Last week's stronger than expected US non farm payroll report (published value of 227000 vs expected 200000) dominated market sentiment. Looking ahead, the market is focused on the upcoming key central bank meetings: this week's meetings of the European Central Bank and the Swiss National Bank, as well as next week's meetings of the Federal Reserve, the Bank of Japan, and the Bank of England. Foreign exchange analyst Pearson interpreted the strength and weakness of major currencies in this regard:

Currency Strength Ranking

US dollar (USD) - very strong (remains unchanged)

Non farm employment exceeded expectations, core CPI remained at 3.3%, and the Federal Reserve maintained a tightening stance.

Swiss Franc (CHF) - Strong (remains unchanged)

The October CPI was 0.6%, indicating an increase in safe haven capital inflows.

Japanese Yen (JPY) - Moderately Strong (↑)

The signal of the Bank of Japan's policy shift is evident, with the trade deficit narrowing to 461.25 billion yen.

Euro (EUR) - Neutral (↓)

The manufacturing PMI is 45.2, indicating the dissolution of the German ruling coalition.

Pound Sterling (GBP) - Moderately weak (unchanged)

The manufacturing PMI is 48.6, and the inflation rate is 2.3%.

Canadian Dollar (CAD) - Weak (remains unchanged)

The unemployment rate rose to 6.8% in November, and the Bank of Canada took a dovish stance.

Australian Dollar (AUD) - Very weak (remains unchanged)

The PMI for the service industry is below 50.

New Zealand Dollar (NZD) - Very weak (remains unchanged)

The manufacturing PMI is 45.8, and the Reserve Bank of New Zealand has cut interest rates to 4.25%.

Monetary Performance Analysis

The US dollar (USD) - very strong: data-driven dominance

In November, the non farm payroll (NFP) reached 227000 (expected to be 200000), and the core inflation rate remained stable at 3.3% year-on-year. The manufacturing PMI shows resilience, reaching 48.4, leading the global industry. The strong performance of the US economy supports the Federal Reserve's tightening policy and consolidates the yield advantage of the US dollar.

Main theme: Strong US economic data driving policy divergence.

Potential theme: December 11th CPI data may challenge market expectations of a Fed rate cut.

Key events:

US CPI (December 11th): Core MoM forecast of 0.3%.

Retail Sales (December 17th): Consumer Resilience Test.

Federal Reserve Rate Resolution (December 18th): Policy Statement and Forecast.

PCE Price Index (December 20th): The Federal Reserve's preferred inflation indicator.

Trading strategy: The US dollar remains bullish against high-yield currencies such as the euro and yen, as well as policy dovish currencies such as the New Zealand dollar and Canadian dollar.

Swiss Franc (CHF) - Strong: Increased Safe haven Attraction

Switzerland's fundamentals are stable, with an inflation rate of 0.6% in October and a stable trade surplus providing support. The manufacturing PMI is 49.9, although in a contraction range, it is better than its European counterparts. Safe haven funds flowed into the Swiss franc due to political instability and geopolitical tensions in Germany.

Main theme: The inflow of safe haven funds strengthens the attractiveness of the Swiss franc.

Potential theme: As the euro against the Swiss franc approaches historical lows, the Swiss central bank may intervene.

Key events:

Swiss Central Bank interest rate decision (December 12th): Policy stance and intervention signals.

Trade balance (December 19th): External account update.

Trading strategy: The Swiss franc is bullish against the euro, but caution should be exercised against the risk of central bank intervention.

Japanese Yen (JPY) - Moderately Strong: Increased Expectations of Policy Changes

The upward adjustment of the yen rating reflects expectations for the normalization of policies by the Bank of Japan. The trade deficit narrowed to 461.25 billion yen in October, and the service sector PMI rose to 50.2.

Main theme: Speculation on the normalization of policies by the Bank of Japan.

Potential theme: The USD/JPY approaching the 152 level may trigger intervention.

