NFP report and Eurozone CPI will be the week's focal point on Friday. FOMC minutes and ISM PMIs will also be crucial for the US Dollar. Canadian employment and Chinese PMIs might attract attention too. Rate cut bets in overdrive It's been one big rollercoaster ride for the US dollar in 2023, as hopes of a Fed pivot were repeatedly dented by surprisingly strong economic data, which more often than not, has come from the robust performance of the American labour market. But traders seem surer this time that a pivot is just around the corner, as Fed chief Powell himself has dropped subtle hints about it. Thus, despite a powerful rebound during the summer and autumn, the greenback looks set to finish the year with losses of almost 3% against a basket of currencies. That rally was driven by a surge in Treasury yields, which have since been tarnished by heightened expectations of aggressive rate cuts over the coming year. Cumulative rate cut odds for 2024 are fast approaching 160 basis points. This seems excessive when considering that the US economy is not in recession and Fed officials are only predicting about three 25-bps cuts. The minutes of the December meeting that produced those forecasts are due on Wednesday and FOMC members might attempt to use the publication to reinforce their view of only modest policy easing over the next couple of years. A not too cold, not too hot jobs report Another clue on the rate path will be policymakers' outlook on the jobs market as they've recently indicated that as inflation comes down, their focus on the Fed's other mandate – employment – will increase. This might explain Powell's lack of caution in being eager to steer policy towards easing on fear that holding rates at restrictive levels for too long might push up the unemployment rate. However, it's been so far so good as far as the labour market is concerned. Jobs growth has slowed but companies aren't laying off staff in big numbers, allowing wages to rise at a moderate pace. Analysts don't expect this picture to have altered much in December. Nonfarm payrolls are projected to rise by 158k, down from 199k in November, while the jobless rate is forecast to tick up slightly to 3.8%. Average earnings aren't anticipated to rock the boat either, with the month-on-month rate expected at 0.3% and the year-on-year figure at 3.9% versus 4.0% previously. Will there be a rude awakening for the markets? Given investors' strong conviction that the Fed will soon start slashing rates, a small beat or miss in the headline print is unlikely to generate anything more than a kneejerk reaction in the dollar. A very disappointing report isn't very probable as weekly jobless claims have been quite low during the month. So if there will be a shock, it will be from an unexpectedly hot report. The dollar could jump higher along with yields, while Wall Street could succumb to panic selling from investors scaling back their rate cut bets on the back of upbeat NFP readings. But in the event that the jobs data fails to provide any fresh direction, investors will probably turn to the other releases of the week. These will include the ISM manufacturing and non-manufacturing PMIs, due on Wednesday and Friday, respectively, the JOLTS job openings on Wednesday, Challenger layoffs on Thursday, and factory orders on Friday. Some risks ahead for the Loonie and Aussie Across the border in Canada, the loonie will be keeping tabs on the domestic labour market as rate cut bets for the Bank of Canada have also been ratcheted up lately. The Canadian dollar is on track to have gained about 2.5% against its US counterpart in 2023, faring somewhat better than the other commodity-linked currencies, the Australian and New Zealand dollars. Less exposure to China and a more unquestionably hawkish stance by the BoC have contributed to its relative outperformance versus the Aussie and Kiwi. However, there's a risk that 2024 might be more of a struggle for the loonie if stagnating economic growth forces the Bank of Canada to start lowering rates. The country's unemployment rate has been steadily edging up since May and likely rose further in December to 5.9%, data on Friday is expected to show. Although employment has been rising during this period, it hasn't been able to keep pace with the growth in the number of jobseekers. It's expected that the economy added just 13.2k jobs in December. Nevertheless, wage growth remains elevated at 5.0% so investors will be watching that figure too, as well as the latest Ivey PMI gauge on Friday. PMI data will also be important for the Australian dollar as China's two sets of releases are due next week. The official government survey...

