USD Dominates, Euro Falters: Currency Market Update & Forecasts
Monday, November 18, 2024 Week 47
Currency Rankings (Previous Week's Rank in Parentheses)
USD (1) - Maintains top position Fundamental Strength: Strong retail growth (+0.4% Oct), low jobless claims (217k) Sentiment: Strongly bullish, reinforced by Trump victory Key Event: FOMC Minutes - Nov 27 (9 days)
CHF (3) - Rises one rank Fundamental Strength: Low inflation (0.6%), safe-haven flows Sentiment: Cautiously bullish amid global uncertainty Key Event: SNB Martin Speech - Nov 20 (2 days)
JPY (4) - Gains one position Fundamental Strength: Industrial output growth (+1.4% MoM) Sentiment: Mixed with intervention support Key Event: CPI Data - Nov 22 (4 days)
AUD (2) - Falls two ranks Fundamental Strength: Stable unemployment (4.1%), weak retail Sentiment: Neutral-to-bearish on China concerns Key Event: RBA Minutes - Nov 19 (1 day)
GBP (5) - Maintains position Fundamental Strength: Weakening growth (GDP +0.1% Q3) Sentiment: Bearish on fiscal uncertainty Key Event: CPI Data - Nov 20 (2 days)
EUR (6) - Unchanged Fundamental Strength: Manufacturing weakness (PMI 46.0) Sentiment: Strongly bearish on German politics Key Event: ECB Minutes - Nov 21 (3 days)
CAD (7) - Holds position Fundamental Strength: Low inflation (1.6%), dovish BoC Sentiment: Strongly bearish on rate cuts Key Event: CPI Data - Nov 19 (1 day)
NZD (8) - Remains weakest Fundamental Strength: Rising unemployment (4.8%), GDP contraction Sentiment: Extremely bearish on RBNZ stance Key Event: Rate Decision - Nov 27 (9 days)
Rank 1: USD Dominant Power, Extremely Bullish
The US Dollar dominates currency markets through exceptional economic performance. October retail sales beat expectations (+0.4% vs +0.3% forecast). Initial jobless claims hit 217,000, marking a seven-month low. Core inflation remains controlled at 3.3% YoY. This data trifecta supports continued dollar strength.
Primary Theme: Fed policy recalibration post-Trump victory. Markets now price just 77 basis points of cuts through 2024, down from 100+ previously.
Emerging Theme: Strong corporate performance, with 80% of S&P 500 Q3 earnings exceeding forecasts.
Positioning: Extremely bullish
COT Data shows increasing long positions
Options market skew favours dollar calls
Retail sentiment indicators at bullish extremes
Trading Opportunity: Current strength aligned with fundamentals suggests maintaining long USD positions. Consider entries on dips.
Key Risk: FOMC Minutes (Nov 27) could shift rate expectations.
Market Projections
DXY: 105.46 (Q4 2024)
10Y Yield: 4.38% (Q4 2024)
S&P 500: 5,623 (12M)
Rank 2: CHF Safe-Haven Champion, Bullish
Swiss fundamentals show remarkable stability. Inflation at 0.6% marks a multi-year low. The SNB maintains active currency intervention capabilities while managing rate expectations.
Primary Theme: Safe-haven flows intensify amid global uncertainties and Trump's election impact.
Emerging Theme: Market speculation on SNB's intervention threshold levels.
Positioning: Cautiously bullish
SNB intervention risk limits extreme positioning
Options market shows increased demand for CHF calls
Safe-haven premium expanding
Trading Opportunity: Long CHF against EUR offers favourable risk-reward given German political uncertainty.
Key Risk: SNB verbal intervention if appreciation accelerates.
Market Projections
Forecast:
USDCHF: 0.88 (Q4 2024)
10Y Yield: 0.36% (Q4 2024)
SMI: Current 11,497 (12M)
Rank 3: JPY Intervention-Protected, Mixed Outlook
Japanese economic indicators show improvement. Industrial production jumped 1.4% MoM in September. Core inflation holds at 2.4%, supporting BOJ policy normalisation arguments.
Primary Theme: BOJ policy normalisation speculation amid political transition.
Emerging Theme: Currency intervention risk heightens as USDJPY approaches 155.
Positioning: Mixed with intervention overlay
COT data shows reduced short positions
Options market prices in intervention risk
Retail traders reduce JPY shorts
Trading Opportunity: Short USDJPY with tight stops near intervention trigger levels offers asymmetric returns.
