EUR/USD
The Monday session kicks off with the euro rallying a bit. Recently, on 29 October, we saw the ECB leave its deposit rate at 2.5%, warning that higher energy costs threaten both price stability and economic activity. Officials also noted tighter financing conditions and avoided committing to a future interest rate path.
Essentially, the ECB is somewhat neutral. At the same time, we have the Federal Reserve, which is almost certainly going to be hiking rates in December. That does create a little bit of U.S. dollar strength in general. On Monday, that does not seem to be the case, but we do have the Tuesday CPI number coming out, and that could be a driver for U.S. dollar strength.
What I am looking for here are signs of exhaustion above the 1.12 level again, where I can simply play the short-term range.
GBP/USD
The British pound has rallied quite nicely, and it does have a stronger U.K. interest-rate backdrop. The Bank of England raised interest rates by 25 basis points to 4% on 5 November. Eight policymakers supported this increase, while one preferred a larger move to 4.25%.
This is a tighter central bank, so it does make a certain amount of sense that it has a little more strength against the U.S. dollar than, say, the euro. All things being equal, CPI inflation of 3.5% in September in the United Kingdom also puts upward pressure on the pound. I do like the pound, perhaps, for a move towards the 1.35 level.
USD/CAD
The U.S. dollar saw a lot of strength against the Canadian dollar on Friday, but on Monday we are pulling back a little bit. I like the idea of buying this dip. Employment numbers in Canada missed quite significantly, and the Bank of Canada, despite the fact that it increased its overnight rate by 25 basis points to 2.5% on 28 October, narrowing the policy gap, also described consumer spending as being solid and a rebound in business investment, including oil and gas.
But it is in a backdrop of a massive employment-number miss. So, really, at this point in time, I think we have to look at this as a positive market.
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USD/CHF
Finally, I look at the U.S. dollar against the Swiss franc. We are seeing the same problem we had on Friday: the 50-day EMA. If we can break above the 0.8250 level, I think the carry trade comes back and we start to see the U.S. dollar strengthen against the Swiss franc in general.
A pullback from here could see a certain amount of support at the 0.8150 level, an area that has been important more than once. If we can break that 50-day EMA, then I think the carry traders start to come in and push this to the upside, perhaps sending it towards the 0.83 level, maybe even the 0.84 level.