A litany of central bank meetings lies ahead in the first half of December. The ball will get rolling with the Reserve Bank of Australia and the Bank of Canada next week, both of which are expected to raise interest rates again, albeit at a slower pace. Meanwhile in America, business surveys and producer prices will shape expectations around Fed policy, helping investors decide whether the dollar’s best days are behind it. 

Tomorrow has the all-important release of US labor market numbers. But the Fed's Powell kind of already robbed the thunder from the release during his speech at the Brookings Institute yesterday. He basically implied that the Fed would start slowing down its tightening at the next meeting. Naturally the market jumped and the dollar weakened in response. Now the question is whether there will be follow-through on the optimism with the jobs numbers. November's NFP is expected to come in lighter compared to the prior month, but it should be noted that the data has been markedly outperforming expectations lately. Taken in context of the latest BLS report showing that the labor market remained tight, the consensus for what to expect out of NFP has drifted up, slightly. A week ago, analysts were forecasting 200K jobs added, but that has now moved up to 210K jobs, compared to 261K in October. The trends remain favorable Prior to covid, a 210K jobs report would be considered relatively good. But referring back to the BLS report that came out yesterday, there are some worrying signs. As mentioned, in October there were 261K jobs created, but 353K jobs went off the market. Meaning that companies are closing down job offers faster than people are being hired. The largest drop in job offers occurred in state and local governments, followed by manufacturing. Combined, that represented the bulk of the reduction in job openings. For now, the market remains tight, mostly because the extraordinarily large gap between job openings and jobseekers that occurred from the pandemic is still there. There were 6.1 million people looking for work last month, but there were 10.3 million jobs for them. Despite this mismatch, wages have failed to keep up with inflation. Current expectations are that average hourly earnings will slow to 0.3% from 0.4% reported in October. Putting the pieces together The Fed's main worry though this cycle has been that higher inflation combined with an extremely tight labor market would lead to a wage-price spiral. However, that hasn't happened, giving the Fed plenty of space to raise rates to combat inflation. Recently, inflation has been starting to come down, from a combination of higher borrowing costs and worries about an impending recession. The prolonged loss of purchasing power among American workers as their salaries fail to keep up with prices would be expected to lead to demand destruction. Which would also contribute to reducing inflation, as Americans see their pocketbooks being pinched and refuse to pay higher prices. As retailers across the country report rising inventories and some are suspending buying new inventory for the start of next year, the natural expectation is that the economy will slow down. Which in turn also contributes to lower inflation. The unemployment rate is expected to remain steady at 3.7%, and so is the participation rate. This is reflected in the BLS data showing the number of people quitting to find better pay far outweighed the number of people being fired.

Tomorrow has the all-important release of US labor market numbers. But the Fed's Powell kind of already robbed the thunder from the release during his speech at the Brookings Institute yesterday. He basically implied that the Fed would start slowing down its tightening at the next meeting. Naturally the market jumped and the dollar weakened in response. Now the question is whether there will be follow-through on the optimism with the jobs numbers. November's NFP is expected to come in lighter compared to the prior month, but it should be noted that the data has been markedly outperforming expectations lately. Taken in context of the latest BLS report showing that the labor market remained tight, the consensus for what to expect out of NFP has drifted up, slightly. A week ago, analysts were forecasting 200K jobs added, but that has now moved up to 210K jobs, compared to 261K in October. The trends remain favorable Prior to covid, a 210K jobs report would be considered relatively good. But referring back to the BLS report that came out yesterday, there are some worrying signs. As mentioned, in October there were 261K jobs created, but 353K jobs went off the market. Meaning that companies are closing down job offers faster than people are being hired. The largest drop in job offers occurred in state and local governments, followed by manufacturing. Combined, that represented the bulk of the reduction in job openings. For now, the market remains tight, mostly because the extraordinarily large gap between job openings and jobseekers that occurred from the pandemic is still there. There were 6.1 million people looking for work last month, but there were 10.3 million jobs for them. Despite this mismatch, wages have failed to keep up with inflation. Current expectations are that average hourly earnings will slow to 0.3% from 0.4% reported in October. Putting the pieces together The Fed's main worry though this cycle has been that higher inflation combined with an extremely tight labor market would lead to a wage-price spiral. However, that hasn't happened, giving the Fed plenty of space to raise rates to combat inflation. Recently, inflation has been starting to come down, from a combination of higher borrowing costs and worries about an impending recession. The prolonged loss of purchasing power among American workers as their salaries fail to keep up with prices would be expected to lead to demand destruction. Which would also contribute to reducing inflation, as Americans see their pocketbooks being pinched and refuse to pay higher prices. As retailers across the country report rising inventories and some are suspending buying new inventory for the start of next year, the natural expectation is that the economy will slow down. Which in turn also contributes to lower inflation. The unemployment rate is expected to remain steady at 3.7%, and so is the participation rate. This is reflected in the BLS data showing the number of people quitting to find better pay far outweighed the number of people being fired.

