Forward concerns on EU growth have been gathering on the natural gas and power crunch that developed into early autumn and is driving an ugly kind of tightening on the economy before the ECB ever gets around to contemplating a rate lift-off. And now we have the latest wave of Covid concerns, especially in Germany where the case count acceleration has been remarkable, as an additional factor that could hold back confidence and activity. This is all adding to the pressure on the euro after strong US inflation numbers and solid jobs and survey numbers in the US have brought Fed expectations to new highs for the cycle – even if the longer end of the US yield curve remains a conundrum in my book. South of 1.1500 and the trend is the trend, but the pair is getting very cheap at these levels based on traditional fair value calculations.
For this week, the US macro calendar highlights include the first of the regional November US manufacturing surveys, the Empire and Philly Fed surveys on Monday and Thursday, respectively, while the data highlight of the week is perhaps the US Oct. Retail Sales figure on Thursday. But from one moment to next during US waking hours, the overhanging risk for short term volatility will be on President Biden’s Fed Chair nomination announcement, with the algos primed to jump on the Brainard-or-Powell headline, even as it is unlikely that this changes the Fed policy outcomes. I would also like to highlight an intriguing speech up next Friday from Fed Vice Chair Richard Clarida, who is scheduled to speak on Friday on “global monetary policy coordination, cooperation and collaboration” with a Q&A. If this US dollar is set for significant further gains, global central banks will have no choice but to coordinate policy to send it back lower.