With Fed QE tapering expected to end by mid-2022, the greenback seems poised to dominate again
USD - US Dollar
The dollar consolidated its post-CPI gains yesterday as a national holiday in the US kept volatility in major crosses contained. The widest moves were registered in commodity currencies with signs of weakness in oil prices. Furthermore, there has been mounting speculation that the US may intervene to ease the rise in energy prices clearly which represents a material risk factor for commodity currencies. Today, the US data calendar includes the University of Michigan survey results for November. The main sentiment indicator is expected to rise from a month ago, although the market impact should be quite contained. We suspect that the market still has to fully process Wednesday’s high inflation numbers and with a clear bias towards more hawkish Fed expectations, we think the dollar can stay supported into the weekend.
CAD - Canadian Dollar
While the loonie had been strengthening as the market pulled forward expectations for Bank of Canada tightening, it has been a rather quiet week for the CAD. The CAD is managing to swim against the tide of a stronger USD, weaker crude, and a soft risk appetite. The USD/CAD is trading just below the 1.26 level at the time of writing. There isn’t much in terms of data releases today leaving the loonie to trade on the greenback’s sentiment into the weekend. A break above 1.26 seems imminent.
EUR - Euro
After breaking below 1.1500, we think the market sentiment on EUR/USD is skewed towards the downside, both from a technical perspective and from a fundamental one given the widening USD-EUR rate differential. We could see EUR/USD extend losses to the 1.1300 level in November before some USD-negative seasonality comes to the rescue in December. Today, the EUR should be untouched by euro zone-wide industrial production data for September. On the ECB side, keep an eye on a speech by Chief Economist Philip Lane.
GBP - British Pound
After a set of slightly softer than expected growth figures yesterday, the UK data calendar is set to remain rather quiet until labour market numbers are released next Tuesday. In the meantime, Brexit is creeping back and is likely to remain a central theme in the coming days. From an FX standpoint, we think the risks for the pound (which is currently showing no political risk premium) are not as high as in 2018/19 when the risk of no-deal Brexit triggered extended periods of GBP weakness.
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