CAD
In perhaps the biggest news to start the week, reports abound this morning that Canadian PM Justin Trudeau is likely to resign. Granted, this is not entirely surprising. Trudeau has been under pressure over recent months after the withdrawal of the NDP from his governing coalition, and more recently, following the resignation of his finance minister Chrystia Freeland. As we predicted a few weeks ago, however, markets have largely welcomed this news. USDCAD has fallen by 0.4% so far this morning, taking the pair back below the 1.44 level.
USD
As expected, the dollar continued to drift higher over the Christmas period, underpinned by some solid pre-holiday momentum and the approach of inauguration day on January 20th. While this saw the DXY index briefly rise above 109 toward the back end of last week, early trading so far this morning has seen the greenback give back some of those recent gains. Coming up this week, US jobs data should be the main focus for markets, culminating on Friday with December’s jobs report. Markets expect to see a 160k NFP print, a rate of employment growth that we see as net-neutral for the US at present, an outcome that should keep markets focused on political developments if realised.
EUR
After sliding progressively lower over the break, Friday afternoon saw EURUSD test 1.02, a level the pair has not traded at in over 2 years. While a dollar pullback has seen the euro claw back some ground to start the new week, our view on the pair remains bearish as inauguration day approaches. As we see it, Trump related risks should be the major catalyst for EURUSD’s continued grind lower in the coming week. But before then, European inflation and US jobs data should be the focus for markets – while we do not anticipate any major surprises from either set of data, a net-neutral set of prints should do little to disrupt the longer-term trend favouring EURUSD downside.
GBP
Sterling begins the week trading below 1.25 against the dollar, with a combination of greenback strength, and euro weakness seeing dragging GBPUSD lower. On crosses, however, sterling volatility was notably more muted. GBPEUR is trading almost exactly in line with levels seen prior to Christmas, with price action having flatlined over the holidays. This is, however, in line with our longstanding view that traders would only slowly price in UK-eurozone divergence. That dynamic leaves the pound at the mercy of market cross winds that are set to buffet the single currency in the coming weeks, despite what we see as a more constructive backdrop for the pound. All told, that implies a continued grind lower for GBPUSD in the short term, given our euro view. But fundamentals suggest continued sterling outperformance on crosses over the longer term.
This content was originally published by our partners at Monex Canada.