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Markets

Stock momentum faded, resulting into declines of more than 2% for the likes of the Nasdaq. European equities swapped gains for losses of around 1% across the continent. President Trump effectively ended the shutdown by signing the Congress-approved bill into law yesterday but markets clearly had been frontrunning the outcome. The number one question now is whether the upcoming official data either supports or opposes further Fed easing, in December in particular. Chair Powell was very clear at the October meeting that a third risk-management rate cut is not at all a given but markets up until this week remained pretty certain (+/- 70%). That changed yesterday with the odds dipping below 50% for the first time. Non-voting member Kashkari from the Minneapolis Fed said he’s undecided on December but he opposed the October cut, citing the underlying economic resilience and too-high inflation. Since then, available data suggested “more of the same”. Cleveland Fed Hammack repeated that she favours a pause next month with concerns about inflation outweighing those about the labour market. She said rates (3.75-4%) are “barely restrictive, if at all” and advocates keeping them steady around the current level. Musalem of the St Louis Fed argued again for moving cautiously with inflation running above the 2% target. The room to lower them is limited. US yields rose between 2.2 and 5 bps in a daily perspective. Long end underperformance followed a tailed $25bn 30-year auction. Demand metrics were slightly weaker but had to be compared with October’s record low primary dealer award. European rates rose in similar fashion. The 2-yr swap rate rallied to an 8-month high, surpassing the September high of 2.18%. The 10-yr tenor nears the upper bound of the current (since July) sideways trading range and 30-yr topped 3%, the first such close since 2023. EUR/USD’s rate-driven recovery was blocked around 1.1630 by US risk aversion. USD/JPY’s upside momentum hit resistance around 155, meaning DXY lacked the safety net it had on Tuesday. The trade-weighted index slipped towards the 99 handle. China’s yuan finished at the strongest level since October 2024, at 7.096. The below-consensus monthly update (including retail sales, IP, housing data and jobless rate) thwarts a further rise though. USD/CNY stabilizes around yesterday’s closing levels. For lack of an inspiring eco calendar – US retail sales and PPI are stilling missing while US government offices are working their way through the backlogs – we keep an eye at GBP today. EUR/GBP pushes through to the highest level since April 2023 around 0.885. Renewed sterling weakness creeped in after reports that UK Chancellor Reeves is reconsidering plans to raise income tax rates and other levies in the Nov 26 budget. Doing so would break with key election promises and has triggered internal revolt. GBP markets are left wondering what measures she’ll take to address the gaping deficit of almost 5% of GDP. Without higher taxes, growth-dampening austerity is the only viable option – assuming Starmer and Reeves don’t want to be the next Truss-Kwarteng.

News & Views

KPMG and REC’s monthly UK report on jobs showed temp billings increasing for the first time in 16 months in October. The downturn in permanent placements eased for the fourth straight month. Overall, employers remain hesitant to commit to new hires though amid a weaker economic climate and uncertainty over the upcoming government Budget. Vacancies continued to fall at a historically marked pace while both permanent and temporary staff availability rises at rates amongst the quickest since 2020. This supply/demand mismatch keeps pay pressures weak. The surveyors are hopeful that a Budget that build business confidence could be a catalyst for new hiring. They label today’s report as the best since the summer of 2024 but admit that this is just a more stable market.

The US administration released joint statements yesterday with four Latin-American countries (Ecuador, Argentina, El Salvador and Guatemala) saying that the US would reduce tariffs on a variety of goods not produced (sufficiently) domestically. Officials later confirmed that these goods would include products like bananas, coffee and beef. Certain textile and apparel products would also be under consideration. The press releases follow comments earlier this week by Treasury Secretary Bessent hinting in that direction in order to bring down domestic prices very quickly to temper the cost-of-living crisis. Tariff rates on non-exempted products will remain the same at 15% for Ecuador and 10% for the other three nations.

