NFP report and Eurozone CPI will be the week's focal point on Friday. FOMC minutes and ISM PMIs will also be crucial for the US Dollar. Canadian employment and Chinese PMIs might attract attention too. Rate cut bets in overdrive It's been one big rollercoaster ride for the US dollar in 2023, as hopes of a Fed pivot were repeatedly dented by surprisingly strong economic data, which more often than not, has come from the robust performance of the American labour market. But traders seem surer this time that a pivot is just around the corner, as Fed chief Powell himself has dropped subtle hints about it. Thus, despite a powerful rebound during the summer and autumn, the greenback looks set to finish the year with losses of almost 3% against a basket of currencies. That rally was driven by a surge in Treasury yields, which have since been tarnished by heightened expectations of aggressive rate cuts over the coming year. Cumulative rate cut odds for 2024 are fast approaching 160 basis points. This seems excessive when considering that the US economy is not in recession and Fed officials are only predicting about three 25-bps cuts. The minutes of the December meeting that produced those forecasts are due on Wednesday and FOMC members might attempt to use the publication to reinforce their view of only modest policy easing over the next couple of years. A not too cold, not too hot jobs report Another clue on the rate path will be policymakers' outlook on the jobs market as they've recently indicated that as inflation comes down, their focus on the Fed's other mandate – employment – will increase. This might explain Powell's lack of caution in being eager to steer policy towards easing on fear that holding rates at restrictive levels for too long might push up the unemployment rate. However, it's been so far so good as far as the labour market is concerned. Jobs growth has slowed but companies aren't laying off staff in big numbers, allowing wages to rise at a moderate pace. Analysts don't expect this picture to have altered much in December. Nonfarm payrolls are projected to rise by 158k, down from 199k in November, while the jobless rate is forecast to tick up slightly to 3.8%. Average earnings aren't anticipated to rock the boat either, with the month-on-month rate expected at 0.3% and the year-on-year figure at 3.9% versus 4.0% previously. Will there be a rude awakening for the markets? Given investors' strong conviction that the Fed will soon start slashing rates, a small beat or miss in the headline print is unlikely to generate anything more than a kneejerk reaction in the dollar. A very disappointing report isn't very probable as weekly jobless claims have been quite low during the month. So if there will be a shock, it will be from an unexpectedly hot report. The dollar could jump higher along with yields, while Wall Street could succumb to panic selling from investors scaling back their rate cut bets on the back of upbeat NFP readings. But in the event that the jobs data fails to provide any fresh direction, investors will probably turn to the other releases of the week. These will include the ISM manufacturing and non-manufacturing PMIs, due on Wednesday and Friday, respectively, the JOLTS job openings on Wednesday, Challenger layoffs on Thursday, and factory orders on Friday. Some risks ahead for the Loonie and Aussie Across the border in Canada, the loonie will be keeping tabs on the domestic labour market as rate cut bets for the Bank of Canada have also been ratcheted up lately. The Canadian dollar is on track to have gained about 2.5% against its US counterpart in 2023, faring somewhat better than the other commodity-linked currencies, the Australian and New Zealand dollars. Less exposure to China and a more unquestionably hawkish stance by the BoC have contributed to its relative outperformance versus the Aussie and Kiwi. However, there's a risk that 2024 might be more of a struggle for the loonie if stagnating economic growth forces the Bank of Canada to start lowering rates. The country's unemployment rate has been steadily edging up since May and likely rose further in December to 5.9%, data on Friday is expected to show. Although employment has been rising during this period, it hasn't been able to keep pace with the growth in the number of jobseekers. It's expected that the economy added just 13.2k jobs in December. Nevertheless, wage growth remains elevated at 5.0% so investors will be watching that figure too, as well as the latest Ivey PMI gauge on Friday. PMI data will also be important for the Australian dollar as China's two sets of releases are due next week. The official government survey...

