobs data.

Should the ISM PMIs corroborate the notion that the world’s largest economy continues to fare well, the probability for the Fed to take the sidelines at the turn of the year will increase, thereby refueling the dollar’s engines. However, whether a potential rally will evolve into a strong impulsive leg of the prevailing uptrend will most likely depend on Friday’s numbers. Following October’s 12k, which was the smallest gain since December 2020, nonfarm payrolls may need to return above 200k for investors to become more confident in the dollar uptrend.

The JOLTs job openings for October on Tuesday and the ADP employment report for November on Wednesday could also offer clues on how the US labor market has been performing.

Is a back-to-back 50bps cut off the table for the BoC?

At the same time with the US jobs data, Canada releases its own employment report for November. At its latest gathering, on October 23, the BoC cut interest rates by 50bps to support economic growth and keep inflation close to 2%, adding that if the economy evolves broadly inline with their forecasts, further reductions will be needed.

Investors were quick to pencil in a strong likelihood for a back-to-back double rate cut, but the hotter-than-expected CPI numbers for October made them somewhat change their mind. Currently there is only a 25% chance of such a bold move, with markets becoming more convinced that a quarter-point cut could be enough.

With that in mind, a strong report on Friday could further weigh on the chances of a double cut by the BoC and thereby support the loonie. Nonetheless, an upbeat employment report may not be enough for the currency to change orbit and begin a bullish trend. More threats by US president-elect Trump about tariffs on Canadian goods could result in more wounds for the currency.

Strong GDP could keep the RBA on hold for longer

From Australia, the GDP data for Q3 are coming out on Wednesday, during the Asian morning. The RBA is the only major central bank that has yet to press the rate cut button in this easing cycle, with market participants believing that the first 25bps reduction is likely to be delivered in May.

The latest monthly inflation data revealed that the weighted CPI held steady at 2.1% y/y, but the headline rate rose to 2.3% y/y from 2.1%. With the quarterly prints also pointing to weighted and trimmed mean rates for Q3 at 3.8% and 3.5% respectively, it may take time before this Bank starts considering lowering rates, and a strong GDP number for that quarter could prompt investors to push further back the timing of the first reduction.

This could prove positive for the aussie, but similarly to the Canadian dollar, it may be destined to feel the heat of Trump’s tariffs as the president-elect has pledged to hit China with even bigger charges than Canada.

Will ECB’s Lagarde agree that a 50bps cut may not be needed?

In the Euro area, although Germany’s preliminary inflation numbers for November came in below expectations, they still revealed some stickiness, with the headline rate rising to 2.2% y/y from 2.0%. The Eurozone’s headline rate also moved higher, to 2.3% y/y from 2.0%.

Combined with hawkish remarks by ECB member Isabel Schnabel who said that rate cuts should be gradual, this weighed on the probability of a 50bps reduction by the ECB at its upcoming meeting, despite the disappointing flash PMIs for the month. Currently the probability for the ECB proceeding with a double cut on December 12 stands at around 20%.

Having that in mind, next week, euro traders may lock their gaze on a speech by ECB President Lagarde on Wednesday, who will make an introductory statement before the Committee on Economic and Monetary policy Affairs (ECON) of the European Parliament. They may be eager to get more information about how the ECB is planning to move forward.

Geopolitics and political events dominated the agenda this week. On Monday evening, president-elect Donald Trump announced 25% tariffs on imported goods from Canada and Mexico, and an additional 10% tariff on China. This would bring the total China tariff to 35%. Mexico has already threatened to retaliate while Canadian Prime Minister Justin Trudeau said he was prepared to work with the US in "constructive ways". China is also expected to retaliate, and we could be in for a tit-for-tat escalation similar to what we saw in Trump's trade war. In theory at least, Trump could implement tariffs with an executive order on his first day in the office. In practice, the timing remains highly uncertain. Most likely, the tariffs will have to be linked to Trump's planned tax cuts, and such a complex legislative package would take time to get Congress approval.

Also in the geopolitical sphere, Israel and Hezbollah agreed on a ceasefire that entered into force on Wednesday. Israel could consider its mission in Lebanon accomplished, with most of Hezbollah leadership eliminated and much of its arsenal destroyed. While the truce in Lebanon is a sign of hope in a region plagued by conflicts, there is a long road to sustainable peace. We have written more about the recent events in our monthly Geopolitical Radar: The world prepares for Trump 2.0, 27 November.

