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The Japanese yen is in negative territory on Tuesday. In the North American session, USD/JPY is trading at 154.44 up 0.46% on the day.

No clarity from BoJ summary of opinions

The Bank of Japan summary of opinions indicated a lack of clear direction regarding the timing of a rate hike. This will leave traders guessing as to whether the BoJ will wait until early next year, which seems the most likely scenario. Still, a December hike is on the table, as inflation remains high and the yen is struggling. At the same time, the political instability in Japan and the transfer of power in the US has resulted in considerable political uncertainty, which supports the case to hold rates until next year.

The BoJ has never made transparency a priority, in stark distinction to the Federal Reserve which took pains to telegraph its intent to lower rates earlier this month. The BoJ has surprised the markets in the past, which could be part of its effort to discourage yen speculators.

The BoJ meets next on Dec. 19 and key data such as inflation and GDP will be important factors ahead of the rate decision at the December meeting. As well, wages have been rising and the BoJ is hopeful that will translate into increased consumer spending and demand-driven inflation. Consumer spending makes up more than half of the economy and BoJ is unlikely to make further rate hikes until it sees stronger consumer spending.

In the US, there are no major events on the data calendar but investors will be listening closely as a number of FOMC members make public remarks today. The Federal Reserve is expected to continue to trim rates, with the markets pricing in a cut of 25 basis points at 65%, according to the CME’s FedWatch.

USD/JPY Technical

• There is resistance at 154.76 and 155.57
• USD/JPY tested support at 1.5425 earlier. Below, there is support at 153.44

The euro can’t seem to find its footing. EUR/USD is down for a third straight trading day and has declined 0.38% on Wednesday, trading at 1.0608 at the time of writing. Earlier today, the euro dropped as low as 1.0606, its lowest level since April 15.

The US dollar rose after Donald Trump’s decisive election win, and the dollar is getting a boost as the Republicans are likely to win the House of Representatives. This would give the Republicans control of the House and the Senate and would make it easier for Trump to push through his agenda.

Eurozone confidence falls sharply

The eurozone ZEW economic sentiment index fell in November to 12.5, down sharply from 20.1 in October and well short of the market estimate of 20.5. It was a similar story for the German ZEW release, which fell from 13.1 to 7.4, shy of the consensus of 13. Investors and analysts are pessimistic about the economic outlook for two reasons. First, the Trump victory could signal new tariffs on European products and even trigger a trade war, the last thing the weak eurozone economy can afford. The second concern is the collapse of the German government coalition, with a snap election called for Feb. 23.

The European Central Bank meets next month and has signaled another reduction. ECB Governing Council member Olli Rehn said on Tuesday that a December cut is likely. The markets have priced in a reduction of 35 basis points in December, suggesting that traders are split on whether the ECB will opt for a cut of 25 or 50 basis points. There are differing opinions among the Governing Council members and we’re likely to see these opposing views aired in the coming weeks.

EUR/USD Technical

• EUR/USD tested support at 1.0614 earlier Below, there is support at 1.0572
• There is resistance at 1.0671 and 1.0713

Markets

The UK Office for National Statistics published September labour market data this morning. They continue to struggle with mixed results coming from estimates for payrolled employees and estimates based on the labour force survey. Payrolled employees fell by 9k over the period comparable with the LFS estimates (July-September) which showed a 220k increase in employment. The early estimate of payrolled employees for October decreased by 5k. The unemployment rate increased to 4.3% in Q3, up from 4%, but the labor force participation rate rose to 74.8% from 74.1% over the same period. The estimated number of vacancies in the UK decreased in August to October 2024, by 35k on the quarter to 831k; the 28th consecutive decline, but still above pre-COVID levels. Average wages (excl. bonuses) remained elevated at 4.8% for the July-September period compared with a year ago. This total annual growth is affected by the civil service one-off payments made in July and August 2023. The front end of the UK yield curve underperforms today, in line with the move on the US Treasury market. UK money markets further reduce December rate cut bets (17% currently). As long has the economy doesn’t all of a sudden collapses, gradualism is key both in the UK and in the US. Bank of England chief economist also specially mentioned today’s wage growth as being quite sticky, at elevated levels and hard to reconcile with the UK inflation target. “Our job is not done”, he added. Sterling failed to bank on today’s yield advantage (German yields give away 1.7 bps at the front end), but remains below EUR/GBP 0.83 suggesting a return to the 2022 low of 0.8203 remains the preferred short term route.

