News & Analysis


The loonie held flat against the dollar on Thursday, weakening throughout the European session and reversing all losses after the North American trading session began. That put CAD at the top of the G10 currency board on a day when all other currencies fell against the dollar on risk-off trading. The resilience in CAD was abnormal, considering that no Canadian headlines hit the wires, and other correlated markets formed fundamental headwinds for the currency. Oil fell to $91, Canadian yields turned mildly less attractive relative to US yields, and the TSX fell by a third of a percent. The move was therefore likely a retracement of Wednesday’s CPI-induced sell-off. Today’s calendar has a few low-impact Canadian data releases, including Teranet/National Bank’s home price index as well as industrial product and raw material price indices from StatCan.


Yesterday can be bookmarked as another day of dollar consolidation. This was visible in price action throughout the morning of the European session prior to the publication of Fed member Bullard’s comments that the “sufficiently restrictive” range for US interest rates was around 5%. Obviously Bullard’s comments assisted in the dollar’s bounce back in the afternoon session, but the price action ahead of these comments displayed how the dollar’s depreciation is starting to hit technical resistance now. With most G10 currency pairs now settling into a range, conversations are shifting towards what the next catalyst will be for the risk-on rally. With very little in terms of market-moving data scheduled for release today, the next breakout is unlikely to be until next week, but even then the data calendar remains sparse. Despite this, the publication of the Fed’s latest meeting minutes on Wednesday may be sufficient. In the meantime, however, we expect cross-asset correlations to continue to sit in the driving seat for FX markets as technicals also come into play for most major currency pairs.


A correction in risk conditions in yesterday’s session weighed on the euro’s recent gains, but the decline in the single currency was limited again by technical levels. The exposure in the support level to the downside now sees EURUSD trading in a tight 1.5% daily range between key psychological levels, a dynamic that is becoming increasingly prevalent in most FX pairs now the bulk of the dollar washout has been priced post-CPI. Although this range is likely to stay intact until next week, today’s economic calendar features several speeches by members of the ECB Governing Council, which markets will await with relative anticipation given the recent divergence between the hawkish individual views of certain members and reports earlier this week suggesting that the Governing Council’s consensus supports a slowdown to a 50bps hike in December. Out of the ECB speakers set to hit the wires today, President Lagarde’s comments at a banking conference at 08:30 GMT will garner the bulk of the attention.


After hitting resistance to the upside on Tuesday, sterling spent much of yesterday’s session toying with support levels to the downside as the UK’s fragile economic fundamentals were thrust back into focus by the publication of the OBR’s bleak economic projections. The independent fiscal forecaster saw the economy contracting by 1.4% in 2023 and unemployment rising over the coming years from 3.5% currently to a peak of 4.9% in Q3 2024. The pound did trim losses throughout the remainder of the Autumn budget statement even as public spending cuts were backloaded in the five-year projection period, only for further GBPUSD downside to appear shortly after the budget was announced as Fed member Bullard struck hawkish notes in his presentation on “getting into the zone”. This morning, the pound is back trading above key support levels tested in yesterday’s session, and with little scheduled in terms of market-moving events it is likely to close the week out in this recent range. Retail sales data this morning had little bearing on the retracement in the pound as the minor positive surprise in the headline figure was primarily due to higher auto fuel sales. Instead, a renewed decline in the broad dollar is the catalyst for the pound’s early rally.



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