The Canadian Dollar put in a lot of miles just to end the year down two pennies. BoC, Fed rate policy lockstep at risk of rapid divergence in the first half of 2024. A breakdown of the Loonie-Oil correlation poised for a rough correction. It was a back-and-forth year for the Canadian Dollar (CAD), kicking off 2023 with opening bids near 1.3550 against the US Dollar (USD), and the USD/CAD spent most of the year rattling between 1.3000 and 1.3900. The pair is set to wrap up December's trading within sight of 2023's opening bids, down around one and three-quarters of a percent on the year following a fourth-quarter breakout in the Canadian Dollar that surged over 4% from 12-month lows against the Greenback. The USD/CAD will see diverging central bank policy as a key driver through 2024, and the correlation between the Canadian Dollar and Crude Oil is likely to hold firm through the upcoming trading year. Despite musings in recent years about a shakeout in the Loonie-Crude connection, 2023 saw USD/CAD and West Texas Intermediate (WTI) US Crude Oil moving around the charts in lockstep.  The Canadian economy is expected to run into headwinds through the second half of 2024, coinciding with a global growth slowdown that could hamper Crude Oil prices next year as fossil fuels demand flounders in low-growth or recessionary environments.  Rate hike cycle hits the ceiling, central banks agree the top is in The Canadian Dollar spent most of 2023 grinding chart paper amidst familiar levels, wrapping up the year's trading window within a penny of 2023's opening bids. A limited rate differential between the Bank of Canada (BoC) and the US Federal Reserve (Fed) restrained long-term momentum in the USD/CAD for the majority of the year. The BoC saw three rate increases this year, compared to the Fed's four 25-basis-point rate hikes, with both central bank reference rates keeping in relative lockstep through the first half of 2023. Both central banks reached the peak of the rate hike cycle early in the third quarter, and the BoC and the Fed will close out 2023 with rates at 5.0% and 5.5%, respectively. The BoC-Fed rate differential remained a close race through 2023, reaching its widest divergence of a relatively sedate three-quarters of a percent following the Fed's third quarter-point hike in May. After reaching a first-quarter high of 1.3862, the USD/CAD backslid into the 1.3100 handle by mid-July. A four-month rally kicked off to drag the pair into twelve-month highs just a few pips shy of the 1.3900 handle, before seeing broad-market weakness in the US Dollar that dragged the USD/CAD back towards 1.3300 to round out 2023's frothy trading cycle. The Canadian Dollar's long-standing relationship with Crude Oil prices broke down in the second half of 2023, with the CAD rising against the US Dollar despite Crude Oil weakness that would normally be expected to drag down the Loonie. West Texas Intermediate (WTI) US Crude Oil barrels declined from a late September peak near $94.00 per barrel to a multi-month low around $70.00 per barrel in mid-December. Crude Oil's struggles in 2023 were highlighted by the Organization of the Petroleum Exporting Countries (OPEC) and its efforts to decisively cap off global Crude Oil production in the face of slumping global demand for fossil fuels. WTI plunged to 20-month lows near $64.30 in the second quarter before rallying to 13-month highs just shy of the $94.00 handle on broad-market expectations that OPEC's drastic production cuts would see global oil supply undershoot energy demand heading through the back half of 2023. Key member states within OPEC, specifically Saudi Arabia and Russia, dedicated themselves to 1.3 million bpd in production and exporting cuts, however Crude Oil's tight-supply rally fizzled out heading into 2023's third quarter. Drastically slowing Crude Oil demand from China, coupled with US Crude Oil reserves failing to draw down as much as energy markets expected, saw fossil markets rebalance their expectations of supply constraints in the future, sending Crude Oil back into familiar lows. Many of the smaller members of OPEC, including OPEC's loose affiliation of non-OPEC ally states (OPEC+) have expressed dissatisfaction in OPEC's current production targets, with many OPEC+ states relying on Crude Oil sales to balance their government budgets and keep their economies on the right side of the growth equation. Despite adamant language from major OPEC states about clamping down on both oil production and exporting quotas, Crude Oil markets remained unconvinced that the oil cartel would be able to send Crude Oil production low enough to undercut barrel demand meaningfully. OPEC, lacking built-in policy tools to enforce production caps, has no formal mechanisms in place to punish or even prevent member states from flaunting export quotas. Even an exacerbation of the long-running conflict between Israel and Palestinian Hamas...

