A combination of factors has led to the USD softer over the past week, including lower US yields (a result of index extension & month end rebalancing), less dovish ECB comments, stronger Japan inflation data, increased China stimulus talk, month-end USD selling and market discussions on seasonal December USD weakness. But we remain of the view that the broad USD strength is likely to remain on a stronger path into next year and especially with our non-consensus view that the Fed will leave policy rates unchanged at the December FOMC meeting. (currently market pricing in 16 bps of cut in Dec). We expect strong upcoming data points this week including US November ISM (2 Dec), ISM Services (4 Dec) before the key November US NFP (6 Dec; our estimate +275K; Consensus +200K). We had a period of USD consolidation in last week of Nov but now we expect Euro to resume it’s downward journey to recent lows of 1.0350. This also fits in with our medium term view that Trump’s expansionary fiscal policy will mean a relatively shallow FOMC rate-cutting cycle. Looser fiscal policy and tighter monetary policy should prove USD-supportive. Summary: SHORT EURUSD (CMP 1.0577), TP 1.0450 & SL 1.0655