The Canadian Dollar put in a lot of miles just to end the year down two pennies. BoC, Fed rate policy lockstep at risk of rapid divergence in the first half of 2024. A breakdown of the Loonie-Oil correlation poised for a rough correction. It was a back-and-forth year for the Canadian Dollar (CAD), kicking off 2023 with opening bids near 1.3550 against the US Dollar (USD), and the USD/CAD spent most of the year rattling between 1.3000 and 1.3900. The pair is set to wrap up December's trading within sight of 2023's opening bids, down around one and three-quarters of a percent on the year following a fourth-quarter breakout in the Canadian Dollar that surged over 4% from 12-month lows against the Greenback. The USD/CAD will see diverging central bank policy as a key driver through 2024, and the correlation between the Canadian Dollar and Crude Oil is likely to hold firm through the upcoming trading year. Despite musings in recent years about a shakeout in the Loonie-Crude connection, 2023 saw USD/CAD and West Texas Intermediate (WTI) US Crude Oil moving around the charts in lockstep.  The Canadian economy is expected to run into headwinds through the second half of 2024, coinciding with a global growth slowdown that could hamper Crude Oil prices next year as fossil fuels demand flounders in low-growth or recessionary environments.  Rate hike cycle hits the ceiling, central banks agree the top is in The Canadian Dollar spent most of 2023 grinding chart paper amidst familiar levels, wrapping up the year's trading window within a penny of 2023's opening bids. A limited rate differential between the Bank of Canada (BoC) and the US Federal Reserve (Fed) restrained long-term momentum in the USD/CAD for the majority of the year. The BoC saw three rate increases this year, compared to the Fed's four 25-basis-point rate hikes, with both central bank reference rates keeping in relative lockstep through the first half of 2023. Both central banks reached the peak of the rate hike cycle early in the third quarter, and the BoC and the Fed will close out 2023 with rates at 5.0% and 5.5%, respectively. The BoC-Fed rate differential remained a close race through 2023, reaching its widest divergence of a relatively sedate three-quarters of a percent following the Fed's third quarter-point hike in May. After reaching a first-quarter high of 1.3862, the USD/CAD backslid into the 1.3100 handle by mid-July. A four-month rally kicked off to drag the pair into twelve-month highs just a few pips shy of the 1.3900 handle, before seeing broad-market weakness in the US Dollar that dragged the USD/CAD back towards 1.3300 to round out 2023's frothy trading cycle. The Canadian Dollar's long-standing relationship with Crude Oil prices broke down in the second half of 2023, with the CAD rising against the US Dollar despite Crude Oil weakness that would normally be expected to drag down the Loonie. West Texas Intermediate (WTI) US Crude Oil barrels declined from a late September peak near $94.00 per barrel to a multi-month low around $70.00 per barrel in mid-December. Crude Oil's struggles in 2023 were highlighted by the Organization of the Petroleum Exporting Countries (OPEC) and its efforts to decisively cap off global Crude Oil production in the face of slumping global demand for fossil fuels. WTI plunged to 20-month lows near $64.30 in the second quarter before rallying to 13-month highs just shy of the $94.00 handle on broad-market expectations that OPEC's drastic production cuts would see global oil supply undershoot energy demand heading through the back half of 2023. Key member states within OPEC, specifically Saudi Arabia and Russia, dedicated themselves to 1.3 million bpd in production and exporting cuts, however Crude Oil's tight-supply rally fizzled out heading into 2023's third quarter. Drastically slowing Crude Oil demand from China, coupled with US Crude Oil reserves failing to draw down as much as energy markets expected, saw fossil markets rebalance their expectations of supply constraints in the future, sending Crude Oil back into familiar lows. Many of the smaller members of OPEC, including OPEC's loose affiliation of non-OPEC ally states (OPEC+) have expressed dissatisfaction in OPEC's current production targets, with many OPEC+ states relying on Crude Oil sales to balance their government budgets and keep their economies on the right side of the growth equation. Despite adamant language from major OPEC states about clamping down on both oil production and exporting quotas, Crude Oil markets remained unconvinced that the oil cartel would be able to send Crude Oil production low enough to undercut barrel demand meaningfully. OPEC, lacking built-in policy tools to enforce production caps, has no formal mechanisms in place to punish or even prevent member states from flaunting export quotas. Even an exacerbation of the long-running conflict between Israel and Palestinian Hamas...

EUR/USD stabilized below 1.1100 following Thursday's downward correction. Euro is up more than 3% against the US Dollar this year. ECB-Fed monetary policy divergence could drive the pair's action in the new year. EUR/USD reversed its direction and registered daily losses after touching its highest level since late July at 1.1140 on Thursday. The pair trades in a tight channel below 1.1100 early Friday and it might have a difficult time finding direction, with trading conditions thinning out on the last trading day of the year. The modest recovery seen in the US Treasury bond yields helped the US Dollar (USD) stay resilient against its rivals on Thursday and caused EUR/USD to stretch lower during the American trading hours. Nevertheless, EUR/USD remains on track to post gains for the third straight week and it's up more than 1.5% in December.