EUR/USD stabilized below 1.1100 following Thursday's downward correction. Euro is up more than 3% against the US Dollar this year. ECB-Fed monetary policy divergence could drive the pair's action in the new year. EUR/USD reversed its direction and registered daily losses after touching its highest level since late July at 1.1140 on Thursday. The pair trades in a tight channel below 1.1100 early Friday and it might have a difficult time finding direction, with trading conditions thinning out on the last trading day of the year. The modest recovery seen in the US Treasury bond yields helped the US Dollar (USD) stay resilient against its rivals on Thursday and caused EUR/USD to stretch lower during the American trading hours. Nevertheless, EUR/USD remains on track to post gains for the third straight week and it's up more than 1.5% in December.

Warmest thanks to all our Morning Briefing readers for being with us on this market journey through the year. We wish you all a Happy New Year in advance and may our new year be filled with financial success and delightful surprises! We will resume our Morning Briefing edition on 2nd January 2024. Till then we can keep the markets aside and keep the holiday mood on! Profit taking across all markets could be seen today being the last trading day of the year before we go on a weekend holiday mood for the New year. The Dollar Index has bounced back from 100.80 suggesting a false break was seen yesterday below 101 while Euro has seen profit taking near 1.1139, not allowing a rise towards our expected 1.12. EURJPY continues to fall within 159–156 region, while USDJPY appears to be stable above 140-141 and may see a short rise to 142/143 soon. The resistance in Aussie at 0.69 seems to be holding well. Pound could not sustain its rise past 1.28 and has also seen some profit taking. USDCNY is near our mentioned target of 7.09. Need to see if it reverses from here of falls lower towards 7.05. USDRUB has plunged sharply and could test 88-87 before pausing. USDINR on the NDF has come down significantly after a higher close on the OTC markets yesterday. We may expect a rise from 83.10 back towards 83.20 or higher today. After testing 92.66 on the upside, EURINR is again retreating towards 92-91.50. The US Treasury and the German yields have bounced back. There could be a corrective rise in the near-term. However, strong resistances are there which can cap the upside and keep the overall downtrend intact. The 10Yr and 5Yr GoI have been moving up over the last few days. There is room to rise further before the overall downtrend resumes. Dow Jones and Nifty have scope to test their key resistance before a corrective fall can happen. DAX and Nikkei appears ranged. Shanghai is bullish for a rise towards 3000. Crude prices are falling on bumpy year end markets. Tensions surrounding Red Sea shipping, decline in US barrel counts reported by EIA on Thursday and the announcement of Angola leaving OPEC have all pulled down the crude prices. Gold has declined as the resistance at 2100 has held well. Silver has declined towards the lower end of the range. Need to see if it breaks below the lower end of the range or not. Copper is back into its 3.95-3.85 range. Natural Gas looks mixed. Visit KSHITIJ official site to download the full analysis

AUD/USD Current Price: 0.6832 US Dollar Index rebounds from monthly lows, rises above 101.00. Higher Treasury yields boost the Dollar's rebound. The bullish momentum in AUD/USD is fading, but the overall trend is still upward. The AUD/USD hit a fresh five-month high at 0.6871 but lost momentum. During the American session, the pair turned negative, falling below 0.6850 amid a recovery of the US Dollar, which was boosted by higher Treasury yields. Market participants largely ignored the US data releases on Thursday, which showed an increase in Initial Jobless Claims above expectations to 218,000 in the week ended December 23. Another report indicated that Pending Home Sales remained flat in November instead of the expected 1% increase. On Friday, no data is scheduled from Australia, while the Chicago PMI will be released in the US.  Attention is now focused on next week's US employment data, which includes ADP, JOLTS, jobless claims, and Nonfarm payrolls. The US Dollar dynamics continue to be the critical driver in AUD/USD. However, current market conditions with low volume could trigger unexpected moves without catalysts. Given these circumstances and wider spreads, there may be reduced incentives to trade towards the end of 2023. AUD/USD short-term technical outlook The AUD/USD is trading around the upper limit of an ascending channel, holding a bullish bias but correcting. The pair is about to post its second consecutive monthly gain. On the monthly chart, it has risen above the 20-Simple Moving Average (SMA) for the first time since March 2022, which is a positive sign for the first half of 2024. Ahead of the Asian session, the 4-hour chart shows that the price is still above the 20-SMA and near the relevant support area at 0.6830. Technical indicators favor further downside, with the Relative Strength Index (RSI) moving south and the MACD showing bearish signs. A break below 0.6830 would open the doors to a deeper correction. If AUD/USD holds above 0.6830, it could continue to consolidate between that level and 0.6865. Support levels: 0.6830 0.6795 0.6750 Resistance levels: 0.6855 0.6870 0.6905 

