The USD is opening the week with a broad decline. While Treasury yields have slightly increased during the session, European bond yields are up by 3-4bps. European stocks are down, but US equity futures are in positive territory. Crude oil prices have shown some reversal from Friday's weakness. The persistent decrease in US yields, the growing belief that the Fed has finished its tightening cycle, and early anticipation of the Fed's first rate cuts all weighed on USD sentiment last week, and this is likely to continue in the near term. The rapid decline in US term yields is unsustainable, so we may see some consolidation in the rates market and the USD this week, particularly given the limited data available for trading decisions. Short-term USD gains toward the 106.50 level could face renewed selling pressure as investors adjust their USD positions.
On Friday, the CAD gained strength due to the generally weaker USD and the stock market rally. However, spreads remained wide as OIS indicated a higher likelihood of earlier BoC rate cuts, mainly influenced by the movement in the US swaps curve. While Canadian jobs data showed a modest performance, wage levels remain too high for the BoC to even consider rate cuts. It may take some time for the markets to align with this perspective. Spreads could continue to be a drag on the CAD (spot trading below the estimated fair value of 1.3765 today), but ongoing USD weakness will limit any rebounds in the short term and reinforce the longer-term resistance level around the 1.38/1.39 zone. Observe USD/CAD trends.
Data reports from the Eurozone presented a mixed picture. Germany exceeded expectations with its Factory Orders data for September, showing a growth of +0.2% compared to the expected -1.5%. However, August data were revised downward. Spain displayed some resilience with final Services and Composite PMIs, achieving readings of 50.0 and 51.1, respectively. Yet, other data had a neutral impact, resulting in no significant change in overall Eurozone data last month, with Services at 47.8 and Composite at 46.5. The spreads between the Eurozone and the US have slightly narrowed, contributing to the Euro's strengthening trend, which has reached the mid-1.07s
Sterling is showing moderate outperformance today. The absence of significant data releases from the UK means that these gains are largely attributed to positioning and technical factors, supported to some extent by an improved risk appetite in the market. Nevertheless, economic outlook remains challenging, as GDP data anticipated for Friday is expected to reveal a slight contraction in Q3 growth. BoE Economist Pill is scheduled to speak again at 12ET.
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