USD grinds higher, focus on earnings - Scotiabank

The US Dollar (USD) is trading firmer on the session, reflecting the ongoing consolidation in markets amid a dearth of news and focus on upcoming event risk. Stocks stabilized yesterday but the S&P 500 failed to recover back above its 50-day MA as markets await earnings data later today (Walmart for the consumer, Nvidia for AI) and NFP tomorrow, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD extends rebound ahead of earnings data today

"Global stocks are narrowly mixed while Treasuries and Gilts are underperforming mostly firmer European debt. Among the major currencies, the EUR is little changed, while the JPY continues to underperform as officials fail top push back on losses and markets ponder tensions with China and BoJ tightening timing. JPY deviation from underlying fundamentals and estimates of fundamental equilibrium suggest to us that losses extending into the 155-160 range are raising the risk of stronger official reaction to the weakening trend."

"Today's FOMC minutes should attract a little more attention than usual given the clear division of opinion that emerged at the October policy decision--and has become more public since. Recall that Governor Miran maintained his dovish bias and argued for a more aggressive cut while KC Fed President Schmid favoured no change in rates last month. FOMC dissent is not all that common; persistent (over a number of meetings) dissent is unusual and dissenting opinions in opposing directions are very unusual. This is a significant split and the minutes may provide some sense of whether a consensus can emerge ahead of the December decision."

"Soft weekly ADP jobs data yesterday (plus downward revisions to the prior week's data) helped nudge rate cut expectations a fraction firmer but swaps are still effectively sitting on the fence, with 11- 12bps of cuts priced in for December 10th. While the DXY is a little firmer overall, scope for further gains may be limited. The index faces firm resistance in the upper 99/low 100 area and seasonal trends turn USD-negative as we move towards year-end."v