FX OVERVIEW
FX was pulled between US dollar support from strong US data, hawkish Fed expectations and risk aversion and pockets of local currency strength where rate expectations or domestic data improved. Eurozone fiscal concerns weighed on the euro, while upcoming RBA and BoE decisions kept their currencies sensitive to the risk of a hawkish or dovish surprise.
MAJOR PAIRS
AUDUSD — The pair slipped to around 0.7020 as weak Chinese official PMIs and geopolitical risk supported the dollar, outweighing expectations for a 25bp RBA hike. 0.7000 is key support; a break would expose 0.6900, while recovery needs a sustained move through 0.7050–0.7080.
EURUSD — France’s negative sovereign outlook and concerns about wider sovereign spreads overshadowed stronger German and eurozone growth data, leaving the euro vulnerable near 1.1180–1.1220. Resistance sits at 1.1195–1.1255, with support at 1.1130 and further downside risk toward 1.1000.
GBPUSD — UK private-sector growth and employment rebounded, strengthening expectations of a 25bp BoE hike and helping sterling rise toward 1.3400. The bias remains higher while the pair holds 1.3387; a break above 1.3407 would open 1.3470, though the decision and guidance remain key risks.
EURGBP — UK data and BoE hike expectations have supported sterling relative to the euro, with the cross down around 4% over the past month. The relative bias remains lower for EURGBP, reinforced by France’s deteriorating fiscal outlook.
USDJPY — The pair rose to 157.77 as strong US data, persistent inflation and Fed tightening expectations outweighed the BoJ’s restrictive stance and lower oil prices. The broader bias remains higher within 156.08–159.04, but intervention risk rises as the yen weakens toward 158 and could trigger a sharp reversal.
NZDUSD — The pair traded near 0.5620 under pressure from a firm dollar and risk aversion, below its 20-day EMA at 0.5655. A break of 0.5564 support would strengthen the bearish case; upcoming New Zealand labor data is a potential near-term counterweight.
USDCNY — The PBOC set the central rate at 6.7146, above the cited market estimate of 6.6625, signaling a preference to limit yuan volatility and depreciation pressure. The fix supports yuan stability, though weak official Chinese PMIs remain a headwind for sentiment.
CENTRAL BANK WATCH
- RBA: Markets widely expect a 25bp hike to 4.85%. The statement and Governor Bullock’s assessment of inflation and growth will determine whether the move supports a sustained AUD rally or proves a “buy the rumour” event.
- BoE: Markets expect a 25bp hike to 4%. The vote split and Monetary Policy Report are central: hawkish guidance could extend sterling gains, while signs of a pause would risk a reversal.
- BoJ: The bank held its policy rate at a 31-year high and maintained a restrictive stance. The yen’s weakness near 158 raises the prospect of further tightening or intervention if depreciation fuels imported inflation.
- ECB: The bank held rates in October without clear forward guidance. France’s negative outlook and sovereign-fragmentation concerns are testing confidence in the ECB’s ability to preserve monetary transmission.
- PBoC: The stronger-than-expected central-rate setting points to active management of yuan volatility and a reluctance to allow disorderly depreciation.
MACRO DRIVERS
- Dollar support: Resilient US growth, sticky inflation and expectations of further Fed tightening are sustaining the dollar’s yield advantage.
- Diverging regional outlooks: UK growth and employment data contrast with weak official Chinese PMIs and uneven eurozone performance, including French contraction and fiscal concerns.
- Geopolitics and energy: Middle East tensions keep risk sentiment fragile and support safe-haven demand, while energy-price swings complicate inflation and policy expectations.
- Policy risk: The RBA and BoE decisions are near-term catalysts; yen weakness also leaves markets alert to Japanese intervention.
POSITIONING IDEAS
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Bullish
- Long GBPUSD: UK growth and employment have improved, while markets anticipate a BoE hike; a break above 1.3407 would strengthen the setup.
- Long USDJPY, tactically: US rate and growth advantages favor the dollar, but position sizing should account for the risk of intervention near 158.
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Bearish
- Short EURUSD: France’s negative outlook and fragmentation concerns weigh on the euro despite stronger growth readings; 1.1130 is the next key support.
- Short NZDUSD: The pair remains below its 20-day EMA amid broad dollar strength; a break below 0.5564 would confirm renewed downside momentum.