FX OVERVIEW
The dollar remained supported ahead of US CPI, with the data seen as pivotal for Fed rate expectations; risk from Middle East and Ukraine tensions added to safe-haven demand. Euro weakness had an additional, more local driver: rising concern over French fiscal stability, while sterling drew relative support from a more hawkish Bank of England outlook.
MAJOR PAIRS
EURUSD — The pair traded near 1.1200 as widening French OAT-Bund spreads—approaching 137bp—and geopolitical risk weighed on the euro, while markets looked to US CPI for the next signal on Fed policy. The technical bias remains bearish below the 1.1330 20-day EMA; a break under 1.1160 would expose further downside, while 1.1255–1.1265 is resistance.
EURGBP — Sterling outperformed the euro as French fiscal and political concerns weighed on the single currency, with EUR/GBP reported near 0.8447, its weakest level in 16 months. The news flow favors further euro underperformance relative to sterling.
GBPUSD — BoE rate-hike expectations and improved UK growth sentiment supported sterling, but the pair’s recovery near 1.3240 remained capped by UK fiscal uncertainty and resistance around 1.3280. A break below 1.3180 would strengthen the downside case; a sustained move higher needs to clear resistance.
AUDUSD — The pair failed to hold gains near 0.6970 as a firmer dollar ahead of US CPI combined with weak Australian momentum. It remains below the 0.7015 20-day EMA, with bearish momentum and Australian employment data the next domestic catalyst.
USDCHF — The pair rose toward 0.8333 as dollar strength and the SNB’s stated lack of need for policy adjustment weighed on the franc. Momentum favors further gains toward 0.8383 resistance, though geopolitical escalation could revive CHF safe-haven demand.
USDJPY — The pair held near 158.36, supported by the BoJ’s cautious stance and expectations that US CPI could reinforce Fed rate bets. A break above 159.04 would extend the bullish move; 157.66 is the key near-term support.
USDCAD — The pair traded around 1.4250 within a 1.4200–1.4300 range, with softer US sentiment weighing on the dollar while weak Canadian employment limited CAD support. A break below 1.4200 would open 1.4155–1.4100; US CPI and PPI remain the main catalysts.
USDCNY — The PBOC set its central rate at 6.7313, slightly stronger than Friday’s 6.7330 but weaker than the Reuters consensus of 6.6977. The fixing signals continued management of the yuan and argues against reading the move as an unrestricted directional shift.
CENTRAL BANK WATCH
- Federal Reserve: US CPI was the key pending test for rate expectations. Cleveland Fed President Beth Hammack argued for higher rates, while markets still largely expected no hike this month.
- Bank of England: A hawkish shift in rate expectations, including forecasts for hikes in November and February, supported sterling.
- Swiss National Bank: The SNB said no policy adjustment was needed despite persistent inflation, reinforcing the dovish signal for the franc.
- Bank of Japan: The BoJ’s cautious approach, with analysts seeing little prospect of back-to-back hikes, continued to weigh on the yen.
- European Central Bank: Markets remained aligned with a possible 25bp December hike amid elevated inflation, but French fiscal risk constrained the euro’s response.
- People’s Bank of China: The central fixing indicated ongoing management of yuan volatility rather than a clear move toward a freely weaker currency.
MACRO DRIVERS
- US inflation and rate expectations: CPI and PPI were the main near-term catalysts for the dollar and rate-sensitive pairs.
- Eurozone sovereign risk: French fiscal uncertainty widened the OAT-Bund spread toward 137bp and added pressure to the euro.
- Geopolitical risk and energy: Middle East shipping tensions and renewed Ukraine uncertainty supported safe-haven demand and raised the risk of oil-price volatility.
- Policy divergence: A more hawkish BoE outlook contrasted with the cautious BoJ and dovish SNB signals, supporting sterling against the yen and franc weakness against the dollar.
POSITIONING IDEAS
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Bullish
- Short EURUSD: French fiscal risk and geopolitical uncertainty weigh on the euro; the pair remains below key moving-average resistance.
- Short EURGBP: Sterling’s relative support from BoE tightening expectations contrasts with eurozone fiscal concerns.
- Long USDCHF: The SNB’s dovish signal and firm dollar favor further upside, with 0.8383 the next notable resistance.
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Bearish
- Short AUDUSD: Dollar support ahead of CPI and weak Australian momentum leave the pair below 0.7015 with downside momentum.