The US core Consumption Expenditures Price Index will likely signal easing pressures. The US ISM Manufacturing PMI is foreseen to fall into contraction territory. EUR/USD could revisit the 1.0500 price zone after the dust settles. December will kick start with a high note in the United States, as the country publishes the Personal Consumption Expenditures (PCE) Price Index data, the US Federal Reserve's preferred inflation gauge, while the Institute of Supply Management (ISM) will unveil the November Manufacturing PMI. Updates on inflation and business growth will be critical ahead of the last US Fed decision of the year, scheduled for December 14. Core PCE inflation, which excludes volatile food and energy prices, is expected to have risen by 0.3% MoM, while the annual reading is foreseen at 5%, easing from 5.1% in October.  On the other hand, the ISM Manufacturing PMI is expected to have fallen into contraction territory, from 50.2 in October to 49.8. Signs of easing inflation will be encouraging but not a surprise. Neither will confirmation the economy has contracted. Still, a Manufacturing PMI below 50 would undoubtedly hit the US Dollar, while a better-than-anticipated figure could boost the battered American currency. US Federal Reserve's upcoming decision The United States Federal Reserve (Fed) has hinted at a potential easing in the pace of tightening. After hiking rates by 75 bps for five consecutive meetings, the central bank is now expected to pull the trigger by a modest 50 bps. Data pulled from the CME FedWatch Tool shows a roughly 70% likelihood of such an outcome, sending the benchmark rate to a range of 4.25% to 4.5%. Easing price pressures and fears higher rates will slow economic progress could easily explain the upcoming decision, although it is worth noting that Fed officials will always prioritize inflation. Should the related data surprise on the upside, market players could lift bets on another 75 bps and send the Dollar up amid a risk-averse environment which could put stock markets in a selling spiral. A worse-than-anticipated ISM Manufacturing PMI should exacerbate the dismal mood scenario. Softer-than-anticipated core PCE inflation, alongside an ISM Manufacturing PMI at 50 or above, should trigger optimism. Stock markets will likely rally, while the US Dollar will likely fall against all of its major rivals. EUR/USD possible scenarios The EUR/USD pair peaked at 1.0496 at the beginning of the week, its highest since last June. It bottomed at 1.0318 on Tuesday, bouncing back from the level and now aims to regain the 1.0400 threshold. From a technical perspective, the risk skews to the upside, although the lack of action these days has left the daily chart with a neutral-to-bullish tenor. EUR/USD remains stuck around a bearish 200-day Simple Moving Average (SMA), unable to clear the moving average since June 2021. Nevertheless, the 20 SMA continues advancing above a now mildly bullish 100 SMA, reflecting buyers' strength. The Momentum indicator heads south above its midline, but the Relative Strength Index (RSI) indicator resumes its advance at around 61, also reflecting bulls' dominance. EUR/USD can recover its bullish momentum if it closes Wednesday above the 100-day and challenges the weekly high should US data spur optimism. A slide below 1.0300, on the other hand, should open the door for a steeper bearish correction towards 1.0240, the November 21 daily low. Further declines seem unlikely, although if the pair breaks lower, a retest of parity will be on the table.

Outlook: Today the important data is the JOLTS report, the ADP forecast of the private sector component of payrolls, and Fed chief Powell’s speech. We also get the Beige Book (for the December 14-15 FOMC), another revision to Q3 GDP, Oct trade balance for goods, and pending home sales. Going into a day of data overload, remember that last week the Atlanta Fed had Q4 GDP at 4.3% and holiday retail sales are excellent.   The Jolts report is expected to how ongoing divergence between jobs offered and the workers available to fill them. The space is so wide that even if offerings contract by 450,000 as forecast, the labor shortage will still be obvious and equally obvious, the expectation of rising wages to pull labor in. The continuation of job growth will be tested with payrolls on Friday, but there is little doubt the Fed will not be getting the conventional response to rate hikes. Chart from the WSJ. As noted before, companies may be exaggerating their offering requirements but at the same time, unemployed may have given up because they don’t qualify due to illiteracy, innumeracy and drug addiction.   Jolts may prepare us for payrolls on Friday, likely 200,000 and unemployment the same 3.7%. Historically, 3.7% is very, very low. While the mainstream worry is about rising wages that feed inflation, we need more information (and not just snippets) about most of the inflation rise having been caused by the supply-side and not demand.   The WSJ reported yesterday that the 10-year Treasury is yielding less than the 2-year note by the largest amount since the 1980s. This means traders think the shorter-term rate is realistic but the longer one is too high because inflation has peaked and rates will be falling over the 10-year holding period. Considering the 10-year is under 4% now, we’d call that a memory from the days when deflation was the problem--and a leap of faith.   The Fed may enjoy the vote of confidence, although it incorporates the idea that when recession hits, the Fed will relent and start cutting–after just having front-loaded four 75 bp hikes. Yesterday St. Louis Fed Bullard repeated the need for hikes that will be “sufficiently restrictive” and we are not there yet. A rate of at least 4.9% will be needed next year.   When Powell speaks today at the Brookings Institute (1:30 pm), he’s likely to say “higher for longer” and it will be interesting to see if those betting on rate cuts in 2023 revise their thinking at all. Everyone always listens to Powell but this time he will have an even bigger audience. To be fair, the EU-harmonized inflation data from Germany and Spain yesterday and the EU today triggered the same bond market response. Nobody seems to share the view that inflation is more entrenched and we will be lucky to get 4% in five years.   So far it look like the FX market expects Powell to repeat that it’s time to dial back the aggressiveness, meaning the 50 bp at the Dec policy meeting that the Feds have been signaling for some time now. This is dollar-negative in some way we can’t grasp and neglecting “higher for longer.” Maybe it’s just short-term thinking. To be fair, high volatility reflects high uncertainty and we have some wild moves not justified by any data or news (why did the CAD collapse yesterday and the dollar crash against the yuan today?).   Tidbit: FX trend-following Commodity Trading Advisors are crushing it. In October, “According to the SG Trend Index these funds finished the month +0.19%, in spite of suffering two drawdowns above 1% in the first two days of the month. In all, the Index lost ground on nine of the 21 trading days. Perhaps reflecting the more volatile nature of markets during October, the Index had four days of losses over 1% and three days of over 1% gains.   “Year-to-date the Trend Index remains in very healthy condition at +35.84%, the highest return since SG started producing the Index in January 2000. The previous high return for a year was 2003 at +15.75%, while in 2014 the Index was up 15.66%.   “The broader SG CTA Index was +0.45% in October, for +26.68% year-to-date, while short -term traders suffered, the SG Short-Term Traders Index falling 0.35% on the month. It remains, however, comfortably in positive territory at +12.61% year-to-date.”   Bottom line–trend following in FX tends to outperform short-term trading. In Oct, we made 27% in futures and are on track for 24% in November. Year-to-date we are up over 100%. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents...

