Could the Four-Day Truce Between Israel and Hamas be Extended?

Yen is having a moderate rebound today, spurred by slightly stronger-than-expected corporate services price inflation data. However, this uptick in is showing only restrained momentum, especially noticeable even against a weaker Dollar. The limited rise can be attributed to low market activity, as there are no significant events scheduled for the day.

Nevertheless, this tranquility in the market is expected to be short-lived, as volatility is likely to escalate with the unfolding of high-profile events later in the week. Key events include inflation data releases from US, Eurozone, and Australia, along with RBNZ rate decision.

Technically, Gold finally breaks through 2009.26 resistance and resume near term rally to a six-month high in Asian session. Technically, further rally is expected as long as 1986.67 support holds. Next short-term target is 61.8% projection of 1810.26 to 2009.26 from 1931.39 at 2054.37. It remains to be seen if Gold is strong enough to break through 2074.48 long term resistance.

In Asia, Nikkei dropped -0.53%. Hong Kong HSI is down -0.16% China Shanghai SSE is down -0.30%. Singapore Strait Times is down -0.07%. Japan 10-year JGB yield closed flat at 0.778.

In today's address to the parliament, BoJ Governor Kazuo Ueda provided note that the economy is "recovering moderately," which is further evidenced by the narrowing of the output gap to "near zero".

Ueda also highlighted "We're seeing some positive signs in wages and inflation". However, he tempered this optimism by acknowledging the "high uncertainty on whether this cycle will strengthen"

A key point in Ueda's commentary was BoJ's stance on inflation. Despite the positive signs, he stated that the central bank cannot yet assert with confidence that inflation will sustainably and stably achieve its 2% target.

In the current oil market, stability reigns as prices stay in the near-term range, with all eyes on the impending delayed OPEC+ meeting scheduled for Thursday. There's growing consensus, as per news reports in the past two days, that a compromise on 2024 output levels is within reach. However, it seems the most probable outcome will just be continuation of existing production cuts, rather than any new, drastic changes.

This outlook, predominantly unaltered barring any unexpected deepening of cuts, steers towards bearish sentiment for oil prices in the near term. A key factor influencing this view is rising inventory levels in US. Concurrently, economic growth in China, a major player in global oil demand, remains tepid. While there have been some positive signs in China, they are not robust enough to shift the demand dynamics significantly.

Another critical element in this equation is Saudi Arabia's decision regarding its additional voluntary cut of 1 million barrels per day, which is nearing its expiry at the end of December.

From a technical standpoint, near term outlook in WTI crude oil stays bearish with 79.98 resistance holds. Current fall from 95.50 if expected to extend through 72.56 to 63.37/66.94 support zone. But strong support would likely be seen to to bring rebound. Overall, range trading should continue for the medium term above 63.67, barring another significant developments.

RBNZ is widely expected to hold the Official Cash Rate steady at 5.50% on Wednesday. Accompanying this decision will be the quarterly Monetary Policy Statement, which will include new economic forecasts. Despite some speculation about potential rate cuts in 2024, RBNZ's projections may not strongly reflect this, especially considering the recent resurgence in energy prices. This could imply that the RBNZ may either need to hike rates further or maintain the current levels for an extended period, with the latter seeming more likely. In terms of central bank activities, Fed is also set to release its Beige Book economic report, offering insights into the economic conditions across various regions.

On the data front, key inflation figures are due from several major economies. US will release its PCE and core PCE price indexes, while Eurozone will publish its CPI flash data. Australia's monthly CPI data is also awaited. These inflation reports are crucial for central banks like Fed and ECB, as they could influence the timing and pace of upcoming rate cuts and pace of policy loosening next year. Although Australia's more critical quarterly CPI data will come in January, the upcoming monthly figures will still play a role in shaping market expectations regarding RBA's next moves.

Canada's employment data is another significant release that could impact the forex markets. Particularly, following a strong market response to Canada's recent robust retail sales data, another set of positive employment figures could potentially trigger a notably rally in Loonie.

Lastly, economic indicators from China, including the official and Caixin PMI reports, will be closely watched. These reports are vital in supporting the recent rally in commodity prices, as they provide insights into the Chinese economy's health, a major player in global commodity demand.

