CAD
USDCAD saw another leg higher on Monday, in line with broad dollar moves, but with the loonie continuing to outperform on crosses. A blank Canadian calendar of events is likely to keep the pair trading in line with broader market cross currents today too, awaiting jobs data from both the US and Canada on Friday.
USD
The dollar made some modest gains to start the week, with the DXY index rising 0.25%, largely stemming from developments outside the US on this occasion. Specifically, events in France helped to keep investors wary on the euro, and the dollar bid in turn, though a solid set of ISM manufacturing prints also worked to support the greenback at the margin. Arguably the one factor working against dollar strength yesterday were comments by the Fed’s Waller, suggesting that a December rate cut was his base case, an intervention that saw market expectations for the meeting rise from 16 to 19bps. Today, JOLTS data should be the key domestic event of note, with traders expecting to see a modest increase in job openings. That said, we suspect that developments on the other side of the Atlantic will remain front of mind for traders, at least until Friday’s jobs numbers draw a little closer.
EUR
Perhaps unsurprisingly events In France were the centre of attention on Monday. With battle lines regarding the budget having hardened over the weekend, yesterday saw PM Michel Barnier conclude that he would not be able to pass the budget through Parliament, and instead signalled that he would resort to a constitutional mechanism. This in turn led RN leader Marine Le Pen to indicate her support for a censure motion, which if passed later this week, will lead to the government’s resignation. Given this, it looks likely that France will be heading back to the polls in 2025, with political dysfunction set to weigh on EURUSD in the intervening period. While a widening in the OAT-Bund spread was modest yesterday, we expect to see this trend continue, looking for a 100+bp 10Y spread later this week if the government is booted out of power. If we are right, then political risk should entail a further 0.5%-1.0% EURUSD downside from current levels, putting 1.04 in scope for the pair ahead of US jobs data on Friday.
GBP
Despite the UK no longer being a member of the EU, sterling still saw a drag from eurozone political risk yesterday, with sterling down 0.6% against the dollar, and ending Monday little changed against the euro. To us, this makes little sense. Political dysfunction on the continent should favour the pound on a relative basis. As such, we are inclined to see sterling outperform today with the data calendar light again, ahead of BoE Governor Bailey speaking to the FT tomorrow.
This content was originally published by our partners at Monex Canada.