EUR/USD has held onto its gains this week – though that largely looks a function of the slightly softer dollar. Yesterday's release of the German ZEW expectations index for November was not particularly encouraging. However, the aggregate ZEW figure for the eurozone as a whole ticked up, questioning whether Germany is increasingly becoming an outlier.
It has been a mixed week for the dollar, where early-week strength finally eased a little yesterday on indications of softer US jobs data. Yet with the US government shutdown ongoing, we are still in the dark about the true labour market picture. Expect more $ consolidation and focus on regional stories such as soft China trade data and the Canada jobs release
The risk mood has darkened a little this week, with some sizeable corrections emerging in some equity markets. There has not been one catalyst per se, but lofty valuations must be leading to some profit-taking in uncertain conditions. For today, it's all about the US ADP jobs release and what it means for the December Fed meeting. Expect FX to stay defensive
Yesterday's PMI showed a mixed picture in the region, with the Czech Republic's lower-than-expected, while Poland and Hungary surprised with higher-than-expected readings. Inflation in Turkey surprised the market lower (2.6%/32.9%), in line with our estimate, and inflation returned to a declining trajectory.
The dollar enjoyed a second round of support yesterday as Powell's relatively hawkish press conference continued to resonate with data-starved markets. But the conditions for another big leg higher in USD aren't there, in our view. Meanwhile, Japan has intervened verbally to curb JPY volatility, and GBP is looking closely at Reeves' political position
Log in to today's North American session Market wrap for October 6th
The week opens on the typical 2025 trade: Metals, propelled by Gold (1.90%) and Palladium (4.50%!), Cryptocurrencies, and Tech rage higher.
Two major themes shaped today’s market narrative: the looming US government shutdown and surprisingly (but positive) developments out of the Middle East.
On the political front, the White House unveiled a plan during a press conference, aimed at ending the Gaza conflict, stressing that “no one will be forced to leave, and Israel will not occupy Gaza”—a proposal that fueled cautious optimism that the war may be nearing its end.
All eyes are on tonight's Fed meeting, where a 25bp rate cut is widely expected. The dollar has been selling off ahead of this event, but there are a few risks. For example, we could see short-dated US rates back up a little and the dollar get a brief bid if the Fed Dot Plots continues to show just 50bp of rate cuts this year compared to the 70bp now priced
The dollar has found a little support at the start of the week. Chinese authorities have now turned to fixing USD/CNY a little higher, which removes one of the dollar's negative impulses from last week. The highlight of an otherwise quiet session will be today's eurozone flash CPI release for August and the US ISM business confidence data
NVDA was a touch disappointing, mostly on China, while other components were largely in line. Japan AI proxies are trading higher (GSXAJPAI +1.4%), though NVDA price action will come down to positioning setup.
Wednesday saw no further progress in the administration's removal of the Fed's Lisa Cook. The FX environment remains choppy, but we note the continued low fixings in USD/CNY – seemingly a move by Beijing to preserve the purchasing power of households and boost consumption. Elsewhere, healthy car sales data in Germany can provide some support to the euro
Hopes for a swift resolution to the Russia-Ukraine conflict have proven vain. Discussions between Donald Trump, Vladimir Putin, and Volodymyr Zelenskyy yielded no breakthrough, with market expectations for a 2025 ceasefire dropping from around 40% to below 25%.
Investors lapped up Jerome Powell's words like honey on Friday, as the man has apparently been troubled enough by the latest weakness in jobs numbers to say that this situation "suggests that downside risks to employment are rising" and that "if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment." And no one wants that to happen – especially after heavy criticism from the White House pointing at Powell as Mr. Too Late.
Chair Powell could have been super balanced, or even hawkish. But he effectively chose to endorse the market discount for a rate-cutting phase ahead. It's had quite the reaction. Risk assets are up, the dollar down, so's the front-end yield. Watch longer tenor yields though - the deep thinkers of the bond market, and not quite convinced cuts are all good
CFTC’s data suggest room for a short-term rebound in USDJPY up to around 153
Hopes and fears surrounding US tariffs continue to keep the market on its toes. Yesterday, the hope that the next wave of US tariffs would finally be more limited and targeted, combined with a very solid US services ISM report, fuelled a rebound by US risk assets (led by US techs) and the US dollar, and pushed US bond yields higher in a pro-growth configuration.
It has been a quiet start to the week for the major FX rates ahead of a busy schedule of G10 central bank meetings this week including the BoJ and Fed on Wednesday followed closely by the SNB, Riksbank and BoE on Thursday. Ahead of those policy updates the US dollar is continuing to consolidate at weaker levels against other major currencies with the dollar index trading just below the 104.00-level.
A strong finish to last week by US equities helped buoy investor sentiment at the start of this week in Asia. Upside surprises in China’s cyclical data also helped boost investor sentiment. Holding back sentiment, however, were US Treasury Scott Bessent suggesting the recent US equity market rout was a healthy correction and weak Chinese house prices data showing the sector was still in a slump.
US inflation print failed to provide a sustained improvement in investor sentiment in Asia. Investors potentially view the inflation data as not being weak enough to immediately change the outlook for the Fed. US President Donald Trump’s threats of retaliatory tariffs against the EU’s counter tariffs to the US steel and aluminium tariffs are also weighing on sentiment.
The markets do not really seem to share Donald Trump's indifference to the short-term impact of his policies on the US economy.