USD/JPY dips notably today but stays above 148.57 minor support. Intraday bias remains neutral at this point. Risk stays on the downside as long as 55 4H EMA (now at 149.55) holds. Break of 148.57 minor support will turn bias to the downside the resume the fall from 151.89 through 147.14 support. However sustained break of 55 4H EMA will revive near term bullishness, and target a retest on 151.89/93 resistance zone.

In the bigger picture, rise from 127.20 (2023 low) is seen as the second leg of the pattern from 151.93 (2022 high). Decisive break of 145.06 resistance turned support will confirm that this second leg has completed, after rejection by 151.93. Deeper fall would be seen through 38.2% retracement of 127.20 to 151.89 at 142.45 to 61.8% retracement at 136.63. Nevertheless strong bounce from 145.06 will retain medium term bullishness for another test on 151.93 at a later stage.

The DXY dollar index is down around 3.5% from its highs seen in October. The drop looks largely down to the view that the Federal Reserve's tightening cycle is over and that portfolio capital can now be put back to work in bonds, equities, and emerging markets. While acknowledging that November and December are seasonally soft months for the dollar, our view is that this dollar sell-off has come a little early. We are bearish on the dollar through 2024 but expect the core driver to be a bullish steepening of the US Treasury curve – which has not happened yet. Indeed, US two-year Treasury yields remain firm near 5%. We thus urge caution in chasing this dollar decline much further.

In terms of what this week has to offer, we pick out three themes: the Fed, OPEC+ and US data. Fed communication this week will come from the release of the Fed's Beige book and also some key speakers, including Fed Chair Jay Powell, on Friday. Remember that the Beige Book paints a picture of the economy to prepare the FOMC for its meeting on 13 December. It certainly is not clear that the Beige Book will paint a soft enough picture to support the 80bp of fed easing already priced for next year.

In terms of the OPEC+ meeting, our commodities team believe that the Saudis will extend their voluntary supply cut and that the oil market can find some support - a mild dollar positive. In terms of US data, the highlight should be some stable (0.2% MoM) core PCE inflation data for October and the ISM Manufacturing data on Friday. Thursday's US inflation data is probably the largest bearish risk to the dollar this week.

However, with cross-market volatility falling, it seems investors are once again interested in carry trade strategies. We have seen this theme several times this year already, and it is not a dollar negative. It is a negative for the funding currencies like the Japanese yen and the Chinese renminbi. Until we get some clear dovish communication from the Fed or US data is materially weak enough, we think this dollar drop might have come far enough for the time being and suspect that the 103.00/103.50 support area could well hold the DXY this week.

EUR/USD remains well bid, but should struggle to better resistance at 1.0965/1000 this week. As mentioned above, we think the dollar sell-off may not have legs since the short end of the US rates curve is still pretty firm. From the eurozone side, this week's data highlight will be flash CPI for November set to be released on Thursday. Here, further disinflation is expected in both headline and core readings, bringing year-on-year rates back to 2.7% and 3.9%, respectively. These readings might tend to support the 70bp of the European Central Bank (ECB) easing priced into eurozone money markets next year.

Additionally, expect investors to keep one eye on fiscal developments in Germany. It is unclear from where a political solution will emerge and will do little to discourage views of a stagnant eurozone economy in early 2024. Overall, we favour EUR/USD correcting to the 1.0825/50 area this week.

Sterling has been performing a little better of late, no doubt buoyed by the better global risk environment. We do also think that the fiscal story has helped, where the UK government plans to put £20bn to work in the economy, while countries like Germany remain hamstrung by its constitutional court. At the same time, the slightly better November PMI readings have supported sterling too. These developments have left investors looking for just 40-50bp of Bank of England (BoE) easing next year – clearly less than what is expected of the Fed or of the ECB.

The UK data calendar is light this week, but we do have several BoE speakers. Governor Andrew Bailey already seems to be playing around with language on forward guidance, where restrictive monetary policy will be retained for an 'extended period' or, most recently, 'for quite some time'. All in all, we feel that EUR/GBP could correct a little further and a close under 0.8660 could unlock 0.8630 or even 0.8600 this week.

