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In a week marked by a significant shift in investor sentiment, Dollar found itself at the bottom of the currency heap. A rapid shift to a risk-on attitude was catalyzed by sharp decline in benchmark Treasury yields, fueling an aggressive uptick in stock prices. The surge in equity investments was further amplified when the latest non-farm payroll data bolstered the belief that Fed might have reached the peak of its tightening cycle. Market participants are now keenly watching the extent of the stock market's rally and the depth of the decline in 10-year yield, which will likely be pivotal factors for Dollar's short-term direction.

Japanese Yen trailed closely behind Dollar in terms of weak performance, suffering from the dual forces of robust risk appetite and BoJ's (BoJ) decision to maintain its yield curve control with just tweak, contrary to some investors' expectations for a significant policy adjustment. Swiss Franc also succumbed to the uplifted risk mood, ranking as the third weakest.

Conversely, New Zealand and Australian Dollars emerged as frontrunners in the currency race, propelled by the narrowing yield gap and escalating risk tolerance. British Pound also capitalized on the upbeat market mood, though to a slightly lesser degree. Meanwhile, Euro and Canadian Dollar displayed a mixed finish.

Optimism abounds as markets cheer dipping yields and goldilocks job data

The mood in financial markets was decidedly bullish last week, with investors piling into stocks, propelling major US indexes to their most robust rally in a year. This surge in risk appetite followed spurred by a substantial decline in Treasury yields from their recent highs. Increased expectation that Fed interest have peaked was further reinforced by weaker than expected job data.

DOW concluded the week with a substantial gain of 5.07%, marking its best performance since October of 2022. S&P 500 and NASDAQ followed suit, jumping 5.85% and 6.61%, respectively, charting their best weeks since November 2022. 10-year Treasury yield nosedived to a low of 4.484% before ending the week slightly higher at 4.558%. This decline in yields was stark, considering the flirtation with 5% level just a week prior. Simultaneously, Dollar Index retreated steeply to a six-week trough, buffeted by a combination of shifting Fed expectations, burgeoning risk-on sentiment, and descending yields.

The spark for the market's bullish turn was first ignited by the Treasury Department's announcement of smaller-than-anticipated increases in the issuance of longer-dated Treasury securities. When the Fed maintained its interest rate unchanged at 5.25-5.50% for the second month in a row and Chair Jerome Powell refrained from signaling any additional hawkish intent, it only bolstered the prevailing risk-on mood.

Moreover, the latest non-farm payroll report delivered a surprise to the markets with its underwhelming job growth numbers, a slight uptick in the unemployment rate, and wage growth that lagged expectations. These indicators are seen as signs that Fed's rigorous efforts to temper the economy and curb inflation are bearing fruit, reducing the need for further rate hikes.

In the aftermath, Fed funds futures are now indicating a mere 4.8% likelihood of a 25 basis point hike at the December meeting. Market conversations are progressively turning towards the prospects of a rate cut, with futures markets pricing in a 64% chance of a cut by May next year, and an 86% probability by June.

S&P 500 index sidestepped the much-feared "October Crash", with last week's strong rally suggesting that correction from 4607.07 has possibly concluded 4103.78. Immediate focus is now on 4393.57 resistance. Decisive break there will strengthen near term bullishness, to push S&P 500 through 4607.07 resistance to resume the whole up trend from 3491.58 (2022 low).

Even if this year-end "Santa Claus rally" realizes, it's uncertain whether bullish momentum is strong enough to push S&P 500 through 4818.62 (2022 high). We'll leave the assessment for a later stage until there's clearer evidence of the index's ability to maintain its upward course.

10-year yield's break of 4.532 support last week suggests that rise from 3.253 has completed at 4.997, failing to conquer 5% level. It's now turned into a period of consolidation, with deeper decline in favor. Nevertheless, strong support could emerge around 4.330/333 (38.2% retracement of 3.253 to 4.997 at 4.330). Should TNX find solid ground and rebound from these levels, the current pattern could be interpreted as a mere sideways consolidation, setting the stage for another attempt at challenging the 5% mark in the future. However, sustained break of 4.330 will argue that TNX is already in a larger scale correction, with target on 55 W EMA (now at 3.865) in the medium term.

While Dollar Index's decline was deep, price actions from 107.34 could still be seen as a correction to the rise from 99.57 only. As long as 38.2.% retracement of 99.57 to 107.34 at 104.37 holds, rise from 99.57 should still resume through 107.34 at a later stage. However, firm break of 104.37 will raise the chance of bearish reversal, or as a correction, drag DXY through 55 W EMA (now at 103.89) to 61.8% retracement at 102.53.