I see no need for a long introduction, so I’ll dive right in: Michael Burry is done with this. In a short letter yesterday, he announced that he’s liquidating funds and returning capital as his “estimation of value in securities is not now, and has not been for some time, in sync with the markets.” In short, he’s been thinking that the market is overvalued for quite some time. He’s been short the booming companies like Nvidia and Palantir. And he’s got his reasons. But he’s — apparently — growing increasingly desperate about the time it will take for the market to go back to its senses. Senses meaning valuations that point to PE, PS, P - whatever ratios - that make more sense to him and to many. The S&P 500 companies, for example, trade at an average PE ratio of about 23 today, well above the historical average of around 18.

A big bear has just fallen — just given in to the aggressive AI bulls and their insatiable appetite for tech stocks, or just anything that would rally fast and high enough to keep the show going.

Funny enough, the Nasdaq didn’t rally yesterday. On the contrary, it was down 2%, with Nvidia dropping more than 3.5%. I hope the Big Bubble Burst doesn’t start the day after Burry buries his positions. That would be ungrateful.

But zooming out, short positions against the S&P 500 increase along with its price. Institutional traders are clearly breathing down the necks of retail bulls — and have been for some time. The CFTC data suggests that leveraged net positions have been fairly negative since the summer of 2022. So the game is clear: if retail traders can hold on to their positions long enough to push the bears away, the bears will get washed out and the market rally could continue. That’s probably what Burry thought when he made his decision to just get the hell out of here. Maybe the market will really crash and there will be a Big Short 2. Who knows.

What likely triggered yesterday’s selloff was the growing realization that a full set of jobs and inflation data won’t land before the Federal Reserve’s (Fed) December meeting. And if that’s the case — and if the Fed retains even a minimum degree of independence and reason — it wouldn’t cut rates blindly. In this context, Atlanta Fed President Raphael Bostic said on Wednesday that “price stability remains the more pressing risk as signals from the labour market don’t indicate a cyclical downturn clearly enough to merit significant policy loosening while inflation remains well above target.” Well, HAPPILY, he will retire next February. But then, other Fed members echoed the same inflation worries, increasing discomfort among Fed doves, and risk takers. The US 2-year yield — which captures Fed expectations — rose to 3.60% yesterday as stocks fell.

And if yields keep pushing higher, the stock selloff could accelerate. But if that selloff deepens, the Fed could be more tempted to cut rates. So Keep Calm and Carry On. The system remains well anchored to keep propping up asset prices — whatever the fundamentals. No one wants to be the Fed Chair who triggered another financial crisis, or caused a bubble to pop.

Right now, optimism around the end of the US government shutdown is giving way to panic — panic and chaotic market moves. The US dollar’s selloff, for instance, accelerated yesterday despite hawkish Fed expectations and rebounding yields.

Maybe it’s the yen? The USDJPY hit the 155 mark and retreated for the second session in a row. That 155 level now seems to be the new pain threshold — the point that triggers official unease, as Japan’s Finance Minister clearly doesn’t feel comfortable with the yen’s rapid depreciation.

And sorry to say this, Ms. Katamaya, but if yen bears persist, they’ll likely win this game. Spending FX reserves to stop a currency slide while your Prime Minister is pushing for looser monetary policy is a losing battle. The only way to reverse that depreciation trend while pushing against rate hikes would be through very strong growth — and that’s not on the menu this Christmas.

Japanese GDP grew just 0.5% last quarter, after 0.1% in each of the two preceding ones. So I wouldn’t say FX interventions are useless in the short run — they do wipe out bearish positions temporarily and let the currency breathe. But in the medium run, it’s like fighting the waves with your fist. The USDJPY is far more likely to test 160 than fall back below 150.

So, if we summarise: the dollar is unloved, the yen is unappetising. I won’t even start on sterling… Cable rebounded yesterday only thanks to the dollar’s selloff. But sterling is a no-go before the Autumn Budget, and the pair already gave back most of the gains before I had time to call a top.

Underneath, Rachel Reeves wishes she’ll have billions of pounds of extra room in her budget, helped by lower inflation and lower interest rates. But the data tells another story: an economy barely growing, battered by tax rises and inflation.

