CAD
The slow, choppy grind higher for USDCAD continued on Thursday, propelled largely by US retail sales data that exceeded expectations. Even so, a lack of top-tier releases should see minimal further movement for the pair before the weekend. Next week, Canadian CPI and commentary from Jackson Hole are both likely to help the pair move higher, with the loonie still looking overvalued at current levels against the dollar.
USD
US retail sales were the main attraction on Wednesday, as expected. Even so, the headline sales print notably exceeded consensus estimates for a 0.4% MoM expansion to grow by 1.0%. Core sales, meanwhile, also outperformed, rising 0.4% MoM against expectations for a 0.1% print. Combined with a more favourable initial jobless claims reading that marginally undershot forecasts, this latest data leaves last week’s growth panic looking like even more of an overreaction than it did at first glance. While the economy is slowing, the US consumer remains resilient, indicating to us that it is still too early to turn bearish on US growth. It also suggests that the dollar looks cheap at current levels, despite a modest notch higher yesterday afternoon. While today’s University of Michigan Sentiment readings are unlikely to see this change meaningfully before the weekend, commentary from Jackson Hole next week is likely to be a different story. We expect to see Fed officials deliver hawkish pushback on market easing expectations, which continue to look overly dovish in our eyes. If we are right, the greenback should be set for another leg higher, in line with our base case forecasts.
EUR
Thursday’s greenback bounce saw EURUSD move lower, briefly threatening to slide towards our short-term target of 1.09 for the pair, before partially retracing to finish the day down just 0.4%. Today, however, looks set to be a little quieter, with a light data calendar in store. Even so, we continue to think another leg lower is the most probable outcome for EURUSD, though one that will need to wait until next week when eurozone PMIs are likely to reinforce the message that growth in the bloc is soft, while commentary out of Jackson Hole should see a hawkish reassessment of Fed easing expectations.
GBP
Rounding out a busy week of UK data releases, this morning’s retail sales data broadly met expectations. Including fuel, sales rose by 0.5% MoM in July, and 1.4% YoY, largely reversing the -0.9% MoM slide in spending seen in June. This adds further support to our argument that strong UK growth should see the pound outperform in the coming months. Indeed, markets appear to have reached a similar conclusion too, with sterling extending yesterday’s gains against both the dollar and the euro through early trading.
This content was originally published by our partners at Monex Canada.