US
USD retreated slightly after probing yesterday its highest level since December 2. The run of Goldilocks-type US economic data – neither too hot nor too cold - continues to underpin USD, and US stocks. Still, we doubt the dollar index (DXY) will sustain a break above 100.00 because easing US inflation pressures and weak labor demand leave plenty of room for the Fed to deliver additional rate cuts.
Technically, the next two support levels for EUR/USD are offered at 1.1589 (the 200-day moving average) and 1.1500 (November double bottom). USD/JPY faces psychological resistance at 160.00 as Japan’s finance minister reiterated that all options are on the table for dealing with excessive yen weakness.
No fire, no hire US economy. Initial jobless claims for the week ending January 10 unexpectedly dropped under 200k to the lowest level since November, confirming there’s no layoff spiral underway. Claims have only fallen below 200k a few times in recent years. Nevertheless, downside risks to employment continue to rise because the vast majority of job gains in 2025 have been concentrated in a single sector - education and health services.
Underlying demand for USD remains resilient. The US Treasury International Capital (TIC) data showed that in the twelve months to November, foreign investors accumulated a record $1569bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds). This dwarfs the -$960bn US trade deficit accumulated over the year to October.
We expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That is a structural drag on USD.
Second-tier US economic data is due today: January New York Fed services business activity survey, December industrial production, and January NAHB housing market index. Both Fed Vice Chair for Supervision Michelle Bowman and Fed Vice Chair Philip Jefferson speak on the economic outlook and monetary policy.
More on the US November TIC data. Net foreign purchases of long-term US securities increased $221.8bn in November vs. $52.6bn in October. Of this, net purchases by private foreign investors were $157.8bn, and net purchases by foreign official institutions were $64.0bn. Foreign investors piled into US Treasuries, equities, and corporate bonds, while steering clear of agency bonds.
