News & Analysis

CAD

Industrial production data, published today, and retail sales tomorrow, are the two Canadian releases of note before the weekend. Even so, neither should prove hugely consequential for the loonie in our view. While cross-asset dynamics could buffet the pair, we think USCAD fortunes should ultimately be determined by the degree to which markets are willing to price in divergence between the BoC and the Fed. On this score, it is GDP data published next week, and jobs data in early December, which are the key releases of note. We see downside risks for both, which if realised, should see market expectations for a 50bp December cut from the BoC accelerate. OIS pricing currently implies just a 28% likelihood of this outcome – these odds look much too low to us. As such, we continue to look for USDCAD upside ahead of month end, despite recent moves lower for the pair. That said, given the minimal lack of catalysts due through the remainder of this week, patience will be required.

USD

Russia-Ukraine escalation risks were front of mind for markets once again yesterday, with news that Anglo/French missiles were now also being used to target sites in Russia, helping to support another dollar rally. This, alongside news that Howard Lutnick is set to become Commerce Secretary, saw the DXY index peak just shy of 107 before slipping back modestly overnight. Today, initial jobless claims are likely to be the main data event for markets, with traders looking for a 220k print – broadly unchanged from last week’s 217k reading. Beyond this though, the handful of Fed speakers due to hit the airwaves are unlikely to offer much new insight on the path for monetary policy, while Trump’s Treasury Secretary pick remains an unknown, albeit, one that holds two-sided risks for the dollar.

EUR

As we predicted yesterday morning, Q3 negotiated wages not only posted an increase on Q2 readings, but also exceeded the limited sell-side consensus. Despite this, the single currency spent Wednesday trading on the back foot, promoted by further concerns about the Russia-Ukraine war, while news out of France was hardly euro-positive either. Specifically, headlines suggested that National Rally leader Marine Le Pen is preparing to bring down the government if her budget demands are not met. This aligns with our longstanding base case that gave Prime Minister Michel Barnier only a 50% chance of making it to Christmas in post. It is also a dynamic that should weigh on the single currency, as it did notably earlier this year. Today, a handful of second-tier data print should do little to help the euro too. But we still think the single currency could get a boost to end the week, with PMI readings due tomorrow. Granted, the US elections have injected a degree of uncertainty around this month’s reading, but seasonal factors should have turned positive in November, offering some upside risks for EURUSD.

GBP

Like euro traders, UK watchers will also be keeping an eye on PMIs released tomorrow morning. That said, it is retail sales data released at 07:00 GMT on Friday that should be the major release of note, albeit we doubt it will be sterling positive. Market expectations look for a -0.4% MoM core retail sales print, with sentiment ahead of the budget likely to have depressed consumer demand. Before then, however, public sector borrowing numbers and CBI sales readings are likely to be overlooked by traders, which should keep the pound treading water for the time being, before sliding into the weekend.

 

 

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