USD: Bullish sentiment seemingly untouched

Our very first key FX advice for 2025 is not to overthink dollar strength and to trust the general direction of a stronger dollar on the back of Trump’s domestic and trade agenda. We think this week’s price action has given us a taste of what’s to come in FX markets in this second Trump term, with brief dollar corrections (like after yesterday’s US CPI print) taken as an opportunity to enter structural USD longs at more attractive levels.

US political news has continued to flow. The House has finally – and unsurprisingly – been called for the Republicans, confirming Trump will be able to control all levers of government at least until the mid-term elections in 2026. Meanwhile, cabinet appointments have so far been dominated by Trump’s loyalists, which is a shift from the first term that likely implies a more centralised decision-making process around the president’s figure. One minor potential setback for Trump was John Thune’s election as Republican Senate leader. Thune is an advocate of free trade and political analysts are pointing to potential frictions over Trump’s aggressive protectionism.

Despite our view that the dollar will stay strong throughout next year, the very short-term picture still looks a bit more nuanced as long dollar positioning is starting to look quite stretched and a wider (albeit not long-lived) dollar correction could be on the cards. One catalyst might be today’s PPI numbers, which have a greater relevance for the core CPE – the Fed’s preferred measure of inflation. Expectations are for a re-acceleration in headline PPI from 0.0% to 0.2% MoM, with the core measure flat at 0.2% MoM. Any sub-consensus print can have an asymmetrically negative effect on the dollar.

Another big event today is the speech by Fed Chair Jerome Powell in Dallas. The focus will be on the economic outlook, and there is a Q&A where he may be asked about the latest inflation figures and implications of protectionism for monetary policy. Also here, the risks are skewed to the downside for the dollar given stretched positioning, as Powell may want to shy away from linking Trump’s expected policies and the Fed’s decisions. That could be read as a slightly dovish message and prompt some repricing lower in a USD OIS curve that is quite conservatively only pricing in 50bp of easing by mid-2025.

A positioning-led correction in USD may fail to take DXY back below 106.0, and interest in buying the dollar dips will likely emerge soon.

EUR: Building risk premium

We have long discussed how the wide short-term swap rate spread between USD and EUR is justifying a good deal of the ongoing EUR/USD selloff. However, when we add other market factors in estimating the near-term fair value of EUR/USD – such as equities and commodity prices – there are signs of a growing risk premium in excess of 1.5%.

Does that imply a 1.5%+ correction higher in EUR/USD is due? Not necessarily. We strongly believe that since 5 November we have entered a phase where a euro-negative risk premium will become the new normal given the risks to the eurozone associated with Trump’s foreign/trade agenda. From that perspective, and looking at historical dynamics, a 1.5% risk premium would still be rather contained, as that can easily amount to 4%+ should markets price in more geopolitical and/or protectionism-related risks.

For now, we believe some sort of EUR/USD upside correction is plausible, but we still believe markets will take the opportunity to sell the rallies in the pair, and a long-lasting return above 1.070 does not seem likely.

Today’s eurozone calendar includes the first revision of 3Q EZ GDP and employment figures, as well as the minutes of the October ECB meeting. Those could include a few dovish hints, although markets may still want to see more evidence of a slowdown in data (like PMIs) or a lower inflation print before pricing in a 50bp cut in December.

AUD: Jobs data still arguing for patient RBA

Australia released jobs figures for October overnight. Employment rose by 16k, less than expected and marking a slowdown from September’s strong 61k print. At the same time, unemployment was unchanged at 4.1% with the participation rate edging 0.1% lower.

The Australian dollar was not really impacted by the release and continues to trade in line with the broader dollar dynamics. Interestingly, EUR/AUD is more than 1% weaker since election night, a signal that markets currently prefer to price in greater risks for the eurozone than for China (and by extension its proxies) when it comes to Trump’s expected agenda.

Should a USD correction materialise in the next few days, we suspect AUD could rally more than other peers, as the latest data and policy communication still point to no rush by the Reserve Bank of Australia to turn dovish and markets may retain a relatively sanguine view on Antipodeans when compared to European currencies. We think a return to the 0.6550 level is possible in AUD/USD in the near term.