Political risks are on the rise in France, and this has also been reflected by the widening of the German-French bond spread to its highest level since 2012. On Monday next week, the minority government must pass a social security budget, which could result in a no-confidence vote against the government, potentially leading to a collapse. Hence, uncertainty remains in French politics, and it remains unclear if the concessions from PM Barnier will be enough to satisfy the National Rally, whose support the government needs.

This week's main data releases were inflation reports from euro area and the US. In the euro area, inflation picked up pace in November but less than expected. Headline inflation rate increased to 2.3% from 2.0% from October, in line with expectations, but the core inflation was unchanged at 2.7% (exp. 2.8%). In the US, PCE headline inflation rose to 2.3% in October from 2.1% in September, as expected, while the core inflation accelerated to 2.8%, also in line with expectations. Overall, we conclude that the disinflationary process on both sides of the Atlantic remains well on track.

Heading into next week, already over the weekend we get Chinese PMIs for November. In the past two months, we have seen a decent increase in the official PMI manufacturing from NBS rising to 50.1 in October. Now, we expect to see a flat reading, reflecting somewhat better activity after the recent round of stimulus. We also look for a small rise in the Caixin PMI manufacturing (Monday) coming from 50.3 in October.

In the US, we will get the ISM manufacturing index on Monday, JOLTs data on Tuesday, ADP report on Wednesday, and non-farm payrolls report on Friday. Also, a bunch of Fed speakers will be on the wires before the quiet period begins on Saturday. In the euro area, the most important release will be the ECB-preferred wage data due on Friday. Also, retail sales data is due on Thurssday and we are keen to see if the rebound continued in October.

Full report in PDF.

• Yen strength continued to persist reinforced by an uptick seen in the leading Tokyo’s core-core inflation rate as it rose to 1.9% y/y in November.
• Japan’s overnight swap rates have indicated an increase in odds that BoJ may hike its short-term policy interest rate again in the upcoming 18-19 December meeting.
• Watch the 149.30 intermediate support (potential downside trigger) on the USD/JPY.

One of the supporting factors for the likely looming medium-term yen strength revival may be due to increasing demand for safe-haven currency macro theme play bets being structured in the FX market via the yen as more potential tariff threats may be drummed out by the incoming Trump administration.

Today, it is the USD/JPY turn to show yen strength as it tumbled to breach below the 150.00 psychology level and hit a six-week low of 149.80 at this time of the writing.

The primary fundamental factor that triggered the renewed weakness in the USD/JPY has been an uptick in the Tokyo inflation data for November as it is considered a leading indicator of Japan’s nationwide inflation price trends.

Tokyo’s inflationary trend has started to reverse up

Fig 1: Japan’s PPI, core-core CPI & Tokyo core-core CPI trends as of Nov 2024 (Source: TradingView, click to enlarge chart)

The Tokyo core-core inflation rate that stripped out food and energy components, a better gauge of demand-side inflation rose steadily for the second consecutive month to 1.9% y/y in November from a 1.8% increase in October (see Fig 1).

Also, its subcomponent services-sector prices in Tokyo rose 0.9% in November from a year earlier after a gain of 0.8% in October.

This latest set of inflationary data from Tokyo suggests a potential sign of broadening price pressure, and sustained wage gains that allowed firms to charge more for services, in turn increasing confidence that Japan is on the path of making steady progress to stay above Bank of Japan (BoJ)’s 2% inflation target. The last reading of the nationwide Japan core-core inflation rate (excluding fresh food and energy) rose to 2.3% y/y in October from 2.1% in September.

BoJ’s monetary policy meeting in December is now “live”

Fig 2: Japan overnight indexed swap rates medium-term trends as of 29 Nov 2024 (Source: MacroMicro, click to enlarge chart)

The BoJ ended its negative interest rates in March after eight years and raised its short-term policy interest rate by 15 basis points (bps) to 0.25% in July.

After the release of the latest upbeat Tokyo’s inflationary trends, market participants have now increased bets that BoJ may introduce another interest rate hike after its 18-19 December monetary policy as part of BoJ’s gradual normalization policy framework after it ended its decade-plus of ultra-accommodative monetary policy in March this year.

The spread of the 3-month and 6-month Japan overnight indexed swap rates have widened significantly since Tuesday, 19 November over the 1-month swap rate. Both the 3-month and 6-month swap rates rose to 0.38% and 0.44% respectively, above the 1-month swap rate at 0.31% as of Friday, 29 November (see Fig 2).

The widening of the 3-month and 6-month Japan overnight indexed swap rates over its 1-month counterpart is likely to put a ceiling on further US dollar strength against the yen at least in the short to medium term.

