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Dollar jumps in early US session, buoyed by a robust set of employment data. headline job growth exceeded expectations, narrowly missing 200k mark, while unemployment rate showed a decline. This data suggests a still-tight job market, raising concerns among some market participants that underlying inflation pressures may not be easing as hoped. Notably, strong wage growth stands out as a key indicator of persistent inflationary pressures.

Today's positive employment figures are unlikely to change the prevailing expectation that Fed will keep interest rates unchanged at the upcoming meeting this month. However, the likelihood of an earlier-than-anticipated rate cut seems to have diminished. The market's attention is now shifting towards next week's key economic events, particularly the US CPI data on Tuesday and FOMC economic projections on Wednesday.

In terms of currency market performance for the week, Dollar has solidified its position as the second-best performer, although it remains far from challenging Yen for the top spot. Canadian Dollar ranks as the third strongest currency currently. On the other end of the spectrum, Australian and New Zealand Dollars occupy the weakest positions, followed closely by Sterling. Euro and Swiss Franc are showing mixed performances, positioned in the middle of the currency rankings.

In Europe, at the time of writing, FTSE is up 0.36%. DAX is up 0.37%. CAC is up 0.90%. Germany 10-year yield is up 0.076 at 2.274. UK 10-year yield is up 0.073 at 4.046. Earlier in Asia, Nikkei fell -1.68%. Hong Kong HSI fell -0.07%. China Shanghai SSE rose 0.11%. Singapore Strait Times rose 1.19%. Japan 10-year JGB yield rose 0.0178 at 0.774.

US NFP grows 199k, unemployment rate down to 3.7%

US Non-Farm Payroll employment grew 199k in November, slightly above expectation of 190k. That was below the average monthly gain of 240k over the prior 12 months.

Unemployment rate fell from 3.9% to 3.7%, below expectation of 3.9%. Participation rate rose 0.1% to 62.8%.

Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings rose 4.0% yoy. Average workweek for all employments edged up by 0.1 hour to 34.4 hours.

BoE survey reveals lower public inflation expectation

The latest Bank of England/Ipsos quarterly Inflation Attitudes Survey show inflation expectations decreased in the near term. There's also a shift in public sentiment towards a more balanced view of the economic situation in the UK, with decreasing number of people expecting further interest rate hikes and an increasing number advocating for stability or reduction in rates.

Median expectation for inflation over the coming year has decreased to 3.3%, down from 3.6% in August 2023. This decline suggests a growing optimism among respondents about the easing of inflationary pressures in the near term. However, when considering the twelve months following that period, expectations remain unchanged at 2.8%, indicating that respondents anticipate a stabilization of inflation rates in the longer term.

Regarding the future path of interest rates, there has been a notable shift in public opinion. Only 44% of respondents now expect rates to rise over the next 12 months, a significant decrease from the 63% who held this view in August. Conversely, 29% expect rates to stay about the same, up from 19%.

When asked about what would be "best for the economy", only 11% of respondents suggested that rates should "go up", down from 13%. Meanwhile, the proportion of respondents who believe that interest rates should "go down" remains steady at 40%, and those who think rates should "stay where they are" have increased to 29% from 26%.

Japan's nominal pay rises 1.5% yoy, but fail to keep pace with inflation, consumer spending drops

Japan's nominal pay growth rose by 1.5% yoy, surpassing the expected 1.0% yoy increase. This marked the fastest rate of increase since June. Regular or base salaries contributed to this increase with a 1.4% yoy rise. However, overtime pay slightly decreased by -0.1% yoy. Special payments, a variable component of wages, saw a significant jump of 7.5% yoy.

However, the positive trend in nominal pay was offset by the continued decline in inflation-adjusted real wages, which fell for the 19th consecutive month, dropping by -2.3% yoy. A labor ministry official commented, "Price increases have outpaced wage growth." This situation is exacerbated by the consumer inflation rate, which includes fresh food prices but excludes owner's equivalent rent, re-accelerating to 3.9% after a brief two-month slowdown.