CEE: Restarted dollar rally will keep region under pressure

Yesterday's current account data, despite some surprises, especially in the Czech Republic, where higher dividends offset a strong surplus in previous months, remained without much reaction in the markets. Poland's data showed a shrinking current account surplus in recent months and our economists debated the reasons. Romania's third-quarter GDP data was released this morning with an acceleration from 0.9% to 1.1% YoY, below market expectations. Later today we will also see the first estimate in Poland, where we expect a slowdown from 2.9% to 2.5% YoY, below market expectations.

Markets took advantage of the pause in the USD rally yesterday, giving CEE currencies some relief. However, the USD quickly resumed its rally following the release of US inflation numbers, which we believe will put renewed pressure on CEE currencies today. Local factors are not significantly influencing trading at the moment, with global dynamics being the primary driver.

Besides GDP data, today’s calendar includes government bond auctions in Poland and Hungary, which will test the market post-US election. In Poland, the last auction before the election showed weak demand, and today’s auction will test the risk-off sentiment ahead of the election or due to the deteriorating local fiscal situation. In Hungary, while elevated yields should attract market interest, uncertainty about the National Bank of Hungary and high EUR/HUF remains a concern.

Source: Poundsterlinglive

The rally in Bitcoin, meme coins, and the US dollar that followed Donald Trump’s presidential victory continues to gain momentum. The tariff cuts announced by the new president-elect have already contributed to declines in gold and commodity prices. Combined with the potential for heightened trade tensions with China, the current environment is pressuring currencies such as the AUD and CAD.

USD/CAD

Yesterday, USD/CAD buyers managed to test the psychological resistance level at 1.4000. The pair has long traded within the range of 1.3960–1.3800, but it has recently broken above this channel to reach a two-year high at 1.3960. Technical analysis points to the potential for further gains towards 1.4200–1.4300, provided the 1.4000–1.3960 levels hold as support. A downward correction, however, could bring the pair back to 1.3960–1.3900.

Key events likely to impact USD/CAD pricing today include:

At 16:30 (GMT +3:00): US Initial Jobless Claims.

At 16:30 (GMT +3:00): US Producer Price Index (PPI) for October.

At 19:00 (GMT +3:00): Weekly US crude oil inventory report.

AUD/USD

Early in this trading week, AUD/USD sellers broke through a significant range at 0.6520–0.6500. The next potential support area is around 0.6470–0.6440. Should the pair break below these levels, new yearly lows around 0.6350 are possible. If an upward correction begins, the pair may rise towards 0.6520–0.6540.

Key events affecting AUD/USD include:

At 23:30 (GMT +3:00) today: Remarks by US Federal Reserve Chair Jerome Powell.

Tomorrow at 05:00 (GMT +3:00): Thomson Reuters/Ipsos’ Primary Consumer Sentiment Index (PCSI) for Australia for November.

Tomorrow at 05:00 (GMT +3:00): Press conference by China’s National Bureau of Statistics.

Silver price (XAG/USD) extends its losses to two-month lows, trading around $29.90 per troy ounce during the European hours on Thursday. This downside of the safe-haven Silver is attributed to improving risk sentiment since Donald Trump’s election victory last week.

The US Dollar (USD), equities, and cryptocurrencies are advancing as markets anticipate strong growth and higher inflation under the incoming Trump administration. The proposed policies could drive increased investment, spending, and labor demand, raising inflation risks.

The dollar-denominated Silver faces challenges due to solid US Dollar (USD). The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, holds steady around 106.60, its highest level since November 2023.

The US Dollar also gains support from rising US Treasury yields, with the 2-year and 10-year yields standing at 4.29% and 4.46%, respectively, at the time of writing. Additionally, these higher yields are exerting downward pressure on non-yielding assets like Silver.

The non-interest-bearing assets like Silver might have received downward pressure from less dovish remarks by Federal Reserve (Fed) officials on Wednesday. St. Louis Fed President Alberto Musalem remarked that ongoing inflationary pressures make it challenging for the Fed to maintain a course of rate cuts. Musalem shifted focus to the robustness of the US labor market, aiming to ease concerns about inflation's resistance to the Fed's efforts to reduce it.

Federal Reserve Bank of Kansas City President Jeffrey Schmid highlighted potential challenges in the journey toward lowering interest rates. Schmid also criticized market participants who continue to hold out hope for a return to near-zero rates, calling their expectations unrealistic.