EUR/USD climbed to fresh multi-month highs above 1.1100. Near-term technical outlook suggests that the pair is overbought. US economic docket will feature weekly Initial Jobless Claims. EUR/USD gathered bullish momentum and advanced to its highest level since late July above 1.1100. The pair seems to have gone into a consolidation phase on Thursday as investors await macroeconomic data releases from the US.

Markets seem to be placing bets on 6-rate cuts by FED in 2024 as the sentiment for the first rate cut in March intensifies, dragging down the Dollar Index to levels below 101. Euro has risen to 1.11+ which if sustains can rise to 1.12 before falling from there. EURJPY fell from 158.56 and could be headed towards 157/156 now while USDJPY is falling towards 141 as expected. Aussie is bullish towards 0.69 from where a rejection is possible. Pound continues to slowly inch higher breaking above 1.28 and could test weekly resistance near 1.29 before coming off. USDCNY fell towards 7.10/09. An immediate range of 7.09-7.15 may hold. USDRUB is fluctuating within the 94-89 region as expected. USDINR may appreciate within the 83.00-83.40 region. EURINR trades above 92 on higher Euro. It may rise higher for some more time before falling back to 92 or lower. The US Treasury yields continue to fall. Bearish view is intact and more fall is on the cards. German yields have declined sharply and are coming down in line with our expectation. View remains bearish. The 10Yr GoI is on a corrective rise. Resistance can cap the upside and keep the downtrend intact. The 5Yr GoI is stuck inside its narrow range. Bias is negative for the yield to break the range on the downside and fall more. Dow Jones continues to rise and remain bullish to target new highs. DAX is bullish as long as it holds above 16600-16500. Nifty has some resistance ahead which, if breaks, can extend the uptrend further. Shanghai has bounced back sharply towards the upper end of range and a break on the upside, if seen, can be bullish further in the coming sessions. Nikkei can be range bound for a while. Crude prices have fallen back but could get support at $78 and $72 respectively. Gold has entered into the key resistance zone. Silver has risen within its sideways range and needs a decisive break on the upside to strengthen the bullish momentum. Copper has broken above its upper end of the range to target its key resistance as expected. Natural Gas could be range bound while below 2.60. Visit KSHITIJ official site to download the full analysis

Gold price extends a five-day uptrend to hit a new three-week high above $2,085 early Thursday. The US Dollar keeps the red amid risk appetite, shrugs off a rebound in the US Treasury bond yields. Gold price looks to take out $2,100 as the daily technical setup remains in favor of buyers. Gold price is sitting at its highest level in three weeks above $2,085 early Thursday, extending its winning momentum into the fifth day in a row. Attention turns toward the mid-tier US Jobless Claims data and the bond auction for further upside in Gold price. Gold price keeps pushing higher, as dovish Fed bets support Gold price is finding additional support, as the US Dollar meets fresh supply from a risk-on rally in the Asian stock markets. Investors cheer expectations of aggressive interest rate cuts by the US Federal Reserve (Fed) next year and pile up on global stocks. Further, China's pledge to promote stable growth by expanding domestic demand combined with the People's Bank of China's (PBOC) liquidity injections boost risk appetite at the expense of the US Dollar. Therefore. Gold price continues its upward trajectory toward the $2,100 barrier in Asian trading on Thursday, ignoring the modest rebound in the US Treasury bond yields. At the time of writing, the US Dollar Index is flirting with five-month lows near 100.75 while the benchmark 10-year US Treasury bond yields bounce off multi-month troughs to trade at 3.81%, up 0.50% on the day. On Wednesday, full markets returned following an extended Christmas break and cheered Tuesday's strong US two-year sale and the latest positive auction of $58 billion in five-year notes, which triggered a fresh leg lower in the US Treasury bond yields and the US Dollar. The renewed US Dollar sell-off propelled Gold price to post a record close above the $2,070 level on Wednesday. Markets continued to ramp up demand for stocks and bonds, in anticipation of the potential Fed rate cuts next year, weighing heavily on the US Treasury bond yields. All eyes now turn toward the mid-tier US Jobless Claims data and the seven-year bond auction due later this Wednesday for a fresh upside boost in Gold price. Meanwhile, Gold traders will also remain cautious of any exaggerated moves, courtesy of the pre-New Year thin liquidity conditions. Gold price technical analysis: Daily chart From a short-term technical perspective, Gold price remains exposed to the upside amid bullish indicators. Gold price broke above the rising trendline resistance at $2,080 but needs a daily closing above the latter to extend the uptrend toward the all-time high of $2,144. Gold buyers will face stiff resistance at the $2,100 and $2,120 levels beforehand. The 14-day Relative Strength Index (RSI) indicator is pointing north above the midline, adding credence to the latest uptick. Any pullback in Gold price could meet initial demand at the previous day's low of $2,061, below which the correction could extend toward the $2,050 round figure. The last line of defense for Gold buyers is envisioned at the 21-day Simple Moving Average (SMA) at $2,035.

