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CAD
Arguably the most interesting release of the week in our eyes – Canadian CPI data – is set for release tomorrow. Markets expect to see a rebound in headline inflation, with both core-median and core-trim CPI landing at 2.4% YoY. This would suggest little change in underlying inflation at first glance. But we can see downside risks to this week’s set of prints, with our own preferred measure of underlying inflation CPI ex-rent and mortgage costs, hovering just above 0%, while short run inflation momentum has turned distinctly negative over recent months. This all matters because expectations for the BoC’s December meeting hang in the balance, with odds evenly split between a 25bp and 50bp cut, while USDCAD continues to trade just shy of 1.41. A downside surprise tomorrow could tip the balance, with market expectations breaking in favour of another round of jumbo easing, leaving the loonie to take a further leg lower.
USD
After rallying hard post-election, the back end of last week saw the greenback begin to run out of steam, with the DXY index topping out at around the 107-mark. While we think the dollar can move higher over the medium-term, especially considering Trump related risks, for now catalysts for another leg higher look limited. Indeed, the data calendar this week is sparse, with Fed speakers largely leading the docket of US specifics events. But, having heard from Chair Powell just last week, we doubt there is much if anything that other FOMC members can say to shift the current market narrative. With this in mind, we see the greenback tracking sideways this week more likely than not – the next big risk event for the dollar looks increasingly likely to be November’s payrolls data, published early next month.
EUR
A quiet start should give way to some euro upside later this week, if our view on PMIs is right. As we noted in our preview, seasonals should begin to reverse this month, suggesting upside risks for EURUSD. That said, the impact of political risks remains a major unknown. The collapse of the German government, combined with Trump’ win in the US, could both weigh on eurozone activity readings. While this means that the path for the euro to retrace higher is not entirely clear cut, we are still inclined to think that the balance of probabilities is just about tilted in favour of a partial unwind of the euro’s recent selloff.
GBP
UK CPI later this week should be the main event for sterling traders. Markets expect to see inflation bounce, as do we, given the well anticipated impact of energy base effects. That said, we doubt there will be much in the underlying readings to shift the balance of risks for the MPC, or for markets as a consequence. With this in mind, we still expect a one cut per quarter easing pace for Bank Rate, with GBP left to hover around current levels.