FX - Action Heats Up Tomorrow with Speeches & Data

The U.S. dollar ended the day steady to higher against all of the major currencies, which is a sign of strength considering that USD/JPY looked as if it would test 113 at the start of the NY trading session.  Ten year Treasury yields were down sharply this morning but by the end of the day settled above 2.4%.  The lack of U.S. data and lack of tax reform headlines meant that investors took their cues from U.S. rates. That will change tomorrow with the heads of the U.S., Eurozone, U.K. and Japanese central banks scheduled to speak on a panel in Europe in the morning.  At least one of these policymakers could touch on domestic policy and investors will be watching closely to see if they reaffirm their divergent biases.  Yellen plans to raise interest rates next month, Draghi doesn't plan to tighten until late next year, Carney just raised interest rates in November and Kuroda has no immediate plans to change policy.  With many of the major currency pairs trapped in tight ranges, even small supportive or contradictive comments could have a significant impact on the currency. Since these speeches occur at 10 GMT they could set the tone for North American trade. We don't expect the U.S. producer price report to have a significant impact on the dollar but with the House set to vote on their tax bill this week and the Senate in the process of marking up theirs, market moving headlines could hit the wires at anytime. The latest performance of the dollar and the technical structure suggests that further gains are likely in USD/JPY.

The worst performing currency today was sterling, which crumbled on Brexit concerns. As our colleague Boris Schlossberg noted, "Reams of negative news over the weekend soured sentiment towards sterling, first through a story that PM May was facing an uprising in her own party with 40 MPs ready to call for her ouster. In addition, the EU negotiator for Brexit Michel Barnier stated that EU was preparing itself for the possibility of the collapse of the talks. There is no doubt that Ms. May's government is in disarray and that she faces enemies on many fronts, but it's doubtful that Tories would opt out to topple her and open the possibility of a leadership run by Boris Johnson who is seen as a hardline Brexit believer that would almost certainly scuttle negotiations with EU."  Brexit headlines will continue to affect how sterling trades but economics will also play a role with a busy data calendar that kicks off with U.K. consumer prices on Tuesday.  Today, BoE member Haldane said inflation should exceed target for the next few years. Annualized CPI growth is already at 3% and expected to tick up to 3.1% in October. Stronger CPI growth would drive GBP/USD up to 1.32 whereas softer data could take the pair to a fresh 1 month low below 1.3040.

Euro on the other hand maintained a bid throughout the North American session leading some traders to wonder if we've finally seen a bottom.  Its difficult to say as ECB President Draghi could easily talk the currency down on Tuesday by highlighting all of the reasons why policy needs to remain extremely accommodative.  If there weren't a speech on the horizon, we would say that euro is poised for a move to 1.1700 and higher. However ECB member Constancio spoke this morning and his view could echo that of Draghi - while he sees the euro area recovery as broad based, robust and resilient, he feels the ECB must be patient and persistent in keeping an ample degree of monetary stimulus. There's no doubt that the central bank is dovish and unfazed by the strength of the German economy. With that in mind, aside from Draghi's speech, Q3 GDP reports are expected from Germany and the Eurozone along with the latest ZEW surveys - slightly firmer euro supportive numbers are expected all around. 

All three of the commodity currencies were driven lower today by the rise in the U.S. dollar. Canadian markets were closed and oil prices were little changed but concerns about NAFTA exerted pressure on the loonie. The most important report on Canada's calendar this week will be Friday's consumer price report. Between now and then, NAFTA negotiations, central bank speak (BoC Wilkins speaks tomorrow evening) and the market's appetite for U.S. dollars will determine how the Canadian dollar trades.  On a fundamental and technical basis, we believe USD/CAD will trade higher this week but before doing so, it needs to clear the 20-day SMA in a more meaningful way first.  Political troubles are weighing down the Australian dollar as the loss of another dual citizenship MP leaves Prime Minister Turnbull with a minority government.  AUD/USD dropped to its lowest level in 11 trading days and appears poised for a deeper slide below 76 cents. Tonight'sbusiness confidence report is not expected to lend much support to the currency but China's retail sales and industrial production numbers could provide a lift if they exceed expectations. The New Zealand dollar is also weak and while there is some support at 69 cents, NZD/USD appears poised for a fourth day of losses.