Not helping either — Land Rover’s production halt after a cyberattack weighed heavily on the latest industrial numbers. And it’s hard to see how the UK could generate growth under the current circumstances.

Shout out if you see anything promising there. But come November 26, Rachel Reeves will either upset investors or taxpayers.

Either taxpayers take the hit and the economy is left to a slow death — and the Bank of England (BoE) cuts rates. Or investors get upset, we get another gilt crisis — and the BoE still cuts rates.

Either way, a 25bp cut from the BoE in December looks increasingly likely. And downhill seems to be sterling’s year-end path.

Spot Silver (XAGUSD) has mounted a notable recovery following the sharp decline from its all-time high of $54.46 to the $45.40 low registered on 28 October. We interpret this decline as the completion of wave (4) within the broader impulsive structure. While the metal has yet to decisively break above the $54.46 high to fully negate the possibility of a double correction, it currently trades just a few cents below that threshold. Given this proximity, the likelihood of a double correction at this stage appears minimal.

From the wave (4) low, price action has unfolded as a nesting five-wave impulsive sequence. Wave ((i)) concluded at $48.45, followed by a corrective pullback in wave ((ii)) that ended at $47.22. The advance resumed with wave ((iii)) reaching $49.14, while wave ((iv)) retraced modestly to $48.65. The final leg, wave ((v)), terminated at $49.36, thereby completing wave 1 of a higher degree.

Subsequently, a corrective wave 2 developed as a zigzag structure, bottoming at $46.86. The metal has since resumed its ascent in another impulsive nest. From wave 2, wave ((i)) peaked at $54.39. A pullback in wave ((ii)) is currently underway, correcting the cycle from the 5 November low. In the near term, as long as the $45.40 pivot remains intact, dips are expected to attract buyers in 3, 7, or 11 swings, supporting further upside potential.

Spot Silver (XAGUSD) 1-Hour Elliott Wave Chart From 11.14.2025

XAGUSD Elliott Wave Video

https://www.youtube.com/watch?v=F2gYTx-C1vM

Fed outlook shifts down, RBA on hold for longer – so why aren’t we seeing the shift in relative interest rates affect the exchange rate?

• The outlook for US monetary policy has shifted down as labour market risks come to the fore. We now expect two further cuts to the Fed funds rate. At the same time, the outlook for RBA policy has been pushed out given near-term inflation developments.
• Ordinarily, lower expected rates in the US relative to Australia should put some appreciation pressure on the AUD, but that hasn’t really happened lately. Partly this is because policy rates are not the only yields that matter to investors. More important is the attractiveness of other assets such as equities. The AI boom is playing a role here, much as the internet boom did in the late 1990s and early 2000s, the previous period of USD overvaluation.
• The USD is still about 15% overvalued on standard metrics, so some mean reversion should be expected over coming years. A lot hangs on sentiment, though, so it is likely to happen in fits and starts.

The US government shutdown has meant that some key data releases have not been published, particularly crucial labour market data. The data that are available from private sector sources have been mixed. With monetary policy still on the tight side and tariffs weighing on employment as well as lifting some prices, downside risks on the labour market have come to the fore.

Some observers are also pointing to possible downside risks for the US labour market from AI. The relative weakness in the graduate job market is seen in some quarters as evidence of the AI threat. In their current form, generative AI tools do best when replacing white-collar job tasks that are routine or easily standardised, such as building reports or compiling information. This kind of “donkey work” is typically given to the least experienced employees, ostensibly to help them learn. Weaker demand for labour for this reason is long-lasting, not ephemeral. Though in some sense structural, it would be another reason for the Fed to respond.

These downside risks and the ongoing uncertainty over government policy and functioning changes the calculus for US monetary policy. In our Market Outlook release for November, we added two further 25bp cuts to our forecast for Fed policy, to occur in the first half of the year. This is despite the ongoing inflation risks in the US, which we expect to be a binding constraint on further easing beyond the cumulative 50bp we have now pencilled in.