BoJ's tepid policy tweaks fail to support Yen, NZD/JPY soars

Last week's highly anticipated BoJ policy meeting concluded with results that fell short of market expectations. Despite widespread speculation of a significant shift in its yield curve control policy, the central bank limited its actions to a minor adjustment in its language, effectively softening the previously rigid cap on the 10-year bond yield. This move was seen as a bid to permit a moderate rise in long-term borrowing costs, diverging slightly from the strict ceiling imposed just a quarter ago.

Governor Kazuo Ueda held firm on BoJ's longstanding dovish stance, committing to "patiently" maintain its stimulative monetary approach. The underwhelming response from BoJ disappointed investors who had bet on a more substantial policy shift, and as a result, Yen experienced renewed selling pressure. This decline was further exacerbated by the prevailing risk-on mood in global markets.

NZD/JPY was among the top movers in the week, up 2.95%. Current development argues that rise from 80.42 is ready to resume. Further rise is expected as long as 88.45 support holds, to retest 90.18 first. Firm break of 90.18 will confirm this bullish case, and target 61.8% projection of 80.42 to 89.67 from 86.75 at 92.46 next.

GBP/CHF rallies on risk-on sentiment, overcoming BoE

Sterling has managed to hold its ground amidst a dynamic week in the financial markets, drawing strength from a global risk-on mood which has somewhat cushioned the blow from BoE's latest policy decision. The MPC concluded with a split 6-3 vote to maintain Bank Rate at its current level of 5.25%. BoE provided a projection path for the Bank Rate, suggesting it would hover around the 5.25% mark until the third quarter of 2024 before anticipating a gradual decline to 4.25% by the end of 2026. The overall announcement aligned with growing consensus that interest rate in the UK have peaked.

GBP/CHF's strong break of 55 D EMA (now at 1.1065) suggests that fall from 1.1502 has completed at 1.0779. Further rise is expected as long as 1.0994 support holds. Firm break of 1.1212 will bolster the case that whole corrective pattern from 1.1574 has finished too. Stronger rally should then be seen to 1.1502/1574 resistance zone next.

EUR/USD Weekly Outlook

EUR/USD's rebound from 1.0447 resumed last week and the break of 55 D EMA argues that fall from 1.1274 has completed. Initial bias stays on the upside this week for 1.0764 cluster resistance (38.2% retracement of 1.1274 to 1.0447 at 1.0763). Decisive break there will pave the way to 61.8% retracement at 1.0958 next. On the downside, below 1.0609 minor support will turn intraday bias neutral first.

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.

In the long term picture, sustained trading above 55 M EMA (now at 1.1087) is needed to be the first sign of bullish trend reversal. Decisive break of 1.2348 structural resistance is needed to confirm. Otherwise, outlook will be neutral at best.

EUR/USD's rebound from 1.0447 resumed last week and the break of 55 D EMA argues that fall from 1.1274 has completed. Initial bias stays on the upside this week for 1.0764 cluster resistance (38.2% retracement of 1.1274 to 1.0447 at 1.0763). Decisive break there will pave the way to 61.8% retracement at 1.0958 next. On the downside, below 1.0609 minor support will turn intraday bias neutral first.

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.

In the long term picture, sustained trading above 55 M EMA (now at 1.1087) is needed to be the first sign of bullish trend reversal. Decisive break of 1.2348 structural resistance is needed to confirm. Otherwise, outlook will be neutral at best.

USD/JPY retreated steeply after edging higher to 151.69 last week. But downside is contained above 148.79 support so far. Initial bias remains neutral this week first. Price actions from 151.69 could still be seen as a consolidation pattern only. However, firm break of 148.79 will indicate rejection by 151.93 key resistance, and bring deeper fall through 147.28 support.

In the bigger picture, immediate focus is now on 151.93 resistance (2022 high). Rejection by 151.93, followed by sustained break of 145.06 resistance turned support will argue that rise from 127.20 has completed, and turn outlook bearish for 137.22 support and below. However, sustained break of 151.93 will confirm resumption of long term up trend. Next target will be 61.8% projection of 102.58 to 151.93 from 127.20 at 157.69.

In the long term picture, price action from 151.93 is seen as developing into a corrective pattern to up trend from 75.56 (2011 low). Another falling leg could be seen, but in that case, downside should be contained by 38.2% retracement of 75.56 to 151.93 at 122.75. On resumption, next target would be 61.8% projection of 102.58 to 151.93 from 127.20 at 157.69.

GBP/USD's strong rally and break of 1.2236 resistance confirms resumption of whole rebound from 1.2036. Initial bias stays on the upside this week for 38.2% retracement of 1.3141 to 1.2036 at 1.2458. Sustained break there will pave the way to 61.8% retracement at 1.2783. On the downside, below 1.2287 minor support will turn intraday bias neutral first.

In the bigger picture, the strong rebound from 38.2% retracement of 1.0351 to 1.3141 at 1.2075 argues that price action from 1.3141 are merely a correction to rise from 1.0351 (2022 low). Current rally from 1.2036 is tentatively seen as the second leg of the pattern. Hence, while further rally is in favor, upside should be limited by 1.3141 to start the third leg.

