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AUD/USD's rebound from 0.6269 continued last week, and late breach of 0.6674 temporary top suggests that it's resuming after brief retreat. Initial bias is back on the upside this week. Sustained break break of channel resistance (now at 0.6661) will argue that whole decline from 0.7156 has completed with three waves down to 0.6269. Further rally should then be seen to 0.6894 resistance for confirmation. However, break of 0.6570 support will indicate rejection by the channel and turn bias back to the downside.

In the bigger picture, there is no confirmation that down trend from 0.8006 (2021 high) has completed. price actions from 0.6169 (2022 low) could be just a medium term corrective pattern, with rise from 0.6269 as the third leg. For now, range trading should be seen between 0.6169 and 0.7156 (2023 high), until further developments.

In the long term picture, the down trend from 1.1079 (2011 high) should have completed at 0.5506(2020 low) already. It's unsure yet whether price actions from 0.5506 are developing into a corrective pattern, or trend reversal. But in either case, fall from 0.8006 is seen the second leg of the pattern. Hence, in case of deeper decline, downside strong support should emerge above 0.5506 to bring reversal.

USD/CAD's decline from 1.3897 extend to as low as 1.3486 last week and there is no sign of bottoming yet. Initial bias stays on the downside this week for 1.3378 support next, which is close to 61.8% retracement of 1.3091 to 1.3897 at 1.3399. Strong support could be seen there to bring rebound. Meanwhile, on the upside, above 1.3625 minor resistance will turn intraday bias neutral again first.

In the bigger picture, rise from 1.3091 is seen as the fifth leg of the whole rise from 1.2005 (2021 low). Further rally is expected as long as 1.3378 support holds, to 61.8% projection of 1.2401 to 1.3976 from 1.3091 at 1.4064. However, decisive break of 1.3378 will dampen this view and bring deeper fall back to 1.3091 instead.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 M EMA (now at 1.3126) holds.

GBP/JPY retreated after edging higher to 188.26 last week. Initial bias stays neutral this week for consolidations first. But near term outlook will remain bullish as long as 184.44 support holds. Break of 188.63 will resume larger up trend.

In the bigger picture, as long as 184.44 support holds, larger up trend from 123.94 (202 low) should still be in progress, next target is 195.86 (2015 high). However, firm break of 184.44 will now argue that a medium term top is formed, possibly in bearish divergence condition in D MACD, and bring deeper fall back to 178.02 support.

In the longer term picture, rise from 122.75 (2016 low) in still in progress but started losing upside momentum as seen in W MACD. Further rise will remain in favor, though, as long as 178.02 support holds, to retest 195.86 (2015 high).

EUR/JPY's fall from 164.29 resumed last week and accelerated to as low as 159.63. Breach of 159.75 resistance turned support suggests that it's already corrective the whole rise from 139.05. Initial bias remains on the downside this week. Deeper fall wold be seen to 161.8% projection of 164.29 to 161.22 from 163.70 at 158.73 next. On the upside, above 161.22 support turned resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, bearish divergence condition in 55 D EMA indicates that a medium term top could b formed at 164.29 already, after hitting rising channel resistance. But price actions from there are tentatively seen as a correction only. There is no clear sign that the up trend from 144.42 (2020 low) has completed yet. As long as 55 W EMA (now at 152.12) holds, another rally through 164.29 is still in favor as a later stage.

In the long term picture, rise from 109.03 (2016 low) is seen as the third leg of the whole up trend from 94.11 (2012 low). Next target is 100% projection of 94.11 to 149.76 from 114.42 at 170.07 which is close to 169.96 (2008 high).

EUR/GBP's fall from 0.8764 accelerated to as low as 0.8557 last week. The development suggests that rebound from 0.8491 has completed as a corrective move at 0.8764. Initial bias stays on the downside this week for retesting 0.8491 low first. Firm break there will resume larger down trend. On the upside, touching 0.8634 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, current development suggests that down trend from 0.9267 (2022 high) is still in progress. This decline is now seen as the third leg of the pattern from 0.9499 (2020 high). Break of 0.8201 will target 100% projection of 0.9499 to 0.8201 from 0.9267 at 0.7969. In any case, outlook will stay bearish as long as 0.8764 resistance holds.

In the long term picture, long term range pattern from 0.9799 (2008 high) is extending, and is set to continue until further development.

EUR/AUD's decline from 1.7062 resumed by diving through 1.6319 support last week. Initial bias stays on the downside this week for 100% projection of 1.7062 to 1.6319 from 1.6844 at 1.6106 next. On the upside, above 1.6649 resistance will turn intraday bias and bring consolidations first, before staging another decline.