Markets In a session marked by signs of year-end investor fatigue, U.S. stocks managed to eke out slight gains on Wednesday, with subdued trading and a lack of significant market-moving news. The S&P 500 ended 0.3% below its record closing high of 4,796.56 on Jan. 3, 2022. The Dow notched a new record closing high. The three primary U.S. stock indexes experienced fluctuations, alternating between modest gains and losses before closing in positive territory. Despite the day's mixed performance, all three U.S. indices are poised for monthly, quarterly, and annual gains. The proximate market driver was a steep fall in the pivotal benchmark 10-year U.S. yield. Following a positive reception for Tuesday's two-year sale, the auction of $58 billion in five-year notes on Wednesday received favourable attention, considering the prevailing market holiday condition and setting the week up for a clean sweep if all goes well with Thursday's 7-year note auction. The period between Christmas and New Year's is not typically known for a significant influx of market-moving news; however, the Treasury rally on Wednesday, supported by the success of the five-year stop-through, carried notable weight and saw 10s richer by almost 10 bps, with yields slipping below 3.80%, the lowest since July. The recent surge in buying activity in stocks and bonds is primarily linked to the widespread anticipation of lower yields in 2024, propelled by the expected rate cuts from the Federal Reserve. However, a significant unresolved aspect is the market's pricing of these rate cuts, which appears notably more aggressive than indicated in the December dot plot. While flashes of uncertainty and indecision dotted the New York session, the fall in U.S. yields may give investors more confidence to hold the bullish course through year-end. Still, it will most certainly hold the short sellers at bay, who remain frustrated to the nth degree. If nothing else, after the tumultuous year we have gone through, especially in the rates markets, it's astonishing that 10-year yields are trading nearly on top of the 2022 closing levels. Forex market Not that I disagree with the direction of travel, but the overnight sell-off of the U.S. dollar driven by the auction pass-throughs was likely exacerbated by holiday-thin liquidity. Still, some significant and noteworthy levels were breached. USDJPY is again trading south of 142 while the EURUSD broke fresh higher ground above 1.1100, suggesting a March Fed rate cut is becoming more engrained in the Forex market purview.  The JPY holds some real yield appeal here. With 150 bps+ of Fed cuts getting priced in and the end of negative rates in Japan still pinging loudly on the radar, 140 could be tested early in 2024. Oil market Oil prices fell as global shipping giants prepared to resume navigation through the Red Sea despite ongoing missile attacks from Houthi rebels. The decision to resume operations reflects a calculated risk, betting on the success of a new multinational maritime task force, Prosperity Guardian, commissioned to safeguard the region. On Wednesday, Danish shipping company Maersk revealed its intention to resume scheduling vessels for the Suez Canal via the Red Sea in the coming weeks following a temporary pause.

