Year-End Policy Rush: Key Rate Decisions Loom
Wednesday, December 11, 2024, Week 50
Following yesterday's baseline Forex fundamentals assessment, market sentiment has shifted notably from Trump's trade policies to this week's packed central bank schedule. Friday's stronger US jobs report (227K vs 200K forecast) continues to influence trading positions, while markets await tomorrow's crucial US CPI data ahead of the ECB (Thursday) and SNB (Thursday) meetings.
USD - VERY STRONG (→): Dollar Dominance Unchallenged
US jobs data exceeded expectations last week, maintaining bullish dollar sentiment amid haven flows. European political turmoil adds further support to the greenback's position.
The DXY Q4 2024 forecast holds at 106.43 (Trading Economics), appearing conservative given recent data strength and safe-haven demand. The 10Y yield target of 4.18% aligns with current Fed policy expectations, though the S&P 500 forecast of 6,047.91 seems optimistic against tightening financial conditions.
November's NFP came in at 227K versus 200K expected, while unemployment held steady at 4.2%. Core PCE inflation persists at 2.8% YoY. Tomorrow's CPI release (8:30 EST) takes center stage, with core expected at 0.3% MoM. Next week's Fed meeting (December 18) could reshape 2025 rate expectations.
The dollar presents compelling long opportunities against low-yielding currencies (EUR, JPY) and those with dovish central banks (NZD, CAD).
CHF - STRONG (→): Haven Appeal Intensifies
Swiss franc demand has strengthened further as Germany's coalition collapse drives safety flows. October's 0.6% inflation print continues supporting the franc's stability narrative.
The USD/CHF Q4 target remains at 0.89 (Trading Economics), though increased haven demand suggests downside risks. The SMI's 11,737.79 projection reflects Switzerland's defensive characteristics.
Last week's KOF leading indicator hit 101.8, exceeding expectations. The SNB rate decision (Thursday, 9:30 EST) takes precedence this week, with markets focused on intervention signals. Trade balance data follows next Thursday.
Long CHF positions appear attractive against EUR given regional instability, though intervention risks require careful position sizing.
JPY - MODERATELY STRONG (→): Policy Shift Expectations Mount
Yen sentiment remains supported by BOJ normalization prospects, with Governor Ueda's signals of approaching rate hikes. October's trade deficit narrowed to ¥461.25B, beating forecasts.
USD/JPY's Q4 target holds at 150.90 (Trading Economics), though mounting policy shift expectations create downside risks. The Nikkei 225's 38,943.07 forecast may require revision if tightening materializes sooner.
Recent PMI data showed manufacturing at 49.0 and services at 50.2. Board member Nakamura speaks Thursday (20:30 EST), potentially offering policy clues before next week's critical BOJ meeting (December 19).
JPY longs look compelling against risk-sensitive AUD/NZD pairs given potential policy shifts and haven status.
EUR - NEUTRAL (↓): Political Crisis Dominates
Euro sentiment has deteriorated sharply following Germany's coalition breakdown. Manufacturing weakness persists with PMI at 45.2, while services PMI holds at 49.5.
The EUR/USD Q4 target maintains at 1.05 (Trading Economics), though political uncertainty creates downside risks. The STOXX 50's 4,914.45 forecast appears ambitious given current headwinds.
The ECB rate decision (Thursday, 8:15 EST) headlines this week's events, with markets pricing a 25bp cut. Flash PMIs follow next Monday (December 16).
We maintain a neutral EUR stance overall but see attractive short opportunities against CHF given regional risks.
GBP - MODERATELY WEAK (→): Growth Worries Persist
Sterling sentiment remains subdued as manufacturing PMI (48.6) signals continued contraction. October's inflation print of 2.3% suggests easing price pressures.
The GBP/USD Q4 target of 1.27 (Trading Economics) faces downside risks given growth concerns. The FTSE 100's 8,297.19 forecast looks optimistic against domestic challenges.
Thursday's GDP data (2:00 EST) and next week's BOE meeting (December 19) could reshape sterling sentiment. Tomorrow brings crucial employment figures (2:00 EST).
GBP shorts against USD appear attractive given diverging economic trajectories.
CAD - WEAK (↓): Labor Market Deteriorates
Loonie sentiment weakened after November's unemployment spike to 6.8%. The BOC maintains its dovish stance despite manufacturing PMI improvement to 52.0.
USD/CAD's Q4 target holds at 1.41 (Trading Economics), though labor market weakness suggests upside risks. The S&P/TSX target of 25,515.54 may need downward revision.
Manufacturing sales data arrives tomorrow (8:30 EST), followed by wholesale figures Thursday. Next week's CPI print (December 19) will influence BOC policy expectations.
CAD remains an attractive short against USD given policy divergence and economic challenges.
AUD - VERY WEAK (→): China Risks Weigh
Aussie bearish sentiment persists with manufacturing (49.4) and services PMIs (49.6) both contracting. China exposure amplifies downside risks.
The AUD/USD Q4 target maintains at 0.64 (Trading Economics), though external headwinds create downside risks. The ASX 200's 8,422.22 forecast appears increasingly challenging.
Consumer confidence arrives tomorrow (7:30 EST), followed by employment data Thursday (7:30 EST). Next week brings RBA minutes (December 19).
AUD presents compelling short opportunities against both USD and JPY given fundamental headwinds.
NZD - VERY WEAK (→): RBNZ Dovishness Weighs
Kiwi bearish sentiment deepens following the RBNZ's 50bp cut to 4.25%. Manufacturing PMI's extended contraction at 45.8 reinforces weakness.
The NZD/USD Q4 target holds at 0.58 (Trading Economics), with risks skewed lower given dovish policy stance. The NZX 50's 12,831.18 forecast appears achievable.
Thursday brings Q3 GDP data (4:45 EST), while business PMI follows Friday. Next week's trade balance (December 19) will update external position metrics.
NZD remains the most attractive short among majors given weak fundamentals and monetary policy divergence.
Conclusion
This week's central bank decisions and key data releases could significantly reshape 2025 policy expectations. European political uncertainty adds complexity to trading dynamics, while US economic resilience continues supporting dollar strength. Careful position sizing remains crucial given elevated event risk.
Key Events Dec 10-13:
US CPI (Dec 11, 8:30 EST) - Core forecast +0.3% MoM
ECB Rate Decision (Dec 12, 8:15 EST) - Markets price 25bp cut
SNB Rate Decision (Dec 14, 9:30 EST) - Focus on intervention
UK GDP Data (Dec 12, 2:00 EST) - Q3 growth assessment
Sources: Bank of England, ECB, Federal Reserve, Bank of Japan, SNB, RBA, RBNZ, Bloomberg, Reuters, Trading Economics, S&P Global.