The first half of the week basically has nothing to offer in the region. We will see the first interesting data on Thursday. In Poland, November inflation will be published, where we expect a slight increase from 6.6% to 6.7% YoY, slightly above market expectations. Poland's second estimate of third-quarter GDP will also be released, which will offer a breakdown. We expect a confirmation at 0.4% YoY. On Friday, we will see the same GDP numbers in Hungary and the Czech Republic and also PMI in the region. The Czech Republic will also release budget numbers, and Moody's will publish a rating review of Poland. We don't expect any changes, but it will be interesting to see the assessment of the political and fiscal situation after the elections.

The zloty did not move much last week despite confirmation of an economic recovery. However, the short end of the rate curve is gradually moving up as we expected, which we think should push EUR/PLN down. Of course, the long positioning of the market is good to keep in mind here and will likely be an issue for faster PLN appreciation. These days, we see EUR/PLN below 4.360.

The koruna strengthened last week after a surprise paying flow and maybe some hints of hawkishness from the Czech National Bank (CNB). However, we believe that weak economic data and more mixed CNB views will bring back the rate-cutting discussion and that market rates will go down again. The first signal was already visible on Friday, and rates are thus pointing to a weaker koruna back above 24.450 EUR/CZK.

The forint rebounded last week after the National Bank of Hungary (NBH) meeting but still failed to hold new gains. We think EUR/HUF should go down from these levels, but we need to see new triggers. Last week, we saw positive headlines from the EU money story – and we may see more this week, which would certainly help. Rates also bounced up after the central bank meeting. Overall, we are positive on the HUF and expect levels below 380 EUR/HUF in the coming days.

Last week ended on a positive note where the US equities advanced to fresh highs since summer on a holiday shortened trading week. The S&P500 gained for the 4th consecutive week and closed the week near 4560, the rate-sensitive and technology heavy Nasdaq 100 extended gains beyond the summer peak, and hit an almost 2-year high, while the VIX index, which is known as Wall Street's fear gauge, or the volatility index, slumped to the lowest levels since January 2020. The belief that the Federal Reserve (Fed) is done hiking the interest rates, and the rapidly falling US long-term yields are at the source of this optimism – especially after the latest CPI update in the US printed a softer-than-expected number, suggesting that inflation in the US fell to 3.2% last month. This week, investors will find out if the Fed's favourite inflation gauge, the PCE index, tells the same story. The PCE index is expected to have fallen from 3.4% to 3.1% in October, and core PCE may have eased from 3.7% to 3.5% during the same month. Anything less than soothing could lead to some more correction in the US long-term yields. The 10-year yield jumped to 4.50% early Monday, though the positive pressure slowed above 4.50%.

News that the Black Friday spending jumped 7.5% this year to hit a record high of $9.8 billion certainly reminds investors that consumer spending in the US remains strong. The latter gives a strong support to the US economy, which in return gives a solid confidence to the Fed that keeping the rates high for long is not necessarily a bad idea. Today, the sales continue with Cyber Monday deals.

Yet the holiday shoppers' enthusiasm is less visible on the financial markets this Monday. The US futures are down, along with their Asian peers on the back of a rebound in US yields, the nearly 8% slump in Chinese industrial profits in October and news that children in China are suffering from respiratory infections – which spurs speculation that it could be a new strain of Covid. Chinese authorities say that it's simply a mix of known respiratory diseases. But you know, once bitten, twice shy.The Dollar Index extends losses below 200-DMA

Friday's rebound in the US yields couldn't give a bullish shift to the US dollar. The dollar index slipped below its 200-DMA, closed the week below this level and is under renewed selling pressure this morning despite positive pressure on the yields. The broad-based dollar weakness helps the EURUSD extend gains to 1.0950, with solid resistance seen into the 1.10 level given weaker growth perspectives for the European economies compared to the US in the coming months. Cable trades past the 1.26 level, while the USDJPY remains offered near the 50-DMA, near the 149 level. The yen is benefiting from rumours that a growing number of institutional players are turning long yen on expectation that the Bank of Japan (BoJ) will one day normalize its rate policy. Every day that goes by brings the BoJ closer to normalization and there is a great upside potential for the yen at the current levels – hence a great downside potential for the USDJPY. Yet the right time for getting long yen is anybody's guess. What we know however is that the upside potential in the USDJPY is certainly limited above the 150 level.