By default USD strength since Trump’s republican sweep is name of the game. EUR/USD set an intraday low at 1.0607, just above the 1.0601 YTD low which is final support ahead of the 2023 range bound of 1.0448. Today’s disappointing German ZEW investor survey obviously failed to improve the picture. The ZEW current situation index declined from -86.9 to -91.4 (vs -85 expected). For comparison: at the height of the pandemic, the ZEW indicator only printed below -91.4 on two occasions (April & May 2020). The same goes for the height of the financial crisis (April & May 2009). The forward looking expectations gauge dipped from 13.1 to 7.4 (vs 13.2 expected). Donald Trump’s victory and the end of the coalition negatively impacted the results, but ZEW president Wambach added that: “In the last few days of the survey period, however, more optimistic voices are also becoming increasingly vocal about the economic outlook for Germany due to the likelihood of early elections.”

News & Views

Hungarian prices increased by 0.1% m/m to be up 3.2% y/y in October compared to 3% in September. Food and clothing & footwear amongst others became more expensive (0.7% and 3% m/m respectively) but services prices dropped 0.9%. The outcome undershot expectations for a price rebound of 0.4% m/m and 3.5% y/y. The central bank’s core inflation gauges all eased as well and now hover between a 4.5-5% range. The inflation surprise, however, won’t make the Hungarian central bank switch tack. Its vice-governor flagged a “sustained” pause last month over concerns about the ongoing weakness and thus inflationary effect of the Hungarian currency. Since then, the forint tanked even further as the fall-out of president-elect Trump’s election victory continues to affect all corners of the market. EUR/HUF is currently trading north of 410, the highest (HUF-weakest) level since end-2022, suggesting the MNB’s turnaround offers little support for the forint so far. There’s little in the way from a technical point of view for a return towards the 2022 all-time HUF-lows around EUR/HUF 430.

Germany is set to hold federal elections on February 23, seven months earlier than scheduled. The snap elections follow the collapse of the government last week over the so-called debt brake. The current chancellor and SPD leader Scholz is said to hold a vote of no-confidence – the trigger needed to be able to hold new elections – on December 16. The February 23 data is a compromise between the opposition/CDU-CSU calling for a sooner vote (and banking on a lofty lead on the polls) and Scholz who wanted a mid-March election.

Dollar's rally continues broadly today, though most of its strength remains concentrated against European majors. While the greenback holds firm, it remains capped below last week's highs against commodity-linked currencies and Yen. A clear move upwards could only unfold if 10-year Treasury yield breaks past the 4.4% threshold, though the true direction may hinge on tomorrow’s US CPI release, which could determine near-term policy expectations.

Among European currencies, Euro is under particular pressure. Disappointing German ZEW economic sentiment report has added to concerns that Germany’s fragile recovery could face further challenges amid anticipated US trade policy shifts. Sterling is also feeling the weight of higher UK unemployment rate, which signals some labor market loosening. However, with wage growth still elevated, BoE appears far from pursuing an aggressive policy easing path. The softening job market, though, does provide a slight cushion against inflation.

This week so far, Yen leads losses, followed by Euro and Sterling, while Dollar leads gains, trailed by Canadian and Australian Dollars. Kiwi and Swiss Franc sit in middle positions.

Technically, with today's strong rally, 10-year yield looks set to take on key resistance level at 61.8% retracement of 4.997 to 3.603 at 4.464 within the course of the week. Decisive break there would strengthen the case that whole correction from 4.997 has completed with three waves down to 3.603. Stronger rise should then be seen to 4.737 resistance next, and this should take Dollar higher too. However, another rejection by 4.465, followed by 4.223 support bring deeper pullback to 55 D EMA (now at 4.102) and possibly below.

In Europe, at the time writing, FTSE is down -0.80%. DAX is down -0.93%. CAC is down -1.26%. UK 10-year yield is up 0.046 at 4.473. Germany10-year yield is up 0.020 at 2.348. Earlier in Asia, Nikkei fell -0.40%. Hong Kong HSI fell -2.84%. China Shanghai SSE fell -1.39%. Singapore Strait Times fell -0.75%. Japan 10-year JGB yield rose 0.0078 at 1.009.