Alongside wage trends, household spending in Japan also experienced a downturn, decreasing by -2.5% yoy in October. This decline, while still significant, was less severe than the anticipated 3.0% yoy drop. The continued decrease in household spending, which has now extended to eight consecutive months, reflects ongoing challenges in the domestic consumption sector.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0760; (P) 1.0788; (R1) 1.0822; More...

EUR/USD's fall from 1.1016 resumed after brief recovery, and intraday bias is back on the downside. Sustained trading below 55 D EMA (now at 1.0770) will pave the way to retest 1.0447 support. Nevertheless, break of 1.0894 will turn bias back to the upside for 1.1016 resistance instead. On the upside, above 1.0816 minor resistance will turn intraday bias neutral again.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Rise from 1.0447 is tentatively seen as the second leg. Hence while further rally could be seen, upside should be limited by 1.1274 to bring the third leg of the pattern. Meanwhile, sustained break of 55 D EMA will argue that the third leg has already started for 1.0447 and below.

Economic Indicators Update

US Non-Farm Payroll employment grew 199k in November, slightly above expectation of 190k. That was below the average monthly gain of 240k over the prior 12 months.

Unemployment rate fell from 3.9% to 3.7%, below expectation of 3.9%. Participation rate rose 0.1% to 62.8%.

Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings rose 4.0% yoy. Average workweek for all employments edged up by 0.1 hour to 34.4 hours.

Full US non-farm payroll release here.

• EURUSD trims recent gains ahead of US jobs data
• Short-term downward trajectory stays intact
• Bulls need a clear bounce above 1.0800

EURUSD could not sustain gains above the 1.0800 number and its 20- and 200-period exponential moving averages (EMAs) in the four-hour chart, staying within the tight bearish channel, which followed November’s peak of 1.1016.

The latest pullback dampened hopes for a bullish reversal in the very short-term picture ahead of the all-important US nonfarm payrolls report. Adding to the risks is the falling RSI, which failed to cross above its 50 neutral mark, suggesting the bears could dominate the market in the short term.

If December’s base of 1.0750 collapses, the price might seek shelter around the 50% Fibonacci retracement level of the October-November upleg at 1.0730. The upward-sloping line from October’s lows is adding extra credence to the region. However, if sellers win the battle there too, the decline could continue towards the channel’s lower band at 1.0689. The 61.8% Fibonacci mark of 1.0665 could be the next destination.

On the upside, the bulls will fight for a clear close above the channel and the 38.2% Fibonacci around 1.0800. Such an achievement might boost buying appetite towards the 50-period EMA at 1.0835. Additional increases from there could stabilize near the 23.6% Fibonacci of 1.0882, while an extension above the key ascending line from October at 1.0920 might shift the attention back to November’s highs.

In brief, EURUSD retains a downward trajectory in the short-term picture, with traders waiting for a move above 1.0800 or below 1.0750 to drive the market accordingly. 

• Australian dollar steady after sharp gains on Thursday
• US nonfarm payrolls expected to climb to 180,000

The Australian dollar is trading quietly on Friday. In the European session, AUD/USD is trading at 0.6611, up 0.14%.

It has been a roller-coaster week for the Australian dollar. After declining 1.88% early in the week, the Aussie rebounded on Thursday and gained 0.80%. Today’s US nonfarm payrolls report could result in further volatility from the Australian dollar in today’s North American session.

US nonfarm payrolls expected to rise

All eyes are on the US nonfarm payroll release later today. After falling sharply in October to 150,000 from a revised 297,000, nonfarm payrolls are expected to rebound to 180,000. If nonfarm payrolls are weaker than expected, speculation of a Fed rate cut will rise, while a hot report would undermine market confidence that a rate hike isn’t too far away.

Outside the headline data, average hourly earnings will be closely watched, as wage growth is a key driver of inflation. The consensus estimate for average hourly earnings in November stands at 0.3% m/m, compared to 0.2% in October. A higher-than-expected reading could generate a market reaction and give the US dollar a lift.

