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Wednesday FX Briefing: Dollar Rebound?

Market Overview

The S&P 500 (.SPX) broke its five-session winning streak, declining by 0.2%. Post-market close, Nvidia (NVDA.O) reported revenues surpassing Wall Street expectations but saw a 1.7% fall in shares due to a grim sales forecast in China.


Nasdaq futures (.IXIC) dipped by 0.2%, while S&P 500 futures (.SPX) saw a 0.1% decrease early in the Asia day. Market volumes are anticipated to diminish throughout the week, with Thursday's Thanksgiving holiday in the United States.


Economic Analysis

Nomura's chief macro strategist, Naka Matsuzawa, noted, "The short cover rally post-November Fed meeting is subsiding, with buying and selling beginning to alternate."


The Fed's recent meeting minutes, though not revealing new information, highlighted a careful approach ahead. Ten-year Treasury yields were slightly down at 4.40% in Asia trade, dropping about 50 basis points since early November.


Interest rate futures indicate minimal likelihood of further Fed hikes, with about 90 basis points of rate cuts expected through 2024.


Rabobank's senior U.S. strategist, Philip Marey, suggests, "Stronger economic and inflation data before December could lead to longer-term rates rebound, substituting for a rate hike."


Market Movements

Stocks and the dollar experienced muted trading ahead of holidays. Asian equity benchmarks remained largely unchanged as AI stocks, including Nvidia, reacted lukewarmly to earnings reports. European and US stock futures showed little variation.


Kyle Rodda of Capital.com comments, "Recent macro tailwinds have driven equity markets, with peak interest rates and potential cuts next year allowing for November's rally."


Mainland Chinese shares, particularly in tech and industrial sectors, edged lower. Grow Investment Group's chief economist, Hao Hong, expects Chinese stocks to stabilize, citing unresolved market issues.


The offshore yuan continued its ascent, marking its strongest level since June. In contrast, cryptocurrencies faltered amid legal settlements involving Binance.


Fed's Strategy

The Fed's minutes underscored a cautious stance on interest rate moves, basing future decisions on progress towards inflation goals. Market speculation about a potential rate cut in Q1 highlights challenges for the US dollar.


Global Market Focus

Attention in Asia is on China's corporate executive probes, including the recent arrest of DouYu International's founder. Additionally, the pause in Israel-Hamas conflict and upcoming OPEC+ meeting on oil supply are key points of interest.


Currency and Commodity Markets

The dollar steadied, showing resilience against major currencies. The Australian dollar faced resistance, while China's yuan steadied following state bank interventions.


In commodities, Brent crude futures hovered around $82.64 a barrel, with iron ore futures maintaining their monthly gains. Bitcoin experienced volatility amid Binance's legal developments.


US Session Recap

The FOMC minutes from November 1st indicated a hawkish stance but lacked fresh insights. Post-release, the dollar index (DXY) saw an uptick, potentially moving towards the 104-level.


Key News Events Today

  • US Unemployment Claims (1:30 pm GMT)

  • BoC Governor Tiff Macklem's Speech (4:30 pm GMT)

  • Crude Oil Inventories (3:30 pm GMT)

Market Biases

  • DXY: Weak Bullish

  • Gold (XAU): Medium Bearish

  • Australian Dollar (AUD): To be influenced by RBA Gov Bullock's speech

  • Canadian Dollar (CAD): Weak Bearish

  • Oil: Under pressure with potential inventory build-up



Central Bank Notes

  • Federal Reserve: Continues to assess monetary policy implications, aiming for a 2.0% inflation rate.

  • Bank of Canada: Maintains its overnight rate, with economic growth projections adjusted.

  • Swiss National Bank: Keeps policy rate unchanged, with modest growth forecast.

Conclusion

As markets navigate through economic data and central bank insights, the focus remains on inflation and policy directions. Key events, including speeches by central bank officials and unemployment data, could significantly impact market dynamics in forex, commodities, and global stocks.



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