German ZEW slumps to 7.4, domestic political uncertainty and US election outcome

German ZEW Economic Sentiment index took a significant hit in November, plunging from 13.1 to a mere 7.4, sharply missing expectations of 13.2. Current Situation Index also declined, falling from -86.9 to -91.4, below the anticipated -86.0.

The broader Eurozone felt the impact as well, with its ZEW Economic Sentiment index dropping from 20.1 to 12.5, and the Current Situation Index slipping by 3.0 points to 43.8.

ZEW President Achim Wambach highlighted that the drop in German economic expectations was heavily influenced by two recent developments: Donald Trump’s election victory and the collapse of Germany’s government coalition.

According to Wambach, “Economic sentiment has declined – and the outcome of the US presidential election is likely to be the main reason for this.” The survey data reflect rising optimism toward the US, while sentiment for China and Eurozone continues to deteriorate, reinforcing concerns of broader instability.

ECB's Rehn: May exit restrictive policy as soon as late winter

Speaking at a conference today, Finnish ECB Governing Council member Olli Rehn reiterated that the direction of monetary easing is "clear". However, he emphasized that the "speed and scope " of these cuts will be determined by a trio of factors evaluated at each ECB meeting: the inflation outlook, underlying inflation trends, and the efficacy of monetary policy transmission.

Rehn pointed to the possibility of reducing the ECB’s deposit rate, currently at 3.25%, to a neutral level. Such adjustments could occur by late winter or early spring if the data supports it.

"Current market data and simple maths seem to imply that we would leave restrictive territory sometime in the spring/winter next year 2025," Rehn said. "But that is just an observation from my side, not a commitment."

BoE’s Pill cites persistent pay growth and underlying inflationary pressures

At a conference today, BoE Chief Economist Huw Pill referred to today's UK labor market data, noted that wage growth remains "quite sticky at elevated levels," which he characterized as "hard to reconcile" with the inflation target, given current productivity growth expectations.

While acknowledging the significant disinflation seen in recent months, which has allowed for a reduction in monetary policy restrictions, Pill cautioned that "does not mean it is job done".

He emphasized that despite some easing in headline inflation, “some underlying inflationary pressures” persist in the UK economy.

Mixed UK labor data as unemployment rate and earnings growth climbs

In October, UK employment data indicated slight weakening in the labor market, with payrolled employees decreasing by -5k or -0.0% mom to a total of 30.4m. Comparing to the same month a year ago, payrolled employment rose 95k or 0.3% yoy. However, the claimant count for job-related benefits rose by 26.7k to reach 1.806mn, smaller than expectations of a 30.5k increase.

In the three months to September, unemployment rate climbed from 4.0% to 4.3%, higher than the anticipated 4.1%. On the earnings front, total average earnings, including bonuses, rose by 4.8% yoy, outpacing both the previous 3.9% growth and market forecasts. Excluding bonuses, average earnings grew by 4.8% yoy, marginally down from 4.9% yoy in the prior period but still above the projected 4.7% yoy.

Australian Westpac consumer sentiment jumps 5.3%, but US election casts shadow on outlook

Australian consumer sentiment saw a solid rebound in November, with Westpac Consumer Sentiment Index climbing by 5.3% mom to reach 94.6. This marks a 14.4% rise from its mid-year low, leaving it just 5.4 points shy of the neutral 100 mark.

The improvement was led by increased optimism about the short-term economic outlook. The "economic outlook, next 12 months" sub-index jumped 8.7% to 100.9, the first optimistic reading (above 100) since post-COVID recovery. Confidence around personal finances also strengthened, with the "family finances, next 12 months" sub-index up 4.4% to 104.1. Meanwhile, Unemployment Expectations Index dropped by -7.2% to 120.5, indicating the highest level of labor market confidence since April 2023.

Westpac noted three important observations in November's sentiment trends. First, confidence reached 99.7 in the early survey period, prior to RBA’s rate decision, reflecting marked optimism. Secondly, consumer sentiment remained unaffected by RBA's decision to hold rates steady. Lastly, sentiment dropped sharply after US election result, averaging 91.1 in the survey’s latter half. This indicates an unusually wide range of ±5% for November's final read, suggesting a degree of uncertainty not typically seen.