In commodities, gold pulled out offers at the $2000 per ounce and is trading above this level this morning. The softer dollar gives support to the yellow metal, yet the rebound in the US long-term yields, news of a potential extension of cease fire in Gaza beyond today and the fact that the precious metal is worth just shy of its ATH levels hint at a limited upside potential at the current levels.

In energy, appetite in oil is nowhere to be found this morning. The barrel of US crude trades below the $75pb level despite news that OPEC+ is nearing a resolution of the disagreement on output quotas, which led to the group delaying a crucial meeting last weekend. Officials said that discussions with the African nations over the production quotas continue and agreement is within reach – in which case Saudi will likely announce at least 1mbpd extra supply cut to prevent oil bulls from leaving the battlefield. But oil traders need more effort to reverse the selloff in oil prices. The barrel of US crude sees strong resistance around the 200-DMA, near the $78pb level, and the price should rally past the $81pb level for the current bearish trend to reverse.

A quiet start to an otherwise interesting data week. Norwegian retail sales and US new home sales for October will be released today.

The ECB’s Lagarde will give a speech in the afternoon.

Later in the week, the most important release will be the euro area flash HICP on Thursday, we expect further cooling in both headline (2.7%; Oct 2.9%) and core (3.9%; Oct 4.2%) inflation terms. In the US, October Personal Consumption Expenditures (PCE) and November ISM Manufacturing index will be released on Thursday and Friday, respectively. In China, both official NBS and Caixin manufacturing PMIs are due for release (Thursday and Friday, respectively).

The Reserve Bank of New Zealand (RBNZ) will be the only G10 central bank having a monetary policy meeting this week (Wednesday). We expect an unchanged rate decision.

OPEC+ will meet on Thursday and the UN Climate summit COP28 begins on the same day.

Market wrap: US bond yields have continued Friday’s move higher in Asian trading this morning while equity futures are lower. EUR/USD continues to creep higher.

Israel and Hamas may extend the truce beyond Monday if they can agree on more hostage releases. US President Biden said he hoped the truce could go on as long as hostages were released. Hamas said it would extend the truce if serious efforts were made to increase the number of Palestinians released by Israel. Prime Minister of Israel Benjamin Netanyahu said on Sunday he would welcome extending the truce if it meant that on every day 10 hostages would be released adding that after the truce they would return with full force to achieve the goal of eliminating Hamas.

US released PMIs on Friday for November still pointing to growth below trend but not yet at recession levels. Manufacturing PMI declined from 50.0 to 49.4 (consensus 49.9) while service PMI rose slightly from 50.6 to 50.8 (consensus 50.3). It left the composite PMI unchanged at 50.7 (long term average 54.1).

Chinese government agencies unveiled 25 measures to support financing for the private sector in yet another move to underpin private sector development. It continues the charm offensive towards the private sector that has taken place over the past year in efforts to rebuild confidence and highlight the importance of the private sector.

US Black Friday online sales were up 7.5% compared to last year as consumers were chasing deals.

Equities: Equities were modestly higher on Friday, thereby locking in solid gains for another week. Both US and European markets were about 1% higher for the week. This takes most regions back to late summer-highs and we find this motivated. Gains have been broad-based, with very little distinction between value/growth, cyclicals/defensives or small/large caps. This was also the case on Friday. Unlike the past few weeks, the increase in equities was not been driven by falling yields. In fact, US and European yields have even risen some 10bp for the week. Bond vol coming down is enough to drive equities and will continue to do so, in our view. Asian markets and US futures are lower again this morning.

FI: Last week was eventful given the Dutch election and the surprise victory by the Freedom Party led by Geert Wilders and the closure of the German inflation liked programme by the German Debt Agency (Finanzagentur). Furthermore, the uncertainty surrounding the German fiscal situation continues. Last week the German government suspended the debt brake for 2023 and we expect more news on the budget for 2024 in the coming weeks. Looking at the move in the bond market, yields rose modestly during the week in US and Europe.

FX: EUR/USD rose above the 1.09 mark, while the USD/JPY remains just below 150. EUR/GBP declined below 0.87, primarily due to better-than-expected UK PMIs. EUR/SEK remains slightly above 11.40 after the Riksbank decision, while the EUR/NOK is hovering around 11.70.

