The dollar is largely holding onto recent gains, though most expect a consolidation over an extension to the rally. Focus on the US markets is back on Congress as Biden's Administration tries to get its Build Back Better stimulus plan approved. The package looks set to go to a vote in the House on Friday and approval of the whole package. There is no US data today.
The loonie came under pressure yesterday afternoon, more in response to a general risk-off/profit-taking dynamic than anything more sinister and we walk in the morning with Oil higher and USD/CAD back under 1.2600. Retail Sales will be in focus today with expectations for a better than forecast outcome to further support a bullish view after the disappointing price action following the inflation print earlier in the week. The events and developments in BC will also affect near-term dynamics.
Implied yields for the EUR continue to sink (e.g. two-month EUR yields down to -0.90%). Driving this is the annual adjustment of bank balance sheets, especially in Europe. Many European banks are subject to local bank taxes, which are calculated on the liability side of the balance sheet. These trends will be reversed at the start of the New Year, although typically in FX markets, dollar strength in November has tended to reverse in December.
As discussed over the last two days, the USD advance has stalled, while EUR/USD has found support at 1.13. We forecast the EUR/USD trade 1.1300-1.1400 for the time being. In terms of Eurozone events today, look out for ECB speakers Lagarde and Weidmann at a European Banking Congress event in Frankfurt.
October retail sales are the latest piece of evidence to support a BoE rate hike on December 16th. These follow strong jobs data and surging CPI. For today the focus will be on a speech from BoE chief economist, Huw Pill. He was one of the first to support tightening discussions advanced by Governor Bailey - and he'll have more ammunition now. GBP/USD could possibly make its way towards the 1.3600 area.
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