USD/JPY broke below its 50-day moving average with bearish momentum

Fig 3: USD/JPY medium-term & major trend phases as of 29 Nov 2024 (Source: TradingView, click to enlarge chart)

The price actions of the USD/JPY have sliced below its 50-day moving average today and recorded an accumulated intraday loss of 4.25% since its 15 November 2024 high of 156.75.

In addition, its daily RSI momentum indicator has staged a breakdown below a significant parallel ascending trendline support after it flashed out an earlier bearish divergence condition at the overbought region on 14 November (see Fig 3).

A break below the 149.30 intermediate support may trigger the start of a potential medium-term (multi-week) corrective decline sequence on the USD/JPY to expose the next medium-term supports at 144.80 and 140.25 in the first step.

On the other hand, a reintegration above the 154.70 key medium-term pivotal resistance invalidates the bearish scenario for the next medium-term resistance to come in at 158.35.

USDJPY fell to six-week low on Friday, in fresh acceleration lower after stronger than expected inflation rise in Tokyo in November, boosted expectations for Bank of Japan’s rate hike in the policy meeting next month.

Fresh bears cracked key supports at 150.18/00 (Fibo 38.2% of 139.57/156.74/psychological, reinforced by 55DMA), with weekly close below these level to boost negative signal for extension towards next strong support at 149.21 (top of rising and thickening daily Ichimoku cloud).

However, today’s dip to 149.52 and subsequent bounce back above 150 level, signals that bears face headwinds at this zone.

Prevailing tone on daily chart is bearish, supported by strengthening negative momentum, and attempts to form 5/200DMA death cross, but countered by support from rising daily cloud and oversold stochastic.

Watch today’s reaction at 150 support zone for fresh near-term direction signal, with bearish bias expected below 200DMA (151.98), but also be aware of predominantly bullish technical structure on weekly chart (despite the pair being on track for significant weekly loss, the first one after eight consecutive weeks of gains).

This situation may lead into two scenarios – failure at 150 zone and subsequent bounce that would generate initial signal of possible heathy correction, before larger bulls regain traction, or deeper correction of the rally of over two months.

Res: 150.45; 150.74; 151.28; 151.95.
Sup: 149.52; 149.21; 148.71; 148.16.

The Canadian dollar has been quiet over the past two trading days but that could change today with the release of Canada’s GDP report. In the European session, USD/CAD is trading at 1.4005, down 0.27%. There are no US events today and US markets will be closing early for the Thanksgiving weekend.

Canada GDP expected to rise to 0.3%

It has been a quiet week on the data calendar for Canadian releases, as the sole tier-1 event is today’s GDP report. After posting no growth in August, the market estimate for September stands at 0.3% m/m.

The lack of growth in September was expected, as the economy ran into a brick wall due to the weight of high borrowing costs. Interest rates remain high at 3.75% and this has dampened business activity and consumer demand. Recent cuts by the Bank of Canada have yet to filter through the economy.

The Bank of Canada will be keeping a close eye on the GDP release. If GDP is short of expectations, there will be pressure on the central bank to respond with a second straight cut of 50 basis points. This is the second to last key event prior to the rate announcement on Dec. 11, with the employment report on Dec. 6.

Inflation and the health of the economy are not the only factors on the minds of BoC policymakers. The Canadian dollar has taken a beating and has declined over 4% since Oct. 1. The BoC doesn’t want to see the Canadian dollar continue to depreciate and a 50-bp cut could sent the currency sharply lower.

USD/CAD Technical

• USD/CAD is testing support at 1.3995. Below, there is support at 1.3976
• 1.4019 and 1.4038 are the next resistance lines

The euro is showing little movement on Friday. In the European session, EUR/USD is trading at 1.0564, up 0.09%. There are no US events today and US markets will close early for the Thanksgiving holiday weekend.

Eurozone inflation jumps to 2.3%

Today’s eurozone inflation report was a reminder that inflation may be largely contained but the battle is not yet over. In November, CPI climbed to 2.3% y/y, up from 2% in October and matching the market estimate. Core inflation, which excludes volatile food and energy prices and is a better gauge of inflation trends, was unchanged at 2.7% y/y, shy of the 2.8% market estimate. Services inflation, which has been persistently high, rose 3.9%.

On a monthly basis, inflation declined in November, which could signal that disinflation is continuing. Headline CPI declined 0.3%, core CPI dropped 0.4%, and services inflation fell 0.9%.
The European Central Bank has strongly hinted at a rate cut in December and the November inflation data is unlikely to change those plans. The ECB can point to the monthly decline in the core rate and services inflation and weak economic activity as support for a rate cut.

