Week Ahead: EUR downside, USD upside in focus

The dollar will be watched intently this week as it continues to make fresh cycle highs. That means some of its peers, like EUR, GBP and NZD, have recently broken down through long-term support levels. There are several reasons for the ongoing strength in the greenback. These include a recent haven bid due to escalation in the Ukraine-Russia conflict and hawkish Fed speak on the back of sticky inflation. Still solid US data also contrasts with crumbling confidence in the eurozone. In addition, of course, Trump unleashed / 2.0 is underpinning support for the buck over the medium-term.

It’s Thanksgiving in the US on Thursday so both stock and bond markets close early. That likely means most of the week’s developments will be squeezed into the first half of the week before global markets enter a generally lighter period absent US clients and a significant amount of liquidity. The Fed’s favoured inflation gauge is expected to tick up with the core PCE monthly print higher than the 0.17% reading that is needed to bring CPI back to target. This would match the estimates that Fed Chair Powell shared recently. There is one more CPI report following NFP, ahead of the FOMC December 18 meeting. That rate decision is currently more or less a coin flip as to a pause or 25bps cut.

Eurozone CPI is also predicted to move higher, mainly due to base effects. The eurozone economy is battling stagnation, potential Trump tariffs, political uncertainty and a ramping up of a conflict on its borders. It seems tough to call a bottom in the euro, even after a near 7% decline since late September. It’s a 50:50 bet on a 25bp or 50bp rate cut by the ECB next month. The October 2023 low is a key long-term level at 1.0448. Technicals unsurprisingly remain bearish.

In Brief: major data releases of the week

Wednesday, 27 November 2024

– RBNZ Meeting: Markets fully price in a 50bps rate cut, taking the OCR to 4.25%. That would be the second in a row after a 50bps cut on October 8 and would bring the cumulative reduction to 125bps in just three meetings. Domestic challenges remain and policy is still restrictive. New bank projections and guidance will be crucial.

– US Core PCE Consensus expects the Fed’s preferred measure of inflation to tick up one tenth to 0.3% m/m and 2.8% y/y. This data includes components from both the CPI and PPI. We get both those reports in December, a week before the FOMC meeting.

– FOMC Meeting Minutes: The Fed cut rates by 25bps as expected at this meeting. Another reduction or a pause in December is roughly a 50:50 bet. The FOMC does not appear to be in a hurry to lower rates at present. The minutes could offer some clues on the most likely rate path going forward.

Thursday, 28 November 2024

– Tokyo Inflation: A modest gain toward 2% in core inflation is likely. This data is seen as a forerunner for nationwide inflation. It will be the last report before the BoJ meeting on December 19. Governor Ueda recently indicated that this meeting is to be treated as ‘live’.

Friday, 29 November 2024

– Eurozone Inflation: Expectations are for November headline inflation to rise 2.4% from 2.0%, and the core to tick higher to 2.9% from 2.7% in October. Unfavourable base effects from services inflation are the primary reason for the uptick. Markets currently favour a 50bps ECB rate cut next month.

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