The outlook for RBA policy has shifted in the opposite direction. As we have detailed elsewhere, the higher September quarter inflation print has pushed out the feasible timing of future cash rate cuts. (And if inflation plays out according to the RBA’s forecasts rather than our own, then any cut in the cash rate will take even longer.)

Ordinarily, this shift in interest rate differentials should matter for exchange rates. The usual theory on exchange rate determination is that when interest rates rise in one country relative to another, assets denominated in the first country’s currency are more attractive to investors. Its exchange rate against the other country’s currency should therefore appreciate.

This is not what we have seen lately in AUD/USD. If anything, the AUD has moved sideways, against the USD and other major currencies like the euro since the middle of the year. There are a number of reasons for this.

The first consideration is that our forecasts are not always in line with market pricing, and it is market pricing for rates that feeds into the view for exchange rates. When we set out our view of Fed policy for 2025 at the beginning of the year, our view was far from consensus. Market pricing on the US rates outlook had been more dovish than our house view. Our early-2025 view has turned out to be closer to the actual outcome for the year than what was priced in at the time. However, this means that the additional downside in the rates outlook now emerging for 2026 is not such a departure from what the market had been pricing, just a lot later than it had been pricing.

The second consideration is that it is not just policy rates that matter for the views of participants in currency markets. While some models of AUD fundamentals have used policy rate differentials, it is more common to focus on longer maturities. For example, the RBA’s workhorse MARTIN model uses a two-year differential. There, the story is a bit different. At the 2-year and 3-year maturity, Australian government bond yields legged down in the wake of ‘Liberation Day’ in April and have been drifting up steadily since. US yields at that maturity fell less at the time, because the US was the source of the policy and tariff-related inflation that had changed the policy outlook there. They have since been drifting down, narrowing the spread to Australian yields; at this maturity, Australian yields are now higher than their US equivalents. Again, this would suggest appreciation pressure on the AUD relative to the USD, but not on the timing implied by shifting views on the monetary policy outlook.

More broadly, other asset returns and expectations also matter to asset allocation decisions across economies, especially equities, which then drives flow demand for particular currencies. These are currently working in the opposite direction to the pressures implied by interest differentials. Because the current AI boom is so focused on a few US-domiciled firms, shifting investor views of the sector and these firms find their expression in global flows into US equity markets and related infrastructure assets and thus the USD. The ebb and flow of investor concerns about US trade policy also manifests in relative asset demand and so exchange rates.

There are parallels here with the late 1990s and early 2000s ‘dot com’ boom. That boom, too, was highly concentrated in a tech sector predominantly located in the US or at least listed on the US stock market. Australia was seen as an ‘old economy’ and did not receive the same interest from investors as the US did. Accordingly, the AUD was noticeably undervalued then, at the same time the USD was almost as overvalued as it was at the beginning of this year.

At the beginning of this year, the USD hit peak overvaluation at the same time as ‘US exceptionalism’ narratives reached their zenith. These both unwound in the first half of the year, as we have previously detailed. More recently, as trade tensions have eased and deals have been done, some of the downside risk to US prospects have faded and been priced out of the USD exchange rate, which has therefore shown some resilience in recent weeks.

The USD is still overvalued on standard metrics, though. There are a range of ways to assess this, but a standard one is just the ‘real effective exchange rate’ – trade-weighted indices adjusted for relative inflation rates. These are available from a range of sources including the IMF and most central banks, including the RBA for the AUD.

Using the Fed’s “Broad Index”, the USD is about 15% above its longer-run average, compared with more than 20% earlier in the year. History would suggest that this overvaluation will correct itself over the course of several years. Investors want to be less long the USD in the wake of policy developments in the US. But they are also mindful that an overvalued exchange rate does tend to mean-revert over time, and therefore they want to avoid future capital losses relative to holding assets denominated in other currencies.

All this suggests that AUD should still appreciate against USD over the next few years. This is a USD story not a AUD story, though. And because so much hangs on sentiment, it could happen in fits and starts.