Credit: Credit spreads as measured by CDS indices were generally tighter last week as sentiment was buoyed by hopes of a soft landing. iTraxx Main closed at 68bp which was 2bp tighter during the week, while Xover was 12bp tighter at 375bp.Nordic macro

In Sweden the Financial Market Statistics is released today; household lending growth will the most interesting part of the statistics. Norway releases retail sales for October.

One of Russia's most lucrative oil trade routes since the imposition of Western sanctions over the Ukraine conflict faces a major challenge because of the drawbacks of payment in currency other than dollars, with no short-term solution in sight.

For decades, the U.S. dollar has been the currency of international oil trade and efforts to find alternatives have been thwarted by the difficulties of conversion, as well as political obstacles.

The problems flared when India - which has become Russia's biggest buyer of seaborne oil since European customers retreated - insisted in July on paying in rupees and the trading activity nearly fell apart, according to three sources familiar with the matter.

The sources, who requested anonymity, said the Russian oil suppliers - who also could not be named because of the issue's sensitivity - could not do deals in Indian rupees because of informal guidance from the Russian central bank it would not accept the currency.

One Russian banking source close to the Russian central bank said receiving revenue in a non-convertible currency with little value outside India was "pointless". Russia has limited opportunities to spend rupees as its imports from India are insignificant, another source said.

The Russia central bank did not respond to requests for comment.

Around mid-August, at least two major Russian oil companies threatened to divert around a dozen tankers carrying up to a million tonnes of oil that were heading to India to other destinations, according to two of the sources.

As a temporary solution to the clash involving Indian deals, the cargoes were paid for in a combination of the Chinese yuan, the Hong-Kong dollar as a transition currency into the yuan and the UAE dirham, which is pegged to the U.S. dollar, 10 trading sources and officials told Reuters.

They said, however, the problem remained of finding a viable alternative to the dollar, and that the problems affect buyers in Africa, China and Turkey which have become top buyers of Russian oil.

The biggest issue, however, concerns India, which has been buying more than 60 per cent of Russian seaborne oil, according to LSEG data and Reuters calculations. It is the biggest overall buyer of seaborne Russian crude after China.

The problems are likely to worsen as scrutiny on the trade increases. Washington imposed the first sanctions on owners of tankers carrying Russian oil priced above a Western price cap in recent weeks, the first enforcement of the cap since it was introduced late last year.

Since Western sanctions imposed on Russia in February last year, Moscow has shifted from transactions in dollars and euros, the world's dominant currencies, and is largely locked out of the international banking system.

According to five traders involved, less than 10 per cent of Russia's output of roughly 9 million barrels of oil per day (bpd) is sold in dollars and euros.

The Russian central bank cannot operate in dollars because of sanctions, and while Russian exporters theoretically can use the currency, avoiding it has the advantage of making it harder for the United States and other Western governments to monitor their trade.

The alternatives, however, lead to high levels of risk for both parties to a deal.

India in the first months of this year owed about $40 billion to Russia for oil and other supplies, according to four trading and banking sources, who said the amount was now significantly lower without giving a precise details.

The Russian central bank also declined to give details.

Doing business in rupees is particularly difficult for Russia.

India encourages rupees to be spent on its territory and has imposed punitive exchange rates on converting rupees into other currencies, amounting on occasions to over 10 per cent of the amount converted, according to two Russian sources.

The situation could ease if Russia imported more goods from India, which could be paid for in rupees.

Instead, India has been importing more from Russia, while Russia has been a major importer of cars, equipment and other goods from China.

India's imports from Russia reached $30.4 billion in April-September, with its trade deficit with Moscow widening to $28.4 billion compared with about $17 billion in the same period last year, according to the data posted on the Indian commerce ministry website.

Ivan Nosov, head of the Indian branch of Russia's top state bank Sberbank, said Russian exporters will have to help India to increase its exports.

"If you help increase Indian exports, there will immediately be a lot of help from various Indian associations. You create a company in India, do a small localisation and you will get more opportunities," he said.

India's top refiner Indian Oil Corp is struggling to settle some payments, mainly for the purchase of Russia's light, sweet Sokol grade from the Sakhalin 1 project.

