After a rush to safe-haven assets like Gold and the US Dollar, Traders are seeing some optimism early Monday, driven by hopes of a ceasefire between Israel and Lebanon, and no negative news from China. There's also growing confidence in a soft landing for the US and Eurozone, plus expectations that central banks may lower rates.
As a result, the US Dollar and Gold pulled back, while USDJPY started the week lower after two weeks of gains. EURUSD, GBPUSD, and Antipodean currency pairs show small rebounds, but Crude Oil slips.
On Friday, the Fed's Financial Stability Report highlighted the US government's fiscal sustainability as the top risk to the financial system. The November S&P PMI data for the US showed stronger performance than Europe and the UK, helping push the US Dollar Index (DXY) to its highest level since November 2022. However, mixed University of Michigan (UoM) data and cautious market optimism led to a pullback in the DXY afterward. UoM consumer sentiment for November dropped to 71.8, below the 73.7 forecast, while inflation expectations showed slight changes.
Additionally, news of a potential Israel-Lebanon ceasefire reduced geopolitical risks, weakening safe-haven assets like the US Dollar and Gold. Meanwhile, US Republican Senators warned allies not to support the International Criminal Court (ICC), threatening sanctions if they did.
Eurozone November PMIs disappointed Euro buyers, weighed down by dovish European Central Bank (ECB) comments and fears of a German recession dragging down the region. ECB's Francois Villeroy de Galhau mentioned that falling inflation could allow for rate cuts, signaling a "soft landing" for the economy. However, Deutsche Bundesbank President Joachim Nagel warned that Germany’s stagnation could lead to a tough start for the next year. As a result, EURUSD hit a new yearly low, marking a third consecutive week of declines before today's bounce.
Meanwhile, weak UK PMIs and Retail Sales, combined with a strong US Dollar, pushed GBPUSD below a key support line, extending its eight-week downtrend.
The US Dollar's retreat, along with new discussions about the Bank of Japan’s (BoJ) rate hikes and the Fed's struggles to maintain a hawkish stance, have weakened USDJPY after its two-week rally. Additionally, talk of potential market intervention by Japan and carry trade activity is adding pressure on the Yen, ahead of this week's key inflation data from both the US and Japan.
AUDUSD and USDCAD marked weekly gains of the Australian and the Canadian Dollars, defying the US Dollar's rise, supported by strong domestic data, China's stimulus, and rising Crude Oil prices. Meanwhile, NZDUSD remained weak, despite a recent rebound, due to expectations of significant rate cuts by the Reserve Bank of New Zealand. New Zealand's Q3 Retail Sales improved to -0.1% QoQ from -1.2% previously, but the RBNZ Shadow Board's recommendation for a 50bps rate cut this week kept the pressure on NZDUSD, even as the US Dollar pulled back.
The US Dollar's rise didn't deter Gold and Crude Oil buyers, as escalating geopolitical tensions and uncertainty around global central banks, along with economic shifts in China, Europe, and the UK, kept demand strong.
Gold broke a three-week downtrend, posting its largest weekly gain since March 2023. Similarly, Crude Oil saw its biggest weekly rise since late September, brushing off a surprise inventory build due to concerns about a potential supply crunch.
Optimism from Donald Trump's election and industry developments are keeping Bitcoin (BTCUSD) and Ethereum (ETHUSD) buyers hopeful. This week, the CBoE is set to launch the first-ever cash-settled index options tied to Bitcoin's spot price, adding to the Trump-related optimism and driving cryptocurrency prices higher.
This week, key events include the US Core PCE Price Index, the Minutes from the latest FOMC meeting, and the RBNZ's monetary policy decision. Inflation data from the Eurozone and Australia, along with US Consumer Confidence, will also be in focus.
Hawkish Fed signals, fresh geopolitical tensions, and dovish data from other regions could keep the US Dollar strong. However, Gold may continue to rise rather than fall, and EURUSD and GBPUSD may struggle to recover unless there are surprises. A pullback in USDJPY seems likely, and Crude Oil lacks strong catalysts to sustain gains, while Antipodean currencies could see a correction.
With a light calendar on Monday and the Thanksgiving holiday on Thursday, market moves could be limited this week.
May the trading luck be with you!