Australia’s largest trading partner is China and the slowdown in the world’s second-largest economy will likely dampen Australia’s economy. China’s economic woes were reflected in this week’s Australian GDP, which posted a weak 0.2% gain for the third quarter, compared to the 0.4% gain in Q2. Notably, exports dropped for the first time since Q1 2022.

China’s economic slowdown has resulted in disinflationary pressures. Chinese CPI decreased 0.1% in October and another 0.1% decline is expected in the November release on Saturday. If China’s economy continues to weaken, demand for Australian exports could fall even further and that could weigh on the Australian dollar.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6603. Above, there is resistance at 0.6639
• 0.6530 and 0.6494 are providing support

The latest Bank of England/Ipsos quarterly Inflation Attitudes Survey show inflation expectations decreased in the near term. There's also a shift in public sentiment towards a more balanced view of the economic situation in the UK, with decreasing number of people expecting further interest rate hikes and an increasing number advocating for stability or reduction in rates.

Median expectation for inflation over the coming year has decreased to 3.3%, down from 3.6% in August 2023. This decline suggests a growing optimism among respondents about the easing of inflationary pressures in the near term. However, when considering the twelve months following that period, expectations remain unchanged at 2.8%, indicating that respondents anticipate a stabilization of inflation rates in the longer term.

Regarding the future path of interest rates, there has been a notable shift in public opinion. Only 44% of respondents now expect rates to rise over the next 12 months, a significant decrease from the 63% who held this view in August. Conversely, 29% expect rates to stay about the same, up from 19%.

When asked about what would be "best for the economy", only 11% of respondents suggested that rates should "go up", down from 13%. Meanwhile, the proportion of respondents who believe that interest rates should "go down" remains steady at 40%, and those who think rates should "stay where they are" have increased to 29% from 26%.

Full BoE survey results here.

• German inflation confirmed at -0.4%
• US nonfarm payrolls project to accelerate to 180,000

The euro has edged lower on Friday. In the European session, EUR/USD is trading at 1.0774, down 0.17%. The euro has struggled lately against the US dollar and has slipped 2.2% since November 28.

German inflation confirmed at -0.4%

Germany’s economy is sputtering, so much so that the once proud economic powerhouse is being called the sick man of Europe. Germany boasts the largest economy in the eurozone, and it will be difficult for the eurozone to recover unless Germany recovers from its current malaise. Weak economic conditions have pushed inflation lower and German CPI was confirmed at -0.4% in November, down from no growth in October and matching the consensus estimate. On an annualized basis, CPI eased to 3.2% in November, down from 3.8% in October and matching the consensus estimate.

The fall in inflation is good news for the ECB, as curbing inflation is its number one priority. Eurozone inflation fell to 2.4% in November, down from 2.9% a month earlier and below the market forecast of 2.7%. Core CPI dropped to 3.6% from 4.2% and the positive data has fuelled expectations of a rate cut by the ECB in 2024. The central bank has pushed back against talk of rate cuts and has said it will continue its “higher for longer” rate policy, which means there is a significant disconnect between the central bank and the markets.

Will nonfarm payrolls accelerate?

All eyes are on the US nonfarm payroll release later today. After falling sharply in October to 150,000 from a revised 297,000, nonfarm payrolls are expected to rebound to 180,000. A soft nonfarm payroll report will fuel speculation of a Fed rate cut, which could push the US dollar lower in today’s North American session.

EUR/USD Technical

• There is resistance at 1.0788 and 1.0822
• 1.0722 and 1.0615 are providing support

• Japan’s Q3 GDP revised lower to -2.9%
• Japanese yen gains ground but can’t consolidate
• US nonfarm payrolls expected to rise to 180,000

The Japanese yen continues to show strong swings. In the European session, USD/JPY is trading at 143.94, down 0.16%. Earlier, the yen gained as much as 1.1% but couldn’t consolidate and surrendered almost all of these gains.