The IOC has said it has been unable to pay for the Sokol deliveries because the company supplying the grade has yet to open an account in UAE dirhams to receive payment, a source said.

The IOC did not respond to Reuters' requests for comment.

Russian officials and oil executives have pressed Indian buyers to pay in Chinese yuan, which for Russia is a more useful currency.

For India, using the currency of a regional rival is highly sensitive, although Indian private refiners have switched back to the yuan due to the lack of other options since the clash earlier this year, the sources said.

Indian state refiners have turned to the UAE dirham, but that has been complicated by additional clearing requirements as Washington's tougher line makes other governments wary.

From October, several UAE banks have tightened control over Russia-focused clients to ensure compliance with the price cap, according to five oil trading and bank sources.

At least two UAE banks have introduced price cap compliance declarations for the clients involved in Russian crude, oil products and commodity trading, the sources said. They declined to name the banks.

European markets look to be on course for their best month since January after the gains of the last few weeks, on the growing anticipation that central banks are not only done on the rate hike front, but that we could start to rate cuts as soon as the early part of 2024.

The shift to bullish from bearish sentiment has also been reflected in the performance of US markets with the S&P500 also on course to post its best monthly performance since July 2022, with US 10-year yields on course for their biggest monthly decline since March.

The Nasdaq 100 has led the way with that index pushing above its July peak and above 16,000, as well as hitting its highest level since January 2022, driven mostly by the so co-called “Magnificent 7” stocks.

While central bankers will do reluctant to countenance the idea of rate cuts in the next 6 to 12 months given it cuts against the “higher for longer” narrative they are so keen to push, the hawkish messaging jars slightly against a backdrop of a deteriorating economic outlook, particularly in Europe.

This messaging is expected to get a further airing this week when we have a host of central bankers set to jawbone the latest narrative about future policy pronouncement.

Starting today ECB President Lagarde is due to speak in Brussels, to EU lawmakers as well as tomorrow, although she won’t be alone in that with Uber hawk, German Bundesbank President Nagel set to speak in Cyprus earlier in the day.

It is no secret that a number of ECB policymakers continue to push the narrative that rates could go higher, only last week Belgian ECB member Pierre Wunsch argued that rates may have to rise again given that markets were starting to price in cuts next year. His Spanish counterpart Hernandez de Cos was also keen to rule out the likelihood of rate cuts, however the market simply isn’t buying into the narrative, given how quickly inflationary pressure is slowing across Europe, alongside the continued deterioration in the latest economic numbers.

Tomorrow, we have a host of Fed speakers due to speak on the slate with Fed governors Waller and Bowman, along with the Chicago Fed President Austan Goolsbee, ahead of this week’s latest revision to US Q3 GDP, with the resilience of these numbers speaking to the idea that any loosening of monetary policy remaining much further off than for the likes of the ECB and Bank of England.

It’s also shaping up to be the worst month for the US dollar since November last year in a sign that more declines could be on the way, as markets bet that the Fed is done on the rate hike front. If this trend continues and there’s little reason to suppose it won’t we could see a similar trend to last year play out when it comes to the greenback.

With US markets finishing higher for the 4th week in a row, in a shortened Thanksgiving session on Friday, markets in Europe look set for a lower open on the back of a softer Asia session, with attention expected to be on the upcoming OPEC+ meeting and the possibility of further output cuts which could be announced at the end of the week with oil prices anchored close to their lows of last week, and on course for their second successive monthly decline.

EUR/USD – currently finding resistance at the 1.0960 area, with the August peaks at 1.1060/70. We need to hold above the 1.0840 area to signal the prospect of further gains. We also have support at the 200-day SMA at 1.0810.

GBP/USD – having broken above the 1.2450 area and 200-day SMA we could well see an extension towards the 1.2720 area, which is 61.8% retracement of the 1.3140/1.2035 down move. Upside momentum remains intact while above 1.2450.

EUR/GBP – appears to be breaking down have slipped below 0.8720 last week we could see further weakness towards the 0.8620 area.

USD/JPY – seen a significant rebound from the lows last week at 147.15, with the current strength capped by the 150.00 area, with a break of 150.20 potentially retargeting the main resistance at the 151.95 area.