In the long term picture, sustained trading above 55 M EMA (now at 1.2832) is needed to be the first sign of bullish trend reversal. Decisive break of 1.4248 structural resistance is needed to confirm. Otherwise, outlook will be neutral at best.

USD/CHF rose further to 0.9111 last week but subsequent retreat argues that rebound from 0.8886 has completed. Initial bias remains mildly on the downside this week for 0.8886 support first. Break there will resume whole decline from 0.9243 to 0.8815 fibonacci support. For now, risk will be on the downside as long as 0.9111 resistance holds, in case of recovery.

In the bigger picture, outlook is mixed up by the deeper than expected pull back from 0.9243. Yet there was no follow through selling after hitting 0.8886. On the upside, break of 0.9243 resistance will revive the case of medium term bottoming at 0.8851, and turn outlook bullish. However, sustained break of 61.8% retracement of 0.8551 to 0.9243 at 0.8815 will argue that larger decline from 1.0146 is ready to resume through 0.8551 low.

In the long term picture, there is no clear sign that down trend from 1.8305 (2000 high) has completed. With 38.2% retracement of 1.8305 to 0.7065 at 1.1359 intact, outlook is neutral at best.

AUD/USD's strong rally last week confirmed short term bottoming at 0.6269. Initial bias stays on the upside this week with focus on 0.6510 cluster resistance (38.2% retracement of 0.6894 to 0.6269 at 0.6508). Sustained break of 0.6510 will argue that whole decline from 0.7156 might be completed with three waves down to 0.6269. Stronger rally should then be seen to medium term trend line resistance (now at 0.6708). Meanwhile, rejection by 0.6510 will retain near term bearishness.

In the bigger picture, there is no confirmation that down trend from 0.8006 (2021 high) has completed. While current rebound from 0.6269 might extend higher, it could be the third leg of a corrective pattern from 0.6169 (2022 low) only. For now, medium term bearishness will remain as long as 0.6894 resistance holds.

In the long term picture, while fall from 0.8006 might extend lower, the structure argues that it's merely a correction to rise from 0.5506 (2020 low). In case of downside extension, strong support should emerge above 0.5506 to bring reversal. But still, momentum of the next move will be monitored to adjust the assessment.

USD/CAD"s deeper decline from 1.3897 last week indicates short term topping. Initial bias remains on the downside this week for 38.2% retracement of 1.3091 to 1.3897 at 1.3589. Strong support should be seen there to bring rebound. On the upside, above 1.3759 minor resistance will bring retest of 1.3897. However, sustained break of 1.3589 will bring deeper fall to 61.8% retracement at 1.3399.

In the bigger picture, corrective pattern from 1.3976 (2022 high) should have completed with three waves down to 1.3091. Decisive break of 1.3976 high will confirm resumption of up trend from 1.2005 (2021 low). This will now remain the favored case as long as 1.3378 support holds. However, firm break of 1.3378 will argue that the pattern from 1.3976 is indeed still extending.

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 1.3100) holds.

GBP/JPY's rise from 178.02 resumed by breaking through 183.79 last week. Initial bias is on the upside this week for retesting 186.75 high. Decisive break there will resume larger up trend. On the downside, break of 182.71 support is needed to indicate short term topping. Otherwise, further rally will remain in favor in case of retreat.

In the bigger picture, as long as 176.29 support holds, larger up trend from 123.94 (202 low) should still be in progress. Break of 186.75 will target 195.86 (2015 high). Nevertheless, firm break of 176.29 will confirm medium term topping, and bring lengthier and deeper consolidations.

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 176.29 support holds, to retest 195.86 (2015 high).

EUR/JPY's up trend resumed last week and hit 160.84 before turning into consolidation. Initial bias stays neutral this week as more sideway trading could be seen. But outlook will stay bullish as long as 157.67 support holds. Break of 160.84 will resume larger up trend to 163.06 projection level next.

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 100% projection of 124.37 to 148.38 from 139.05 at 163.06. On the downside, break of 154.32 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish even in case of deep pullback.

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 reversed after edging higher to 0.8752 last week. Current development suggests that price actions from 0.8752 are correcting whole rally from 0.8491. Initial bias is mildly on the downside this week for 38.2% retracement of 0.8491 to 0.8752 at 0.8652 and below. But downside should be contained by 0.8614 support to bring rebound.

In the bigger picture, current development suggests that whole down trend from 0.9267 (2022 high) has completed with three down to to 0.8491. Rise from 0.8491 is seen as another leg inside that pattern from 0.9499 (2020 high). Further rally should be seen to 0.8977 resistance and above. This will remain the favored case as long as 0.8614 support holds.

In the long term picture, long term range pattern is extending. But rise from 0.6935 (2015 low) is expected to resume at a later stage, to 0.9799 (2009 high).