FX Daily Strategist: US

The Eurozone October flash PMIs came in lower than expected today (composite at 51.5 down from 52.2) though remaining above 50. But weakness in EUR-crosses has been limited with dips proving temporary. EURUSD has been predominantly driven by a renewed weakening in the USD and the risks in the short term are that this continues. Incoming US data could start to surprise to the upside, but could be looked through n the context of potential data collection issues during the government shutdown. It may take a while before a ‘clean’ US data trend emerges. Today we expect initial jobless claims to fall slightly to 350k, while the August trade deficit should narrow to USD38.5Bn. Our only long USD exposure is currently through short GBPUSD with a stop set at 1.6310. One potential source of support for the USD is the reciprocal dovishness of other central banks (like Bank of Canada yesterday). For EUR, we’d probably need a strong dovish catalyst from the ECB at their November 7 meeting highlighting intolerance for a high EUR. We will be closely watching comments from ECB Asmussen on Friday.