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FX markets are struggling to find direction this week. The Fed’s doubts on whether to cut in December naturally increase scrutiny of data: this means both depressed volatility during data silence and some potential exacerbation of US dollar reaction to any labour indicator (like tomorrow’s ADP). Our call remains that the dollar is close to its peak
USD: Wait-and-See Ahead of ADP
This week is all about reassessing December Fed rate cut expectations. That process began with Chair Powell’s press conference last Wednesday and continues with FOMC member remarks and the limited data still being released. The dollar has already rallied on a 7bp hawkish repricing in the December Fed Funds futures contract, but with 16bp still priced in, a cut remains the market baseline – and there’s room for further hawkish rethinks. We remain in the dovish Fed/bearish USD camp, but the risks are significantly more balanced now.
Recent Fed commentary has clearly suggested lower conviction on a preset easing path, which implies some greater data dependency. December has been described as a “live meeting” by the dovish-leaning Lisa Cook, while Mary Daly noted the FOMC should keep an “open mind” yesterday. The challenge, however, is that this heightened data focus comes at a time when the usual release schedule is disrupted by the government shutdown, which still has no clear end in sight. As a result, the few data points we do get – especially tomorrow’s ADP report – can have an outsized impact on markets, while the broader lack of data may lead to more spells of directionless FX trading.
JOLTS data won’t be released today, so rangebound trading may persist ahead of tomorrow’s pivotal ADP figures. The Fed speaker to watch today is Michelle Bowman. She leans dovish and is a potential chair candidate – if she joins the cautious tone on December, it could prompt more hawkish repricing and USD support.
This morning, we are seeing a sizeable drop in USD/JPY. That is likely being driven by more verbal FX intervention from the Japanese finance minister and a drop in global equity futures. It is a signal that the yen remains a go-to currency for safe-haven demand (which has been lacklustre of late), but also that the extensive short positioning on JPY can fuel rapid rallies.
EUR: ECB Members Mostly on the Same Page
The slew of post-meeting ECB speakers has added little to the policy narrative. The Governing Council is broadly on the same page with the rates view, and the feeling is that some substantial data surprises are now needed to create new division among policymakers. If anything, we think the ECB might cut once again, but the risks at the moment aren’t high, and we predict that the easing cycle is over.
Despite the hawkish repricing in the USD curve, the EUR/USD drop looks a bit overdone. Our short-term fair value model is now showing a 1% undervaluation, and with positioning now much more balanced, the pair can enjoy faster rallies on poor US jobs market news.
We remain optimistic on a rally into year-end to 1.18-1.20, but until US data gives the go-ahead for a rebound, there aren’t other obvious bullish drivers for EUR/USD.
CAD: Budget Might Give Some Help to CAD
It’s worth monitoring Canada’s budget announcement today. A mix of fiscally expansionary measures to support a tariff-hit economy are widely expected. The bar for debt sustainability concerns to hit CAD is elevated, so bold fiscal spending moves should be positive for CAD as the risks of more Bank of Canada cuts decrease.
But the focus should anyway stay on data. If inflation figures undershoot, the case for another cut in early 2026 (our baseline) should be compelling. On Friday, Canada also releases jobs figures for October. All the focus will be on the unemployment rate, where further increases from the current 7.1% should also fuel dovish bets.
We expect USD/CAD to hover around 1.40 for most of November, then turn lower in December as the USD weakens.
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