We are down to the last week of the year. As data dockets lighten for the festive celebrations, there is also little expectation for fireworks in the near term. After all, even BoJ is reluctant to make any move, preferring to kick the can down to 2024. Governor Ueda’s guidance on inflation target, wage growth and policy were balanced, noting that there is a greater likelihood of hitting the 2% inflation target but it is “difficult to say with certainty when that will happen”. It seems he is determined to remain non-committal on the decision in Jan. USDJPY was lifted to a high of 144.90 post decision this week before easing
back to towards key support around the 142-figure (as we write).
Governor Ueda spoke on Christmas Day the only notable scheduled event to watch next week. The 145-figure was the key resistance this week and that has shifted to 144.00 based on the well-respected diagonal line of resistance that has formed since midNov. While the exit strategy for YCC or NIRP is still unclear, one thing has been consistent for Ueda since he took the helm – Gradualism. Yen’s ascend is thus expected to remain a grind.
Will the Santa Rally Happen Regardless?
Market watchers are becoming increasingly mindful of the well-known Santa Claus rally. In fact, the stars seem aligned for the greenback to head lower. Apart from the seasonal effects, the recent central bank meetings continue to suggest that the Fed is lead dove in 2024 compared to BoE and ECB. That should fundamentally put the greenback on the backfoot.
So even as the Fed officials tried to dampen aggressive rate cut expectations at the start of this week, the DXY index merely hovered sideways before easing sharply overnight on softer data (Nov US core PCE price index and Dec Philly Fed Business outlook). Eyes are on the last major data for this year due tonight – the core PCE deflator for Nov and expectations are low for a re-acceleration and a negative m/m print would add to the Santa Claus rally.
High-beta AUD, JPY have been in the lead.
The former has been boosted by the positive sentiment this month but risk appetite weakened after Xi announced fresh curbs on its gaming industry this morning – ordering gaming companies to remove inductive rewards. We see room for AUD to retrace lower, especially after such a strong rally.
In addition, local house Maybank said it wary of US-China tensions flaring back up again amid whispers that the US may enact more protectionist policies (tariff) against China’s EV and other goods. Taken together, there are reasons to be cautious but markets could be increasingly de-sensitized to such negative-China headlines and choose to take the side of Santa regardless