Warmest thanks to all our Morning Briefing readers for being with us on this market journey through the year. We wish you all a Happy New Year in advance and may our new year be filled with financial success and delightful surprises! We will resume our Morning Briefing edition on 2nd January 2024. Till then we can keep the markets aside and keep the holiday mood on! Profit taking across all markets could be seen today being the last trading day of the year before we go on a weekend holiday mood for the New year. The Dollar Index has bounced back from 100.80 suggesting a false break was seen yesterday below 101 while Euro has seen profit taking near 1.1139, not allowing a rise towards our expected 1.12. EURJPY continues to fall within 159–156 region, while USDJPY appears to be stable above 140-141 and may see a short rise to 142/143 soon. The resistance in Aussie at 0.69 seems to be holding well. Pound could not sustain its rise past 1.28 and has also seen some profit taking. USDCNY is near our mentioned target of 7.09. Need to see if it reverses from here of falls lower towards 7.05. USDRUB has plunged sharply and could test 88-87 before pausing. USDINR on the NDF has come down significantly after a higher close on the OTC markets yesterday. We may expect a rise from 83.10 back towards 83.20 or higher today. After testing 92.66 on the upside, EURINR is again retreating towards 92-91.50. The US Treasury and the German yields have bounced back. There could be a corrective rise in the near-term. However, strong resistances are there which can cap the upside and keep the overall downtrend intact. The 10Yr and 5Yr GoI have been moving up over the last few days. There is room to rise further before the overall downtrend resumes. Dow Jones and Nifty have scope to test their key resistance before a corrective fall can happen. DAX and Nikkei appears ranged. Shanghai is bullish for a rise towards 3000. Crude prices are falling on bumpy year end markets. Tensions surrounding Red Sea shipping, decline in US barrel counts reported by EIA on Thursday and the announcement of Angola leaving OPEC have all pulled down the crude prices. Gold has declined as the resistance at 2100 has held well. Silver has declined towards the lower end of the range. Need to see if it breaks below the lower end of the range or not. Copper is back into its 3.95-3.85 range. Natural Gas looks mixed. Visit KSHITIJ official site to download the full analysis

AUD/USD Current Price: 0.6832 US Dollar Index rebounds from monthly lows, rises above 101.00. Higher Treasury yields boost the Dollar's rebound. The bullish momentum in AUD/USD is fading, but the overall trend is still upward. The AUD/USD hit a fresh five-month high at 0.6871 but lost momentum. During the American session, the pair turned negative, falling below 0.6850 amid a recovery of the US Dollar, which was boosted by higher Treasury yields. Market participants largely ignored the US data releases on Thursday, which showed an increase in Initial Jobless Claims above expectations to 218,000 in the week ended December 23. Another report indicated that Pending Home Sales remained flat in November instead of the expected 1% increase. On Friday, no data is scheduled from Australia, while the Chicago PMI will be released in the US.  Attention is now focused on next week's US employment data, which includes ADP, JOLTS, jobless claims, and Nonfarm payrolls. The US Dollar dynamics continue to be the critical driver in AUD/USD. However, current market conditions with low volume could trigger unexpected moves without catalysts. Given these circumstances and wider spreads, there may be reduced incentives to trade towards the end of 2023. AUD/USD short-term technical outlook The AUD/USD is trading around the upper limit of an ascending channel, holding a bullish bias but correcting. The pair is about to post its second consecutive monthly gain. On the monthly chart, it has risen above the 20-Simple Moving Average (SMA) for the first time since March 2022, which is a positive sign for the first half of 2024. Ahead of the Asian session, the 4-hour chart shows that the price is still above the 20-SMA and near the relevant support area at 0.6830. Technical indicators favor further downside, with the Relative Strength Index (RSI) moving south and the MACD showing bearish signs. A break below 0.6830 would open the doors to a deeper correction. If AUD/USD holds above 0.6830, it could continue to consolidate between that level and 0.6865. Support levels: 0.6830 0.6795 0.6750 Resistance levels: 0.6855 0.6870 0.6905 

EUR/USD climbed to fresh multi-month highs above 1.1100. Near-term technical outlook suggests that the pair is overbought. US economic docket will feature weekly Initial Jobless Claims. EUR/USD gathered bullish momentum and advanced to its highest level since late July above 1.1100. The pair seems to have gone into a consolidation phase on Thursday as investors await macroeconomic data releases from the US.