Daily Pivots: (S1) 0.7894; (P) 0.7944; (R1) 0.7979; More…

Intraday bias in USD/CHF remains on the downside as fall from 0.8123 is in progress. Decisive break of 0.7872 support will argue that down trend is ready to resume. Break of 0.7828 will target 38.2% projection of 0.9200 to 0.7828 from 0.8123 at 0.7599. On the upside, above 0.7993 minor resistance will delay the bearish case and bring more consolidations first.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low).

Daily Pivots: (S1) 154.10; (P) 154.56; (R1) 154.98; More...

Intraday bias in USD/JPY is turned neutral with current retreat. Some consolidations would be seen below 155.03 temporary top, but further rally is expected as long as 152.81 support holds. Above 155.03 will resume the rise from 139.87 to 100% projection of 146.58 to 153.26 from 149.37 at 156.05. Firm break there will pave the way to 158.86 key structural resistance.

In the bigger picture, current development suggests that corrective pattern from 161.94 (2024 high) has completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. On the downside, break of 149.37 support will dampen this bullish view and extend the corrective pattern with another falling leg.

Daily Pivots: (S1) 1.3123; (P) 1.3170; (R1) 1.3238; More...

Intraday bias in GBP/USD remains neutral and further decline is expected with 1.3247 support turned resistance intact. On the downside, break of 1.3008 will target 138.2% projection of 1.3787 to 1.3140 from 1.3725 at 1.2831. Nevertheless, firm break of 1.3247 will suggest that fall from 1.3787 has completed as a corrective move already.

In the bigger picture, the break of 55 W EMA (now at 1.3185) is taken as the first sign that corrective rise from 1.0351 (2022 low) has completed. Decisive break of trend line support (now at 1.2780) will solidify this case and target 38.2% retracement of 1.0351 to 1.3787 at 1.2474 next. Meanwhile, in case of another rise, strong resistance should emerge below 1.4248 (2021 high) to cap upside to preserve the long term down trend.

Daily Pivots: (S1) 1.1590; (P) 1.1623; (R1) 1.1667; More…

Current development suggests that EUR/USD's fall from 1.1971 has completed as a correction, with three waves down to 1.1467. Intraday bias is mildly on the upside for 1.1727 resistance. Firm break there will solidify this case and bring stronger rally to retest 1.1971 high. On the downside, however, break of 1.1561 minor support will revive near term bullish and target 1.1467 and below.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1306) holds, the up trend from 0.9534 (2022 low) is still expected to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook outlook bearish.

Daily Pivots: (S1) 0.6509; (P) 0.6545; (R1) 0.6565; More...

AUD/USD is still bounded in range of 0.6457/6616 and intraday bias stays neutral. On the downside, break of 0.6457 will target 0.6413 cluster (38.2% retracement of 0.5913 to 0.6706 at 0.6403). Decisive break there will carry larger bearish implications. On the upside, break of 0.6616 will bring retest of 0.6706 high instead.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. Outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Break of 0.6413 support will suggest rejection by 0.6713 and solidify this bearish case. Nevertheless, considering bullish convergence condition in W MACD, sustained break of 0.6713 will be a strong sign of bullish trend reversal, and pave the way to 0.6941 structural resistance for confirmation.

Daily Pivots: (S1) 1.4001; (P) 1.4020; (R1) 1.4054; More...

Intraday bias in USD/CAD is turned neutral first with current recovery. Firm break of 1.4039 minor resistance will argue that the pullback from 1.4139 has completed. Bias will be flipped back to the upside for retesting 1.4139. Further break there will resume the rally from 1.3538 to 61.8% retracement of 1.4791 to 1.3538 at 1.4312. On the downside, below 1.3984 will extend the fall from 1.4139 towards 1.3886 support.

In the bigger picture, price actions from 1.4791 medium term top is likely just unfolding as a correction to up trend from 1.2005 (2021 low), with rise from 1.3538 as the second leg. A third leg should follow before up trend resumption. That is, range trading is set to extend for the medium term. For now, this will remain the favored case as long as 1.3886 support holds. However, firm break of 1.3886 will revive the case that fall from 1.4791 is indeed a larger scale correction.