Currency Market Analysis

Global Themes
The U.S. dollar Monday pared some of its Friday declines and was still on pace for a monthly win against most of its main rivals. The dollar suffered a late Friday fall after the FBI said it would take another look at Hillary Clinton’s email troubles which injected fresh uncertainty into the election that is now 8 days away. The reawakening of potential Clinton email troubles tightened the presidential race ahead of the Nov. 8 vote. Mrs. Clinton represents the most amount of certainty for markets and therefore is considered the more dollar friendly of the two candidates. Donald Trump, on the other hand, represents much uncertainty over the outlook for the U.S. economy, trade and even Federal Reserve policy, a candidacy that carries potential negatives for the dollar. If politics weren’t enough, the dollar this week will take additional cues from a slew of U.S. data – consumer spending and inflation today, followed by jobs Friday – and central bank decisions in Japan and the U.S. on Tuesday and Wednesday, respectively.
The euro eyed resistance around 1.10 thanks to the FBI’s taking a surprise second look in to the email troubles of Hillary Clinton. The news saddled the dollar with instant political uncertainty ahead of the Nov. 8 vote. Ahead of key data today on euro zone growth that’s forecast to show the 19-nation economy grew at a steady rate of 0.3 percent during the third quarter, the euro surrendered some gains that had it within pips of 1.10, its strongest since Oct. 20.
Sterling started the week on a steady footing but was on track to shed more than 6 percent in value against the dollar over the course of a brutal month of October. The pound ended September just shy of 1.30 only to endure a massive flash crash in early October that momentarily knocked it below 1.18 to fresh 31-year lows. The big liability for sterling going forward is how Brexit uncertainty continues to outpace signs of U.K. economic resilience. In focus this week will be U.K. data Tuesday and Thursday on factory and services growth, and the Bank of England on Nov. 3.
Canada’s loonie was on a fragile footing near early March lows, weighed down by oil keeping below $49, and fresh political uncertainty south of the border that could carry economic and trade consequences for Canada. Meanwhile, fundamentals will come into focus for the loonie with data Tuesday forecast to show slower monthly growth while Friday’s employment report is expected to show the economy bled 10,000 jobs in October after gaining more than 67,000 in September. The data, if weak, would increase the risk of a Bank of Canada interest rate cut in the months ahead and leave the loonie vulnerable.
The dollar was set to close out October with broad gains but also with a higher level of political uncertainty that could subject it to unpredictable volatility ahead of the Nov. 8 presidential election. The dollar had its bullish bias validated by the strongest growth last quarter in two years, when the economy grew at an annual rate of 2.9 percent. But economic fundamentals have partially been pushed to the side, making way for renewed election uncertainty with the FBI taking another look at Mrs. Clinton’s email problems. The threat to dollar bulls would be a potential Trump victory which the market sees as a possible roadblock to a December rate increase by the Fed. In addition to political uncertainty, the dollar will take its cues from U.S. data today on consumer spending and inflation, a Wednesday Fed announcement and the U.S. jobs report Friday. The Fed isn’t expected to touch rates so close to the election but what it suggests about its policy plans for December will be crucial for the buck.



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