USD close to two-year highs ahead of NFP

* Dollar climbs again, sterling slump continues as fiscal concerns mount

* Consensus sees more normal non-farm payrolls report

* UK firms plan to raise prices and cut jobs after tax hike, BoE Survey shows

* Japan’s base pay rises most in 32 years, helping rate hike path

FX: USD is up for a third straight day and closer to the January top at 109.53. Support sits around 107.97. All eyes are on the bond market and today’s NFP US jobs report. The 10-year US Treasury yield marginally failed to make a new cycle high at 4.73%. The FOMC minutes confirmed the Fed’s more hawkish stance. It is ready to slow the pace of rate cuts amid solid growth and upside risks to its inflation forecasts. The latter stems from uncertainty over incoming President Trump’s policy mix.

EUR dipped for a third day printing an inside day. The key cycle low is 1.0222 from January 2^nd. Bearish momentum remains strong with oversold conditions having now eased. Prices would need to get above 1.0448 to slow the long-term downtrend.

GBP fell sharply again in the European session to a fresh low at 1.2237. Cable has lost over 1.7% year-to-date. Bond market volatility has hit the pound with the 10-year gilt yield hitting 4.92%, a level last seen in July 2008. EUR/GBP has rebounded strongly over the past couple of days, breaking back above a long-term level at 0.8339. Sterling did claw back some gains through the day with GBP/USD settling above the long-term low at 1.2299.

USD/JPY pulled back after looking like it was going to break higher. The yen was the best performing major on the day. This was chiefly down to stronger Japanese wage growth figures that encouraged more January rate hike bets. We’ve also heard from more officials about intervention. The major has a strong correlation to the US 10-year Treasury yield. That could be significant with the release of NFP.

AUD made a fresh low at 0.6171 before pulling back. Modestly softer retail sales didn’t help with focus on the long-term bottom at 0.6169. USD/CAD moved higher in another small range day. The loonie is actually the only major currency in the green versus the dollar this week. We get Canada jobs data plus NFP today.

US stocks: Major US stock indices were closed for the National Day of Mourning for former President Jimmy Carter’s funeral.

Asian stocks: Futures are mixed. Asian markets were mostly in the red following the bond market ructions. The Nikkei 225 underperformed as firm wage growth data supported the case for a January BoJ rate hike. The ASX 200 saw tech and industrials drag on the index amid mixed data. China was muted with CPI in line but printing a nine-month low.

Gold ticked up but struggled to break higher past initial resistance at $2669. Inflation worries are helping bugs, along with news that China resumed buying more bullion in November after a six-month pause. Those purchases come even with prices close to record highs.

Day Ahead – NFP and Canada Jobs

Headline US non-farm payrolls is expected to print at 164k in December, below the prior 227k. That would mean the lowest annual total of job creation since 2019. Both the jobless rate and average hourly earnings are seen unchanged at 4.2% and 0.3%, respectively. Other labour market indicators have been mixed. But there may be some catching up which feeds through after the October hurriane effects. A big upside surprise likely drives USD to new highs, while stocks could stall if we get an outsized higher set of data.

Regarding Canada jobs, consensus forecast around 24k jobs to be added, less than the prior 50.5k and the unemployment rate to stick at 6.8%. The jobless figure surprised to the upside in November to an eight-year high, outside of the pandemic. Markets are 80% priced for another rate cut at the end of this month. That means markets may look through any near inline prints.

Chart of the Day – Dow poised just above support

The Dow has traded in a relatively tiny range so far this year amid all the headlines around Trump’s potential policies. We find it interesting that Wall Street strategists are almost uniformly bullish for 2025, after US stocks enjoyed two very strong back-to-back annual gains. The real risk for fund managers seems to be staying on the sidelines with the Mag7 expected to fuel more double digit gains. Yet, uncertainty is rife around Trump 2.0 and strategists expect to alter their forecasts more, and more often.

Technically, the Dow had a rough time in December falling over 5% and suffering 10 straight down days. Growth stocks ticked up while value stocks struggled. Prices are now trading around the 100-day SMA at 42,629. A major Fib level (38.2%) of the low to high move of 2024 sits at 42,036. The midpoint of that move sits just above 41,000. The index needs to get above 43,135 and 43,373 to resume the bull trend.

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