EUR/USD ends the day in the red for the third straight day on Tuesday amid modest USD strength. Softer German consumer inflation figures undermine the Euro and contribute to the downtick. Bets for smaller Fed rate hikes cap the USD and help the pair to regain traction on Wednesday. Traders look to flash Eurozone CPI and Fed Chair Powell's speech for some meaningful impetus. The EUR/USD pair continued with its struggle to find acceptance above a technically significant 200-day SMA and finally settled in the red for the third straight day on Tuesday. The US Dollar attracted some dip-buying and climbed to a multi-day high, which, in turn, was seen as a key factor that acted as a headwind for the major. The US Treasury bond yields gained some positive traction in the wake of the overnight hawkish remarks by Federal Reserve policymakers. Apart from this, worries about the worsening COVID-19 situation in China drove some haven flows towards the greenback. The shared currency was further undermined by softer German consumer inflation figures, showing that price pressures eased a bit in Europe's largest economy during November. This, however, did little to cool expectations for a series of interest rate hikes ahead by the European Central Bank (ECB). ECB President Christine Lagarde said on Monday that the region's inflation has not peaked, and it risks turning out even higher than currently expected. Furthermore, signs of stability in the financial markets capped gains for the buck and offered support to the EUR/USD pair. Investors turned optimistic amid speculation that China will scale back its strict anti-COVID policies to prevent more protests. This, along with growing acceptance that the US central bank will slow the pace of its policy tightening, kept a lid on any meaningful upside for the USD. The markets have been pricing a greater chance of a relatively smaller 50 bps Fed rate hike in December. The bets were reaffirmed by the dovish-sounding FOMC meeting minutes released last week. Hence, the market focus will remain glued to Fed Chair Jerome Powell's scheduled speech on Wednesday. Investors will seek more clarity on the central bank's policy stance and future rate hikes, which will play a key role in influencing the near-term USD price dynamics. Traders will further take cues from the release of the flash Eurozone CPI print. Apart from this, the US macro data - the ADP report on private-sector employment, Prelim Q3 GDP report and JOLTS Job Openings - should provide some impetus to the EUR/USD pair. In the meantime, the emergence of fresh USD selling assists the EUR/USD pair regain some positive traction during the Asian session. Technical Outlook From a technical perspective, this week's pullback from the vicinity of the 1.0500 psychological mark constitutes a bearish double-top pattern. In addition, repeated failures to find acceptance above the 200 DMA could be seen as the first signs of bullish exhaustion. That said, the lack of any follow-through selling warrants some caution before positioning for any meaningful downfall. Any subsequent move up, meanwhile, is likely to confront some resistance near the 1.0400 round-figure mark. A sustained strength beyond has the potential to lift the EUR/USD pair to the 1.0480-1.0500 supply zone, which, if cleared will mark a bullish breakout and set the stage for additional gains. Spot prices might then accelerate the momentum towards the 1.0570-1.0575 region and aim to reclaim the 1.0600 mark for the first time since late June. On the flip side, the 1.0300 round figure will likely protect the immediate downside. Any further decline could attract some buyers and remain limited near last week's low, around the 1.0225-1.0220 zone. The latter should be a strong base for the EUR/USD pair. Some follow-through selling below the 1.0200 mark will expose the 100-day SMA support, currently around the 1.0140 area.