Japan’s Q3 GDP declines more than expected

Japan’s GDP contracted by 2.9% y/y in the third quarter, revised downwards from the initial estimate of 2.1% and below the revised market forecast of -2.0%. Consumer and business spending declined, and real wages and household spending also fell. Inflation remains high and continues to squeeze consumers.

The Bank of Japan will be paying particular attention to the fact that wages continue to fall sharply. inflation-adjusted real wages declined by 2.3% y/y in October, marking a 19^th straight monthly decline. The BoJ has insisted that it will not exit its ultra-loose policy until 2% inflation is sustainable, and that would require stronger wage growth. The soft GDP release and the disappointing wage data could complicate the BoJ’s plans to tighten policy.

The BoJ’s signals this week that it is looking to shift policy sent the yen surging on Thursday, with massive gains of 2.14%. Governor Ueda and BoJ Deputy Governor Ryozo Himino hinted at changes in policy, which was most unusual from the normally tight-lipped central bank. The yen reacted with huge gains and the December 18-19 meeting will be eagerly anticipated, as the BoJ could make some major announcements.

Nonfarm payrolls expected to rise

All eyes are on the US nonfarm payroll release later today. After falling sharply in October to 150,000 from a revised 297,000, nonfarm payrolls are expected to rebound to 180,000. If nonfarm payrolls are weaker than expected, speculation of a Fed rate cut will rise, and that could push the US dollar lower in the North American session.

USD/JPY Technical

• USD/JPY tested support at 143.72 earlier. Below, there is support at 143.27
• There is resistance at 144.39 and 144.84

In the dynamic world of financial trading, understanding the nuanced relationship between the Federal Reserve's key interest rates and Bitcoin can be a game-changer. As a trader, it's crucial to grasp how these seemingly disparate elements interact, influencing investment strategies and market movements. Is this a definite coincidence? Absolutely not!

The Federal Reserve's key rate, which determines the minimum interest rate for interbank lending, significantly impacts the broader financial landscape, including risk assets like Bitcoin.

The relationship between Bitcoin and the Federal Reserve's key rate has grown stronger. Traditionally, American retail and institutional investors believe that risk assets decline during the rate hikes and vice versa. Today, the markets await an upcoming key rate cut in 2024, anticipating new highs for digital assets.

This article will describe why the current bullish BTCUSD is approaching its end.

2017 - 2020 scenario

In the first half of 2019, the US key rate consolidated around its local maximum values. During this period, Bitcoin gained 370%, reaching the 61.8 Fibonacci Level, on traders' expectations of approaching rate cuts.

As the famous saying goes: "Buy the rumors, sell the news." The actual situation turned out to be the opposite. As soon as the rates started to decline, the BTCUSD entered a bearish trend. It happened because the central bank usually reduces the key rate when the macroeconomic situation worsens and economic growth slows. People don't have enough money to invest in risky assets but prefer to sell them and bring their capital to a safer place.

This case wasn't an exception. In March 2020, when the Federal Reserve announced an emergency 100-bps rate cut in response to the economic impact of COVID-19, BTCUSD experienced a 50% decline.

This move was aimed at saving and boosting the economy. Of course, the overall plan worked, and later, many investors turned to Bitcoin as a potential hedge against inflation, pushing the price to the moon. However, the decline of the crypto market in early March whipped many traders out of the market.

BTCUSD, weekly timeframe

Looking at the 2017 - 2019 scenario from the technical side, we notice that after a solid bear market ended in early 2018, BTCUSD bounced toward the 61.8 Fibonacci level. The price was rising on the expectations of upcoming rate cuts while the actual rate was consolidating at its highs. In August 2019, exactly at the moment when the Fed cut the rate, the BTCUSD entered a downtrend.

2021 - 2024 scenario

In 2023, the Federal Reserve continued its trend of increasing interest rates, a policy initiated in March 2022 to combat inflation. Over 16 months starting in March 2022, the rates were raised by 525 basis points, reaching a high point of 5.25%-5.5% in July, the highest level in 22 years.