Key Risk: BOJ Summary of Opinions (Nov 25) could clarify policy stance.
Market Projections
USDJPY: 155.48 (Q4 2024)
10Y Yield: 0.95% (Q4 2024)
Nikkei: 38,923 (Q4 2024)
Rank 4: AUD China-Dependent, Neutral Stance
Australian fundamentals present mixed signals. Unemployment holds steady at 4.1%, but retail sales disappoint at +0.1% MoM. RBA maintains hawkish bias despite external pressures.
Primary Theme: Balancing domestic strength against Chinese economic concerns.
Emerging Theme: Trump trade policy implications for Australian exports.
Positioning: Neutral with bearish bias
COT data shows balanced positioning
Options market neutral skew
Institutional investors reduce exposure
Trading Opportunity: Range trading strategy preferred given conflicting drivers.
Key Risk: RBA Minutes (Nov 19) could shift policy expectations.
Market Projections
AUDUSD: 0.65 (Q4 2024)
10Y Yield: 4.61% (Q4 2024)
ASX 200: 8,165 (Q4 2024)
Rank 5: GBP Fiscal Uncertainty, Bearish Bias
Sterling fundamentals deteriorate. Unemployment rises to 4.3%, while GDP growth disappoints at 0.1% Q3. Industrial production fell 0.5% in September.
Primary Theme: Fiscal policy uncertainty following Labour's first budget.
Emerging Theme: Trade implications under Trump presidency.
Positioning: Bearish
COT data shows growing short positions
Options risk reversals favour puts
Institutional sentiment weakening
Trading Opportunity: Short GBP against USD offers favorable risk-reward given fundamental weakness.
Key Risk: CPI Data (Nov 20) could surprise higher.
Market Projections
GBPUSD: 1.28 (Q4 2024)
10Y Yield: 4.46% (Q4 2024)
FTSE 100: 8,183 (Q4 2024)
Rank 6: EUR Political Crisis, Strong Bearish
Eurozone fundamentals weaken further. Manufacturing PMI remains in contraction at 46.0. The German political crisis adds to economic uncertainty.
Primary Theme: German political turmoil following coalition collapse.
Emerging Theme: Expectations for accelerated ECB rate cuts.
Positioning: Strongly bearish
COT data shows largest short position since 2022
Options market heavily skewed to puts
Institutional investors reduce EUR exposure
Trading Opportunity: Short EUR against CHF offers safety premium amid political uncertainty.
Key Risk: ECB Minutes (Nov 21) could resist dovish expectations.
Market Projections
EURUSD: 1.07 (Q4 2024)
10Y Bund: 2.35% (Q4 2024)
EURO STOXX 50: 4,843 (Q4 2024)
Rank 7: CAD Rate Cut Pressure, Strong Bearish
Canadian fundamentals show weakness. Inflation falls to 1.6%, prompting BOC's 50bp rate cut. Employment gains (+14.5K) provide limited support.
Primary Theme: BOC dovish pivot dominates sentiment.
Emerging Theme: Trump trade policy implications for Canadian exports.
Positioning: Strongly bearish
COT data shows growing CAD shorts
Options market heavily favors USD calls
Institutional investors reduce CAD exposure
Trading Opportunity: Long USDCAD targeting 1.42 offers favorable risk-reward.
Key Risk: CPI Data (Nov 19) could slow rate cut expectations.
Market Projections
USDCAD: 1.40 (Q4 2024)
10Y Yield: 3.20% (Q4 2024)
S&P/TSX: 24,131 (Q4 2024)
Rank 8: NZD Fundamental Weakness, Extreme Bearish
New Zealand's fundamentals remain weakest. Unemployment rises to 4.8%, GDP contracts 0.2% Q2. Manufacturing PMI at 45.8 indicates continued contraction.
Primary Theme: RBNZ aggressive easing expectations.
Emerging Theme: Chinese slowdown impact on dairy exports.
Positioning: Extremely bearish
COT data shows record short positions
Options market heavily skewed to puts
Retail sentiment at bearish extremes
Trading Opportunity: Short NZD against USD targeting 0.58 offers clear directional trade.
Key Risk: RBNZ Rate Decision (Nov 27) could disappoint dovish expectations.
Market Projections
NZDUSD: 0.5850 vs 0.59 (Q4 2024)
10Y Yield: 4.68% vs 4.55% (Q4 2024)
NZX 50: Current 12,765 vs 12,516 (Q4 2024)