October 10, 2017
Politics remains very much in focus as we begin the week with the US Dollar weakening as concerns emerge over U.S. tax reform. In particular, President Trump’s feud with Republican Senator Bob Corker is threatening to unravel the White House’s plans on tax reform as the administration risks alienating other key Republican lawmakers required to pass the bill. The US Dollar weakened across the entire G10 basket as this latest development threatens to seal Trump’s fate as an ineffective leader. Of some importance today, Federal Reserve Bank of Minneapolis President Neel Kashkari, a dove and candidate for next Fed Chair, is scheduled to speak at a conference today. No doubt the market will be watching him closely for any deviation from his regular dovish rhetoric ahead of both inflation and retail sales data later on this week. Across the pond, politics also front and centre of attention with U.K., Prime Minister Theresa May winning support for her Brexit stance. The win gave the British Pound the boost it needed following last week’s drop lower with better than expected retail sales, and manufacturing and construction data also helping to boost the Pound. Cable opens the NorAm session just shy of 1.3200 this morning, but the options market shows traders shrugging off this latest move as one month risk reversals continue to trade in favour of GBP puts. Meanwhile in Europe, Spanish stocks were down but the Euro rose higher ahead of a meeting of Catalan’s regional parliament to consider a declaration of independence against Spain. Spanish police are said to be ready to arrest the Catalan President immediately if he declares independence in the regional parliament. EUR/USD opens the NorAm session just shy of 1.1800 and options markets aren’t signalling much nervousness just yet with overnight volatility in EURUSD remaining subdued and trading slightly below its year to date average.
In Canada, Friday’s solid labour market data and improvements to both wages and hours worked suggests the Bank of Canada will stay the course on policy normalization. To that point, we think the 1.2600 area will continue to provide some decent topside resistance and continues to be a good medium term target to short Funds ahead of the BoC later this month. Of note today, we have the Bank of Canada’s Wilkins who is scheduled to speak this afternoon on an IMF panel and while it may not appear be the ideal venue for a policy speech, it should be closely watched.