Today sees another holiday-shortened US session following the Thanksgiving public holiday. High levels of employment and lower levels of petrol prices (now $4.30/gallon versus a high of $5.50 in June) suggest retail sales may hold up despite talk of the looming 2023 recession. In FX the dollar may be nearing support levels which are likely to hold. That said, we still expect the dollar to remain supported and likely appreciate into Q12023.
The CAD is trading little changed on the overnight session. Risk appetite continues to exert a lot of influence over CAD moves versus the USD but correlation matrices shows that commodity correlations are strengthening and this may represent something of a headwind for the CAD moving forward as investors consider Chinese growth risks and the US recession threat. Given that markets will close early in the U.S. we look for more narrow range trading and for USD/CAD in the low 1.33 zone.
Business surveys in Germany and France released yesterday showed little pessimism and suggested that the forthcoming downturn will be mild because of issues like a) strong employment b) large government support and c) strong household savings. Currently, the market prices 61bp of hikes on 15 December (we expect 50bp). Clearly, the 50bp versus 75bp debate will continue to run. For EUR/USD, it still looks like the dollar story is dominating. We cannot rule out a further correction into the 1.05-1.06 region but would see these as the best levels before year-end.
Recent speeches have seen the Bank of England (BoE) staying pretty hawkish despite the fiscally tight budget and broadening consensus of recession. Positioning has played a major role in this sterling recovery and GBP/USD could see some further, temporary gains to the 1.22/23 area – which we would be seen as the best levels before year-end. That said, given the difficult risk environment GBP is likely to remain very vulnerable moving forward
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