For the past few weeks we’ve been talking about the incredible resilience of the euro.  The largest countries in the Eurozone went into lockdown mode at the end of October and today Germany is talking about extending their partial lockdown for another month. Unlike France and Spain who have seen their new virus cases fall, Germany and Italy are still struggling to contain their outbreak. The difference between France and Germany is that in Germany shops are open and in France, only essential businesses can operate. Regardless these lockdowns will take a significant toll on the region’s economy and reinforce the European Central Bank’s need to ease. If they’re lucky, the Eurozone will avoid a double dip recession but that’s unlikely.

Yet instead of weakening, EUR/USD spent the entire week trading above 1.18.  In recent weeks we’ve talked about how the pair should be trading closer to 1.16 instead of 1.18 but the general view that the US is a few weeks behind the Eurozone is one of the main reasons why euro refuses to fall. With that said, the market may not have accounted for how badly Eurozone economy was affected and how weak data will be. We’ll get a good look at that next week with Eurozone PMIs, confidence and the German IFO report scheduled for release.  If the data is weak enough and we think it will be, it could cement the top for euro. Technically the rally in EUR/USD is losing momentum already and a move below 1.1820 would open the door for a stronger move to 1.16.

The US has a shortened trading week ahead with the Thanksgiving Day holiday so trading should be relatively quiet on Thursday and Friday. Aside from these key releases from the Eurozone, UK PMIs, the US’ Consumer Confidence report and the FOMC minutes are the most important pieces of data on the calendar. USD/JPY trended lower for most of the week and further losses are likely.

The Australian, New Zealand and Canadian dollars should continue to outperform especially after Friday’s Canadian retail sales report. Consumer spending grew 1.1%, more than 5 times stronger than expected. Economists predicted a slowdown but with wholesale sales up and the surge in virus cases happening in October, the September data was bound to be good.  South Australia also eased restrictions after the person whose case triggered their lockdown was found to have lied to contract tracers.

UK retail sales beat expectations with consumer spending rising 1.2% in the month of October, instead of stagnating like economists anticipated. This upside surprise helped sterling extend its gains versus the US dollar and euro. However the country releases November PMI numbers next week and they wont be pretty so beware of losses in the currency.

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