Key events:

Bank of Japan Nakamura Speech (December 13th): Policy Signal.

Bank of Japan interest rate decision (December 19): Key policy guidance.

Trading strategy: The Japanese yen is bullish on risk sensitive currencies such as the Australian dollar and New Zealand dollar, benefiting from potential policy normalization.

Euro (EUR) - Neutral: Political Crisis Dragging Down

The euro rating has been downgraded due to deteriorating economic conditions and unstable political situation in Germany. The composite PMI for November was 48.3, indicating a continued contraction in the private sector and a 0.4% month on month decline in German industrial output.

Main theme: The impact of the disintegration of the German ruling coalition on regional stability.

Potential theme: Policy divergence between the European Central Bank and the Federal Reserve.

Key events:

European Central Bank interest rate decision (December 12th): Policy guidance.

Flash PMI (December 16th): Growth momentum check.

Industrial output (December 13th): Activity indicator.

Trading strategy: Euro neutral, but more attractive for short exposure to Swiss Franc.

Pound Sterling (GBP) - Moderately weak: Continued growth concerns

The fundamentals of the pound are weak, with a manufacturing PMI of 48.6 and an inflation rate of 2.3%. Recently, GDP has shown a contraction, with industrial output decreasing by 0.5% month on month in October.

Main theme: UK growth concerns intensify.

Potential theme: Rising expectations of early interest rate cuts.

Key events:

GDP data (December 12th): Growth trajectory.

Employment data (December 17th): Health status of the labor market.

Bank of England Resolution (December 19th): Policy stance.

Trading strategy: There is a clear bearish opportunity for GBP/USD.

Canadian dollar (CAD) - weak: deteriorating labor market

The unemployment rate rose to 6.8% in November, exacerbating the fundamental weakness of the Canadian dollar. The Bank of Canada maintains a dovish stance.

Main theme: Divergence with the Federal Reserve's monetary policy.

Potential theme: Trade policy uncertainty after Trump's election.

Key events:

Manufacturing Sales (December 12th): Activity Indicators.

Wholesale sales (December 13th): Trade momentum.

CPI data (December 19th): Inflation update.

Trading strategy: There is a significant short opportunity for the Canadian dollar against the US dollar.

Australian dollar (AUD) - very weak

Australia's fundamentals are weak, with a manufacturing PMI of 49.4 and a service PMI of 49.6. The GDP in the third quarter only grew by 0.2%.

Main theme: Export impact.

Potential theme: Uncertainty in regional trade policies.

Key events:

Consumer Confidence (December 12th): Emotion Check.

Employment data (December 14th): Health status of the labor market.

Minutes of the Reserve Bank of Australia Meeting (December 19): Policy Insights.

Trading strategy: The Australian dollar is strongly bearish against the US dollar and Japanese yen.

New Zealand Dollar (NZD) - Very weak: Policy divergence widens

The New Zealand dollar remained weak, with a manufacturing PMI of 45.8, and the Reserve Bank of New Zealand recently cut interest rates by 50 basis points to 4.25%.

Main theme: The dovish stance of the Reserve Bank of New Zealand.

Potential theme: The impact of deteriorating economic data on monetary policy.

Key events:

GDP Data (December 13th): Growth Assessment.

Business PMI (December 14th): Activity Indicator.

Trade balance (December 19th): External account.

Trading strategy: The New Zealand dollar is the most attractive option for bears among major currencies.

summary

As 2024 draws to a close, the foreign exchange market continues to be dominated by policy divergence. The US dollar maintains its dominant position with strong data, the Japanese yen benefits from potential policy changes, and the euro is under pressure due to regional political challenges.

Key Events (December 10-20)

US CPI (December 11th)

European Central Bank Meeting (December 12th)

Swiss Central Bank Resolution (December 12th)

Federal Reserve Rate Resolution (December 18th)

Bank of England and Bank of Japan Resolution (December 19th)