FOREX: USD - Trying To Push Higher, BBDXY Eyes 1195-1200
The BBDXY has had a range today of 1187.52 - 1190.03 in the Asia-Pac session; it is currently trading around 1189. The Dollar continued to pull back on Friday night as the move in Metals resulted in biblical pullbacks and the so-called “debasement trade” was put under pressure. The nomination of Warsh to Fed Chair has been of particular interest to the market due to his strong views on a smaller balance sheet and echoing Bessent's belief that the Fed has been involved in matters way outside of its purview. Warsh believes he can reduce the balance sheet and get interest rates lower, the market will be eagerly watching how he performs this magic trick. For the USD the market is left scratching its head a little as the break below 1180 proved to be false, it looks an ugly rejection below there and could imply the pullback has further to go. I suspect though that a bounce will find sellers again as the USD still has few friends. On the day, the first resistance is in the 1190-1195 area and then back towards 1200 where I suspect sellers would return in earnest.
- EUR/USD - Asian range 1.1840-1.1875, Asia is currently trading 1.1865. Price action has left an ugly bearish shadow on the weekly chart, and we might still get further retracements. On the day, the first support is between the 1.1800-1.1840 area initially a move through here would open up a deeper reversion back to the important 1.1700 area where I suspect buyers would again return. I suspect a bounce back toward the 1.19220-1.1950 area would find sellers first up as some risk is pared back across the board after such a big move.
- GBP/USD - Asian range 1.3662-1.3706, Asia is currently dealing around 1.3685. The pair like everything else had an ugly weekly close leaving a clear rejection of the 1.3850 area. The price action suggests we could see some further retracements but I suspect buyers could reemerge on any decent dip. On the day, first support is 1.3600-1.3650 then the 1.3500 area.
- Cross asset : SPX -1.05%, Gold $4700, US 10-Year 4.23%, BBDXY 1189, Crude Oil $62.14
- Data/Events : Germany Retail Sales/HCOB Germany Manufacturing PMI, Italy HCOB Italy Manufacturing PMI/Budget Balance, Spain HCOB Spain Manufacturing PMI, EZ HCOB Eurozone Manufacturing PMI, France HCOB France Manufacturing PMI
Fig 1: GBP/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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US DATA: Dallas Fed Weekly Index Ends Year Tracking Solid Q4 GDP Growth
The Dallas Fed's Weekly Economic Index concluded 2026 on a bright note, with the 4-quarter-scaled GDP growth rate ticking up in the Dec 27 week to 2.23% Y/Y from 2.21% prior.
- This should be caveated slightly by the fact that railroad traffic, electricity output, and fuel sales were not released for the latest week due to holidays, but it kept the 13-week (ie quarterly) moving average rate at 2.24% for a 6th consecutive week between 2.24-2.25%.
- The WEI was consistent with real GDP growth of 4+% Q/Q SAAR in Q3, which was closer to the mark than most (the official reading was 4.3%).
- Its final reading of Q4 means it tracked the equivalent of 2.5-3.0% Q/Q SAAR growth for the quarter, a little below the Atlanta Fed GDPNow estimate of 3.0%. We get the next Atlanta Fed reading on Monday after the ISM Manufacturing release for December.
US PREVIEW: Payrolls Seen Steadying Out In December After Noisy Oct/Nov (2/2)
Next Friday's release of the December employment report is the highlight of the week's macro calendar. Our usual preview will be out early next week but early consensus expectations are for relatively steady readings vs November, with 55k nonfarm payroll gains (64k in Nov) and an unemployment rate of 4.5% (4.6% in Nov), with a slight moderation in participation and an uptick in hourly earnings growth.
- This is the last payrolls report before the FOMC's end-January meeting, at which participants would probably require substantially weaker-than-expected NFPs to spur even consideration of a another 25bp cut.
- That said the December data will carry more signal to the market and Fed than the highly unusual November report, which was both delayed and abbreviated (no October Household Report/unemployment rate) due to the federal government shutdown. Additionally, there were apparent distortions blurring the signal from the data, from the shutdown-driven jump in unemployment, to the new historical low for the household survey response rate and higher standard errors.
- Note that the FOMC's December 2025 median for the Q4 unemployment rate was 4.5% so a steady rate from November would imply a dovish "miss" to the upside though the significance will be muted by the noise in the household data. That said with Fed Chair Powell stating last month that nonfarm payroll gains are overstated by 60k/month, the consensus expectation will - to the leadership of the FOMC - imply only continued softness in the labor market, keeping further rate cuts in play this year.
- So far, indicators point to a relatively steady labor market overall in December vs November. The Chicago Fed's advance estimate of December's unemployment rate is 4.56% - which would be unchanged from November's unrounded BLS reading.
- The "labor differential" in the December Conference Board consumer survey its lowest since February 2021 at 5.9, pointing to a continued pickup in the unemployment rate, while the UMIchigan survey's expected job changes expected during the next year remains at levels consistent with meaningful monthly nonfarm payrolls contractions.
- However, jobless claims data for the reference week were on the lower side of the range seen in recent months' reference periods (initial 224k, continuing 1,913k in Dec 13 week).
EUROZONE ISSUANCE: EGB Supply – W/C 5 January
Germany, Spain, and France are scheduled to kick off auction issuance for the year in the upcoming week. We pencil in issuance of E55.5bln for the week, after this week saw no scheduled operations amid the holiday period. Slovenia will also hold a syndication in the week with syndications also possible from Austria, Belgium, Germany, Ireland, Portugal and the EFSF.
- Slovenia has already announced a mandate for a new 10-year SLOREP. We expect the transaction to take place on Monday 5 January with a E1.5bln size.
- Germany will be looking to kick off EGB auction issuance for the year on Tuesday with E6bln of the 2.00% Dec-27 Schatz (ISIN: DE000BU22114).
- Germany will return to the market on Wednesday with E6bln of the new Feb-36 Bund (ISIN: DE000BU2Z064). The coupon will be announced on Tuesday.
- Spain will come to the market on Thursday with a Bono/Obli/ObliEi auction, with the 2.70% Jan-30 Bono (ISIN: ES0000012O00), the 3.00% Jan-33 Obli (ISIN: ES0000012P74), the 3.45% Jul-43 Obli (ISIN: ES0000012K95) alongside the 1.15% Nov-36 Obli-Ei (ISIN: ES0000012O18) on offer. The combined auction size is to be confirmed on Monday.
- France will come to the market on Thursday to hold a LT OAT auction, selling a combined E11.5-13.5bln of the 3.50% Nov-35 OAT (ISIN: FR0014012II5), the 0.50% May-40 OAT (ISIN: FR0013515806), the 3.60% May-42 OAT (ISIN: FR001400WYO4) and the 3.75% May-56 OAT (ISIN: FR001400XJJ3).
NOMINAL FLOWS: The upcoming week will see no redemptions. Coupon payments for the week total E4.1bln of which E4.0bln are from Germany. This leaves estimated net flows for the week at positive E51.4bln, versus negative E1.4bln this week.