Contrary to the opinion that such rate hikes would dampen the demand for risky assets like cryptocurrencies, Bitcoin’s value increased. Especially, after the Fed announcement regarding a pause in rate hikes in September 2023 because markets started to price in an upcoming rate decline.

BTCUSD, weekly timeframe

If we look at the chart in 2023 and analyze it in the same way, we find a lot of similarities with the 2017 - 2020 picture. Using the Fibonacci Retracement, we notice that the price movement follows the same scenario. BTCUSD is approaching the same 61.8 Fibonacci level that matches the 47 000 horizontal resistance level. At the same time, markets anticipate an upcoming rate cut by the Federal Reserve. The overall setup looks similar, doesn't it?

Given the similarity of the patterns, we expect the price to reach the 61.8 Fibonacci level around 47 000 and bounce off toward the 35 000 target after the first Fed rate cut in 2024.

Conclusion

This scenario is noteworthy, yet it often goes unnoticed. During each cycle, there is an anticipation in the markets that a key rate cut by the Federal Open Market Committee (FOMC) will have a positive effect on the prices of risky assets such as Bitcoin. However, it's crucial to grasp the fundamental aspect: a key rate cut typically occurs when the economy is stagnating and growth is decelerating, leading to panic selling and the disposal of risky assets.

• GBPJPY reverses October-November rally
• Oversold conditions detected after sharp drop
• Resistance at 181.45-182.00

GBPJPY crashed by 3.5% to 178.51 on Thursday before closing the day at 181.45, marking its worst daily session of the year. The pair faced heavy selling in the wake of renewed signals the Bank of Japan could exit its existing super accommodative monetary policy.

The bears are currently aiming to push the price back below the 180.00 mark, but the RSI and the stochastic oscillators have already plunged into oversold waters, suggesting selling pressures could fade soon.

The 23.6% Fibonacci retracement level of the 2023 uptrend is slightly lower at 180.80 and could help the pair to crawl back above the nearby resistance of 181.45 and the 182.00 round level. Running higher, some consolidation could develop between the 183.30 barrier and the 50-day simple moving average (SMA) at 184.20. If the recovery continues, the bulls will attempt to climb back above the broken support trendline at 185.30 and perhaps cross above the 20-day SMA at 186.16 too.

Alternatively, a step below 180.80 could initially stabilize within the 179.60-179.80 region, where the ascending line from April 2022 intersects the short-term restrictive lines from August. A defeat there could open the way towards the 200-day SMA at 177.77. Beneath that, sellers could head for the 38.2% Fibonacci of 175.90.

In a nutshell, GBPJPY could heal some of its wounds following its latest freefall. A clear move above 181.45-182.00 could strengthen upside forces.

• AUDUSD pulls back from 1-year downtrend line
• Strong resistance lines to test before switching the downtrend
• RSI and stochastic indicate more losses

As the year 2023 is approaching its conclusion, AUDUSD is continuing the descending movement that started back in February 2021. Currently, the pair is testing the downtrend line, which has been drawn since January and the 50-week simple moving average (SMA).

According to technical oscillators, they are confirming the recent negative movement on price as the RSI is ticking down near the neutral threshold of 50, while the stochastic is ready to post a bearish crossover within its %K and %D lines in the overbought market, suggesting that bears would take the upper hand again in the short-term.

Now should sellers stay in charge, the first obstacle to the downside might be the 0.6520 zone, which has acted both as support and resistance in recent months. If violated, the spotlight would then shift to the one-year low of 0.6265 area, which halted the retreat in October.

In case buyers take control and pierce above the one-year falling trend line, then it may manage to hit the very long-term downtrend line, which overlaps with the 100-week SMA at 0.6790. Moving higher, the 0.6900 psychological mark and the 200-week SMA at 0.7000 could be significant resistance levels to have in mind, changing the outlook to neutral.

Summarizing, the long-term outlook remains clearly negative. A decisive break above 0.7000 is needed to bring that into doubt, although a pullback from the recent descending line would confirm again the current trend.