Silver FAQs

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

Source: FXSTREET

US inflation came in parallel to expectations, confirming that headline inflation in the US stagnated near 0.3% level for a third month, the yearly figure rebounded from 2.4% to 2.6% as expected, while core inflation remained stuck at 3.3%. The difference between the headline and core inflation comes from weak oil prices, which help tame the index that includes the volatile food and energy prices, but housing, used cars, airfares and medical care continued to push the core figure higher. And the core CPI hasn’t eased since July, averaging near 3.5% this year, according to Bloomberg. In summary, the data looked good, but could’ve been better.

The market reaction to the data was mixed. The US 2-year yield eased after hitting a fresh high since summer, the probability of a 25bp cut in December jumped back to 80% from around 60% before the CPI data, and Minneapolis Federal Reserve (Fed) Neel Kashkari hinted that he liked yesterday’s inflation data. On the long end of the curve, however, the US 10-year continued to push higher and is preparing to reach the 4.50% level as next stop amid the rising bets that the yield deserves to hit the 5% mark on prospects of higher inflation under Trump’s pro-growth policies, upcoming tariffs and the Fed’s potential ignorance of the upcoming inflationary pressures. The US 30-year yield is now at 4.65%.

As such, the US dollar – that looked slightly soft after the CPI data –rebounded to extend its rally to fresh highs. The US dollar index has now hit the highest levels in a year, it’s clearly in the overbought market territory, with the RSI index screaming that the dollar has been probably bought too fast and in a too short period of time and a minor correction could be healthy at the current levels. Yet, the picture is clear, the US dollar outlook is comfortably positive and the bulls are tempted to buy on rising suspicion regarding the Fed’s ability to keep cutting the interest rates. Note that the bets for next year cuts have halved since last month.

As such, the EUR/USD tanked to 1.0534 level this morning with the bears eyeing the 1.05 mark. The RSI indicator – that’s warning of oversold conditions in parallel to the overbought conditions of the dollar index – seems to be the only challenge for the euro bears right now. Across the channel, Cable eased to 1.2673, the pair is also very close to oversold conditions. The AUDUSD pulled out the 65 cents support and is weakening below this level, supported by the data that showed that inflation in Australia fell to a 3-year low. And the USDJPY spiked past the 156 level this morning, near overbought as well, but with some additional margin left before the Japanese authorities intervene directly to ease the selling pressure near the 160s level. The USDCHF rallied past the 200-DMA and the USD/CAD has pulled out the 1.40 target and is consolidating gains above this psychological mark. I believe that the temptation to long the US dollar at the current overbought levels should start fading in the short-run and bring in some tactical shorts to ride on a minor correction. But the medium-term outlook looks bullish for the US dollar. Price pullbacks could be interesting opportunities to strengthen the bullish US dollar positions.

Data watch

The US will reveal its latest PPI update today, and the figures are expected to point at an uptick in factory-gate prices in October. The headline PPI is seen rebounding from 1.8% to 2.3% in October, and core PPI from 2.8% to 3%. And don’t forget that there are components in these figures that feed into the Fed’s PCE index. Therefore, even if these numbers are in line with expectations, they should be warning that a 25bp cut from the Fed is probably not the right thing to do. I am not saying that the Fed won’t do it. I am just saying that it’s probably not the right thing to do.

Fed Chair Powel will speak today. I am curious to hear what he say to say, if he says anything at all in the face of the US politics that are turning into a massive TV reality show.

Elsewhere, the S&P500 consolidated near ATH levels, Nasdaq 100 was slightly down, while the Dow Jones was slightly up. The Russell 2000 stocks didn’t like the upside pressure in yields probably, because the index fell nearly 1%. European stocks failed to cheer the weaker euro, as Trump is much less supportive of the valuations on this side of the Atlantic Ocean than he is at home. The only positive in Trump’s threats is its potential to push the European Central Bank (ECB) to cut rates thoroughly to give support to the already-weakened European economies. But alas, to do be able to cut the rates, the ECB needs to make sure that inflation has stabilized. Yet, the rapid depreciation of the euro puts that objective in jeopardy.

In energy, oil made a short attempt to the upside yesterday on a surprise decline in US oil inventories last week, but gains remained limited. The barrel of US crude is seeing a strong resistance this morning near the $68pb level. Numerous failures to clear the $72.85pb Fibonacci resistance keeps the market in the hands of the bears, with the ambition to pish the price of a barrel to $65pb target.

Source: Reuters