Australian NAB business confidence surges to 5, easing cost pressures but persistent retail inflation

Australia's NABs Business Confidence Index jumped from -2 to 5, marking a notable improvement after a prolonged period of below-average sentiment. Business conditions remained stable at 7, while trading conditions saw a slight increase from 12 to 13. Profitability held steady at 5, and employment conditions edged lower from 5 to 3.

Gareth Spence, NAB’s Head of Australian Economics, highlighted the jump in confidence as an encouraging development, noting that it is “just one month” but shows "tentative improvement" in forward orders, suggesting possible momentum.

Input cost pressures continued to ease, with labor cost growth decelerating from 1.9% to 1.4% on a quarterly basis from 1.9%, and purchase cost growth slowing from 1.3% to 0.9%. Retail price growth, however, saw a rebound, rising from 0.6% to 1.1%.

Spence noted, "The survey, like other price indicators, continues to suggest an ongoing gradual easing in inflation pressure, but also that there is still some way to go in in the inflation moderation when we look at the consumer facing components”.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0614; (P) 1.0671; (R1) 1.0713; More...

EUR/USD's fall from 1.1213 is in progress and intraday bias stays on the downside. Next target is100% projection of 1.1213 to 1.0760 from 1.0936 at 1.0483. On the upside, above 1.0686 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0760 support turned resistance holds.

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.

Daily Pivots: (S1) 1.0614; (P) 1.0671; (R1) 1.0713; More...

EUR/USD's fall from 1.1213 is in progress and intraday bias stays on the downside. Next target is100% projection of 1.1213 to 1.0760 from 1.0936 at 1.0483. On the upside, above 1.0686 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0760 support turned resistance holds.

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.

Daily Pivots: (S1) 1.2841; (P) 1.2884; (R1) 1.2911; More...

Intraday bias in GBP/USD remains on the downside for the moment. Current fall from 1.3433 should target 61.8% retracement of 1.2298 to 1.3433 at 1.2732. Sustained break there will pave the way towards 1.2298 key support. For now, outlook will stay bearish as long as 1.3008 resistance holds, in case of recovery.

In the bigger picture, considering mildly bearish divergence condition in D MACD, a medium term top is likely in place at 1.3433 already. Price actions from there are seen as correction to whole up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8770; (P) 0.8790; (R1) 0.8790; More…

USD/CHF's rally is in progress and intraday bias stays on the upside. Current rise from 0.8374 should target 61.8% retracement of 0.9223 to 0.8374 at 0.8899. Sustained trading above there will pave the way towards 0.9223 high. On the downside, below 0.8773 support will turn intraday bias neutral again and bring consolidations first, before staging another rally.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen 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.

Daily Pivots: (S1) 152.93; (P) 153.44; (R1) 154.25; More...

USD/JPY is staying in range below 154.70 and intraday bias remains neutral. Further rise is expected as long as 151.27 support holds. Above 154.70 will resume the rally from 139.57 towards 161.94 high. However, considering bearish divergence condition in 4H MACD, break of 151.27 will indicate short term topping, and turn bias back to the downside for 55 D EMA (now at 149.89).

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.

At a conference today, BoE Chief Economist Huw Pill referred to today's UK labor market data, noted that wage growth remains "quite sticky at elevated levels," which he characterized as "hard to reconcile" with the inflation target, given current productivity growth expectations.

While acknowledging the significant disinflation seen in recent months, which has allowed for a reduction in monetary policy restrictions, Pill cautioned that "does not mean it is job done".

He emphasized that despite some easing in headline inflation, “some underlying inflationary pressures” persist in the UK economy.

German ZEW Economic Sentiment index took a significant hit in November, plunging from 13.1 to a mere 7.4, sharply missing expectations of 13.2. Current Situation Index also declined, falling from -86.9 to -91.4, below the anticipated -86.0.

The broader Eurozone felt the impact as well, with its ZEW Economic Sentiment index dropping from 20.1 to 12.5, and the Current Situation Index slipping by 3.0 points to 43.8.

ZEW President Achim Wambach highlighted that the drop in German economic expectations was heavily influenced by two recent developments: Donald Trump’s election victory and the collapse of Germany’s government coalition.

According to Wambach, “Economic sentiment has declined – and the outcome of the US presidential election is likely to be the main reason for this.” The survey data reflect rising optimism toward the US, while sentiment for China and Eurozone continues to deteriorate, reinforcing concerns of broader instability.

Full German ZEW release here.