Euro and Sterling Stall

[Ben Graham]

Drivers: A consolidative tone appears to be emerging. The US dollar is mixed, with the dollar-bloc and Norwegian krone firm and the other others nursing small losses.  The US jobs data is at the end of the week, and the market continues to digest geopolitical developments. China announced export controls on Japan for any good with military use, apparently in response to comments by Japan’s Prime Minister Takaichi last year.  Investors and policymakers continue to think through the implications of US actions in Venezuela and the overtures about Greenland. Canada’s Prime Minister Carney meets with NATO Secretary General Rutte and Danish Prime Minister Frederiksen, followed by the French President Macron today. Early in the North American session, Fed’s Barkin and Miran speak.

Prices 

G10

• After being sold earlier yesterday (to ~$1.1660), the euro recovered in North America after the disappointing US manufacturing ISM and reached nearly $1.1730. Follow through buying lifted it to almost $1.1745 today before stalling and the single currency returned to around $1.1700. It appears caught between two option expirations today. One set is at $1.1650 for 1.06 bln euros and the other set is at $1.1750 for about 630 mln euros. 
• The dollar posted an outside down day against the yen yesterday. It traded on both sides of last Friday’s range and settled below its low. However, there was no follow-through selling today and the greenback is trading inside yesterday’s range. It is in a roughly JPY156.15-JPY156.80 range so far today, mostly trading between the 20-day moving average (~JPY156.20) and the five-day moving average (~JPY156.65).  
• Sterling posted on outside upside yesterday and follow-through buying lifted it to almost $1.3570 today, its best level since September 18, the day after the Fed’s first hike of 2025. It stalled and recorded the session low in the European morning, near $1.3515. Options for about GBP435 mln at $1.3500 expire today. 
• The Canadian dollar was the worst performer in the G10 yesterday, amid speculation that as the world’s largest producer of heavy oil it was vulnerable to the developments in Venezuela. The greenback reached CAD1.3815, its highest level since December 11 and surpassed a technical retracement target near CAD1.3790. It is consolidating in a narrow range today (~CAD1.35750-CAD1.3775). Options for $1.23 bln expire tomorrow at CAD1.38. 
•  After posting an outside up day yesterday, the Australian dollar extended its gains and today and reached nearly $0.6740 to rise above last year’s high recorded in late December around $0.6730. It stalled and pulled back but is holding above $0.6700, where A$1 bln of options expire. A smaller set for about A$500 mln expires at $0.6710 today. 

EM

• The dollar appears to be forging a base around MXN17.87. It is flirting with the 20-day moving average (~MXN17.9850), which it has not settled above since late November. The nearby cap is around MXN18.0375 and a push above there could see MXN18.10-MXN18.15. 
• The PBOC’s campaign of lowering the dollar fix continues. It was set at CNY7.0173 today, down from CNY7.0230 yesterday. It is approaching the extreme from September 2024 (~CNY7.0074). The dollar is consolidating inside yesterday’s range against the offshore yuan (~CNH6.9696-CNH6.9918). 
• The Indian rupee has fallen for the past four sessions but is better bid today. Yesterday, the dollar reached INR90.2925. It did not make further progress today and eased to INR90.08. A break of INR90.00 is needed to suggest a near-term top is in place. 
• The dollar rose by about 0.6% against the Venezuelan bolivar yesterday appears poised to extend those gains today.

Other Markets

• Global equities are extended their New Year rally. Most large bourses in the Asia Pacific region gained more than 1% today. Australia and India are exceptions and saw modest declines. China’s CSI 300 reached a four-year high. Europe’s Stoxx 600 is extending yesterday’s nearly 1% gain and is up for the third consecutive session. US index futures are narrowly mixed. 
• Japan’s 10-year yield edged up while European benchmark yields are mostly around one basis point softer. The 10-year Treasury yield is up nearly two basis points to almost 4.18%.
• Gold’s rally extended to nearly $4476 today after yesterday’s almost $117 rally. It stalled in the European morning and was sold to around $4440 before finding new bids. 
• February WTI is extending yesterday’s gains. It has approached the upper end of the range seen in late December around $58.75. 
• Copper futures are at new record highs. 

Data

• The US sees the final services and composite December PMI. The preliminary estimate was for modest decline in the service PMI to 52.9 from 54.1.  The composite eased to 53.0 from 54.2.  It affirmed in the final reading, it would be the fourth slowing in five months. It finished 2024 at 55.4. 
• Canada sees its services and composite PMI. They stood at 44.3 and 44.9, respectively, in November. 
• Mexico reports December domestic vehicle sales. In November, they were practically flat year-over-year. 
• The final services and composite PMI for the eurozone were revised lower from the flash reading of 52.6 and 51.9, respectively. They stand at 52.4 and 51.5.   The composite PMI posted the 2025 high in November at 52.8, a culmination of a six-month advance that appears to have stalled. Tomorrow the eurozone reports the preliminary December CPI. Given the base effect, a 0.2% month-over-month rise would leave the year-over-year rate unchanged at 2.4%. The core rate may have ticked down to 2.0% from 2.1%. 
• New car registrations in the UK, a proxy for sales, were 3.9% higher in December year-over-year. The final services and composite PMI readings were revised lower. The services PMI stands at 51.4, not 52.1, and the composite PMI is also at 51.4 not 52.1 of the preliminary estimates. In December 2024, the UK composite PMI was at 50.4. 
• Japan sees its final services and composite reports tomorrow and labor earnings on Thursday. Despite the seemingly hawkish comments over the weekend by BOJ Governor Ueda, the swaps market was little changed and has almost a 45% chance of the next hike seen in April. 
• Australia’s final December PMI were in line with the preliminary estimate. The services PMI stands at 51.1, down from 52.8 in November. The composite PMI stands at 51.0, down from 52.6 in November. It was at 50.2 at the end of 2024. 
• On Thursday, China will report December PPI, and CPI. Deflation may have eased slightly for producers, while consumer prices are expected to have ticked up to 0.8% (from 0.7% in November year-over-year), which would be the highest since February 2023. 

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