In the bigger picture, the break of medium term trend line support now suggests fall from 1.7062 correcting the whole up trend from 1.4281 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.4281 to 1.7062 at 1.6000. Strong support could be seen there to bring rebound on first attempt. But risk will stay on the downside as long as 1.6844 resistance holds. Sustained break of 1.6000 would bring further fall to 61.8% retracement at 1.5343.

In the longer term picture, fall from 1.9799 (2020 high) is seen as a long term decline at the same scale as the rise from 1.1602 (2012 low). Rebound from 1.4281 is seen as the second leg. As long as 55 M EMA (now at 1.5846) holds, this second leg could still extend higher. However, sustained trading below 55 M EMA will open up the bearish case for extending the decline through 1.4281 low.

EUR/CHF's steep decline last week indicates that rebound from 0.9416 has completed at 0.9683 already, after rejection by 0.9691 cluster resistance. Initial bias stays on the downside this week for retesting 0.9407/16 support zone. Decisive break there will resume larger down trend. On the upside, touching 0.9543 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, rejection by 0.9691 cluster resistance (38.2% retracement of 1.0095 to 0.9416 at 0.9675) maintains medium term bearishness in EUR/CHF. Firm break of 0.9047 support (2022 low) will resume long term down trend. Next target will be 61.8% projection of 1.1149 to 0.9407 from 1.0095 at 0.9018. For now, outlook will be neutral at best as long as 0.9683 holds.

In the long term picture, outlook remains bearish as it's staying well below 55 M EMA (now at 1.0306). Larger down trend from 1.2004 (2018 high) is in progress to break through 0.9407 low.

Monday, Dec 4, 2023

Tuesday, Dec 5, 2023

Wednesday, Dec 6, 2023

Thursday, Dec 7, 2023

Friday, Dec 8, 2023

U.S. Highlights

• A second reading on U.S. GDP showed that the economy expanded by an even more impressive 5.2% (annualized) last quarter, a 0.3 percentage point upgrade from the initial reading. Government spending and business investment were revised up, but consumer spending was revised down slightly.
• October’s real consumer spending data showed that growth eased at the start of the fourth quarter. Core PCE inflation, the Fed’s preferred measure, also cooled to 3.5% year-on-year from 3.7% in September.
• The National Association of Realtors pending home sales index fell to a record low in October.

Canadian Highlights

• Canada has avoided a technical recession. The contraction in Q3 GDP growth was offset by large upward revisions to the quarter prior that brought output back into positive territory.
• Canada’s labour market continued to add jobs in November, but robust labour force growth lifted the unemployment rate higher.
• It is still too early for the Bank of Canada (BoC) to hint at interest rate cuts at its rate decision next week, but it’s becoming increasingly evident that further rate hikes are not necessary.

U.S. – Moving Toward Target

The U.S. economy grew at an even better pace than initially reported in the third quarter. But, a moderation in consumer spending in October coupled with some progress on the inflation front, reinforced market expectations that the Fed has likely reached the end of its tightening cycle. That said, Fed speak out this week was somewhat mixed, with some suggesting that today’s policy rate is sufficiently restrictive while others still feel it’s too early to call it quits. In his speech on Friday, Chair Powell called talk of cutting rates ‘premature’.

The second reading on U.S. GDP showed that the economy grew by 5.2% (annualized) last quarter, an upgrade of 0.3 percentage points from the initial reading. The upward revision reflects improvements in government spending and fixed investment. One major category going against the grain was consumer spending, which was revised slightly lower to 3.6% from 4% previously. Stepping into the fourth quarter, the personal income and outlays report, added another layer of moderation for the consumer. Nominal spending rose 0.2% month-over-month (m/m) in October, a deceleration from 0.7% in September. The spending slowdown was less pronounced on an inflation-adjusted basis, with growth easing to 0.2% from 0.3% in the month prior.

Given a reduction in credit availability and the drawdown of pandemic era ‘excess savings’, the American consumer will have to rely more closely on income growth to fund its spending. As such, any softness on the labor market should filter through to weaker spending. Peeking into the labor market, continuing jobless claims rose to 1.93 million in mid-November. This is the highest level since late 2021 and an added sign that the labor market is gradually cooling. Overall, we expect consumer spending to remain buoyant over the holiday period, but the momentum is likely to fade, with consumption growth likely to slow to around 2% this quarter.