The most recent PMI report showed that the eurozone services sector contracted for the first time in 10 months. Today’s German retail sales report pointed to weak consumer spending in the eurozone’s largest economy. Retail sales were down 1.5% m/m in October, after a revised 1.6% gain in September and below the market estimate of -0.3%. Annually, retail sales gained 1%, compared to a revised 4.2% in September and well below the market estimate of 3.2%.

EUR/USD Technical

• EUR/USD pushed above resistance at 1.0575 and 1.0595 before retreating
• 1.0551 is under pressure as support. The next support line is 1.0531

Gold prices have risen for four consecutive days, reaching 2,660 USD per troy ounce by Friday. The upward movement in Gold prices is primarily driven by the weakening of the US dollar and heightened geopolitical tensions. The current state of the currency market, characterised by low liquidity due to the extended US holiday weekend starting with Thanksgiving, also contributes to Gold's price behaviour.

Despite this recent appreciation, Gold faces potential headwinds and could experience a 2% decline by the week's end as investors await further data from the US. The upcoming statistics are anticipated to provide additional insights into the Federal Reserve's monetary direction on monetary policy. While the Core PCE data suggests a rate cut in December is plausible, other economic indicators point to the continued robustness of the US economy. This may lead the Fed to maintain its cautious approach to interest rates in 2025.

The relationship between the US dollar and Gold is crucial, as they typically move inversely. Gold, which does not generate its yield, tends to perform well when the dollar and US Treasury bond yields are lower.

Technical analysis of XAU/USD

On the H4 chart, XAU/USD has completed a corrective wave at 2,605.55 and is now poised for further growth towards 2,715.00. When this level is reached, a consolidation phase around 2,715.00 may occur, potentially leading to a continued upward trajectory towards 2,818.55. The MACD indicator supports this bullish scenario, with its signal line below zero but rising sharply.

The H1 chart shows that Gold has completed an initial growth structure to 2,658.88 and a subsequent correction to 2,622.00. Currently, a new growth phase targeting 2,698.00 is underway. Upon reaching this target, a pullback to 2,658.88 may occur before the market attempts to achieve a higher level of 2,715.00. This outlook is corroborated by the Stochastic oscillator, whose signal line is above 50 and climbing towards 80, indicating the potential for further upward movement.

Eurozone CPI rebounded from 2.0% yoy to 2.3% yoy in November, matched expectations. CPI core (energy, food, alcohol & tobacco) was unchanged at 2.7% yoy, below expectation of 2.8% yoy.

Looking at the main components, services is expected to have the highest annual rate in November (3.9%, compared with 4.0% in October), followed by food, alcohol & tobacco (2.8%, compared with 2.9% in October), non-energy industrial goods (0.7%, compared with 0.5% in October) and energy (-1.9%, compared with -4.6% in October).

Full Eurozone CPI flash release here.

The Japanese yen has surged higher on Friday after a strong inflation release. In the European session, USD/JPY is trading at 150.19, down 0.87% on the day. Earlier, the yen has broken below the symbolic 150 level for the first time since Oct. 21.

Tokyo Core CPI beats expectations

Tokyo Core CPI, a key inflation indicator which excludes fresh food and energy, rose 2.2% in November, above market expectations of 2.1% and above the October gain of 1.8%. Tokyo CPI jumped 2.6% in November, blowing past the October reading of 1.8% and the forecast of 1.9%.

The robust inflation data has sent the yen sharply higher as expectations for a December rate hike have climbed. The markets still aren’t sure which way the wind is blowing and have priced a December cut at around 60%. The Bank of Japan won’t win any points for transparency about its rate plans but the BoJ has hinted that its plans to continue raising rates and moving towards normalization. If the BoJ stays on the sidelines next month, it is expected to trim rates in early 2025.

The BoJ has more on its mind than inflation when it comes to rate policy. The yen has been on a miserable slide since early October, although it has shown some strength this week. The BoJ is under pressure to raise rates in order to support the yen, although a quarter-point rate may not provide much of a boost.

If the yen continues to lose ground and moves back towards the 155-160 level, we can expect the Ministry of Finance and the BoJ to warn about a possible currency intervention. This would be a last resort but Tokyo has carried through with interventions when it felt the yen was depreciating too quickly.

USD/JPY Technical

• USD/JPY has pushed below several support lines today. Currently, there is weak support at 149.89, followed closely by 149.63
• 152.05 and 152.54 are the next resistance lines