AUD/USD Current Price: 0.8649 The US Dollar slides across the board, boosting AUD/USD. The pair trades near the upper limit of an ascending channel. AUD/USD approaches 2023 highs and holds near the level it closed last year.  The AUD/USD broke firmly above 0.6800 and rose further to the 0.6850 area, reaching the highest level since July. The key driver behind this is a broad-based weakness in the US Dollar heading into the year-end. Regarding economic data, no reports are due from Australia until 2024. In the US, data released on Wednesday showed the Richmond Fed Manufacturing Index falling from -5 to -11, below the expected -7. On Thursday, more important data is due with the weekly Jobless Claims report. The focus regarding data is on next week's employment figures (JOLTS, ADP, and NFP). The US Dollar Index (DXY) dropped to its lowest level since July, under 101.00. It remains under pressure, amid falling US Treasury Yields. Markets continue to bet on rate cuts from the Federal Reserve (Fed) next year. The AUD/USD is headed towards the second monthly gain in a row, accumulating more than 500 pips of gains. The rally has eliminated 2023 losses and it is trading near the level it closed in 2022. The pair had a bearish bias for most of the year until November when it rebounded sharply, and then accelerated in December after the latest FOMC meeting, which included the now-famous rate cut forecasts from policymakers. AUD/USD short-term technical outlook The AUD/USD continues to trade within an ascending channel, near the upper limit of the range that stands at 0.6855. That level is an important resistance that should cap the upside. However, if the Aussie breaks above it, it could accelerate. The bullish bias will remain intact as long as it stays above 0.6660. On the 4-hour chart, technical indicators offer mixed signals. The Relative Strength Index (RSI) is at overbought levels but flat, suggesting potential exhaustion but not necessarily anticipating an immediate correction. The MACD is also flat, lacking clear direction. The upside remains solid, with price well above the 20-period Simple Moving Average and above upward trendlines. The chart indicates a clear bullish bias, with overbought conditions. A break below 0.6815 would weaken the Aussie. Support levels: 0.6820 0.6795 0.6750 Resistance levels: 0.6850 0.6875 0.6905   

The Effective Fed Funds rate from monthly averages 1 to 32 years reveals the same story as last December / January. Although Averages improved. The shape of Averages is contained as a Bell Curve by humped in the middle while left and right tails trade low yet acceptable.  Humped in the middle, best described as Leptokurtic was the result to Bernanke and Yellen's 0 interest rate policy. Without Bernanke and Yellen policies, averages would actually trade as a flat line across all averages. Averages from 1 to 7 years trade overbought yet the degree of overbought lacks any concept to extremes. The extremes to low and overbought averages are located from 8 to 25 years. Averages from 25 to 32 years are actually in good shape. Based on averages 1 to 7 years and 25 to 32, Powell and the Fed actually accommodates the possibility to raise if necessary. The distribution of averages would then form a Leptokurtic curve as the middle hump rises but thins and the right and left tails flatten further. The problem to Fed Funds at 5.33 and 32 year monthly averages is 5.33 is not captured by the data. Fed Funds by speculation trades around the 50 year average and the same location as DXY at 99.00 and GBP/JPY at the 37 ad 38 year monthly averages at 181.07 and 184.14. The proximity to 5.33 is 4.70 and the vital line to break to possible  rate cuts. At 4.70 is followed by many averages at 2.00's and located from 25 to 32 averages. Targets are located at 4.00's across the board from averages 25 to 32. This means about 100 points to possible drops or 25 points X 4. Powell and the Fed lack an immediate urgency to slash rates. Longer term, an interest and exchange rate lack any possibility to trade at 50 year averages. The proper location for Fed Funds and DXY and to declare healthy markets is trade at averages 1 to 10 years. DXY and Fed Funds would then not only match perfectly to SPX 500 but far better movements would be seen. SPX at 82 points per month for 2023 is the result of misplaced DXY and Fed Funds.  

EUR/USD climbed to a fresh multi-month high near 1.1050. The pair's technical outlook suggests that the bullish bias remains intact. This week's economic calendar will not offer any high-impact data releases. EUR/USD gained traction and registered small gains on Tuesday following the Christmas holiday. The pair continued to edge higher early Wednesday and reached its highest level since August near 1.1050.