The monthly personal income and outlays report also carried some good news on the inflation front. The highlight was a continued deceleration in core PCE – the Fed’s preferred inflation gauge – which slowed to 3.5% year-on-year in October from 3.7% in the month prior (Chart 1). Interest rates have eased alongside this continued progress toward the Fed’s 2% target, and so have mortgage rates. The 30-year mortgage rate is currently hovering near 7.2% – some 80 basis points lower than the 8% peak in mid-October. This pullback appears to be providing some relief on housing, with mortgage purchase applications ticking higher for the fourth week in a row last week. But, the impact of interest rates tends to be felt with a lag, so this will take some time to be manifested in sales activity. To that end, pending home sales fell to an all-time low in October, indicating that things are likely to get worse before they get better (Chart 2).

All in all, higher interest rates are working as intended with inflation gradually easing toward target, but the Fed can’t let its guard down prematurely and is likely to maintain a hawkish tone until it is convinced that the inflation is decisively moving back towards 2%.

Canada – Revisions, Surprises, and a Sprinkle of Jobs

The banner news for the week is that Canada isn't in a recession. The potential for such a scenario was a growing narrative before updated real GDP figures extinguished that possibility. GDP for the third quarter did in fact surprise to the downside, contracting by an annualized 1.1%. But, strong upward revisions to the second quarter brought output back into positive territory keeping Canada out of a technical recession.

Although Canada isn't in a recession, it is showing weakness, and the risk to growth cannot be dismissed heading into next year. The decline in real GDP growth for the third quarter was primarily driven by external factors, as net exports and slow inventory accumulation accounted for most of the drag. Final domestic demand, a better measure of domestic economic health, continued to grow at a robust pace.

Monthly industry-based GDP provided a first reading on how the fourth quarter is shaping up. Guidance for October points to output advancing at a moderate pace, piggybacking off September's slight, but above-consensus gain. This puts early Q4 growth tracking positive, but still in below-trend territory. The next few months will hopefully provide cleaner readings of GDP now that the host of one-off shocks that created choppiness over the last six-months dissipates. For now, chatter around Canada already being in a recession should quiet, but we expect GDP growth to hum along at below trend-pace for the better part of 2024 (Chart 1).

The Canadian labour market is also slowing, but hasn't fully ceded its strength. Canada added another 25k jobs in November, pulling the three-month trend in job gains slightly downward. The unemployment rate, however, has moved up eight-tenths since April, as labour force gains continue outpace employment. The labour market is holding up relatively well at this point in the cycle, but the Bank of Canada (BoC) likely wants to see the market move further into balance. Notably, wage gains are still robust, potentially fanning future inflation fears and vacancies, while declining, remain at elevated levels.

Developments this week support our forecast that the Bank of Canada (BoC) is done with rate hikes. However, it is too early for the BoC to lean too dovish at next week's meeting and say anything about rate cuts or their timing. The Bank will likely need to see inflation, especially core measures, move durably lower before they move off their bias towards rate hikes. Markets have priced the possibility of a first rate cut to occur around April–in line with our own view. Rest assured, the BoC's most aggressive rate hike campaign in over 40 years is working. Consumers are reeling in their spending, labour markets are returning to balance, and growth is evolving in a manner consistent with inflation inching closer to the BoC's 2% target. Whether it's a hard, soft, or bumpy landing is still yet to be seen, but the Air-Canad(ian economy) plane is getting closer to the runway.

Summary

United States: Inflation Takes Another Leg Lower

• The U.S. data this week signaled that the economic expansion remains intact even as inflation continues to slow. The year-ago rates of headline and core PCE inflation were the lowest since March 2021 and April 2021, respectively.

Next week: ISM Services (Tue.), Employment (Fri.), Consumer Sentiment (Fri.)

International: Mixed News on the International Economic Front

• Eurozone inflation slowed more than expected in November, and Canada's Q3 GDP unexpectedly declined, while the Reserve Bank of New Zealand held interest rates steady but offered hawkish policy guidance. China's manufacturing and services PMIs both slipped in November, while India's Q3 GDP advanced at a solid pace.
• Next week: Australia Policy Rate (Tue.), Mexico CPI (Thu.), India Policy Rate (Fri.)

Credit Market Insights: Credit Check: Is It Time to Worry About Credit Card Debt?

• After paying off credit card debt during the COVID lockdown period, households have levered up at a pace seven times as fast as they did in the prior cycle. Credit card delinquencies are starting to tick higher as well amid the highest average annual percentage rate on credit card debt in data going back to the early 1980s. So, is it time to start worrying about credit card debt?

Topic of the Week: Something in the Beige Tells Me We're Almost Done

• The blistering pace of growth in the third quarter is on track to cool in the final months of the year. That is the takeaway from contacts across the 12 Federal Reserve Districts who noted slowing economic activity since early October in the final Beige Book of this year.

Full report here.