EURUSD: Parity Risks Loom Large in '25
- EUR/USD's fresh pullback low at 1.0611 today equates to a near 3% sell-off since the election results last week and a >5% downleg off the YTD high at 1.1214. This keeps alive the speculation that EUR/USD could hit parity under an adverse trade war scenario or a particularly hawkish turn from the Fed.
- While markets see little likelihood of EUR/USD testing that mark in the near-term, but the risk picks up materially thereafter.
- Just $650mln notional has traded in EUR/USD vanilla put options with a strike at 1.00 or below since November 1st on the DTCC - a relatively meagre % of the $300bln market this month. This providies little concrete evidence of the market's focus on parity just yet - reflected in premiums pricing just a 2.3% chance of payoff for a EUR/USD 1.00 one-touch option expiring on Dec31 this year.
- We wrote last week that speculation of parity is building, however. The risk becomes much more apparent further down the curve and into the Trump admin's first few months. Compounding this effect, the implied Fed-ECB rate differential has grown considerably for Jun'25, from ~40bps to ~130bps in six weeks.
- As a result, markets now price a 24% chance of touching parity by end-Jun'25, up from 9.6% ahead of the election/German government breakdown.
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LOOK AHEAD: Eurozone Timeline of Key Events (Times BST)
| Date | Time | Country | Event |
| 15-Oct | 745 | FR | HICP (f) |
| 15-Oct | 800 | ES | HICP (f) |
| 15-Oct | 900 | EU | ECB Bank Lending Survey |
| 15-Oct | 1000 | DE | ZEW Current Conditions & Expectations Index |
| 15-Oct | 1000 | EU | Industrial Production |
| 16-Oct | 900 | IT | Italy Final HICP |
| 16-Oct | 1940 | EU | ECB's Lagarde Speech at Banka Slovenije Dinner |
| 17-Oct | 1000 | EU | HICP (f) |
| 17-Oct | 1000 | EU | Trade Balance |
| 17-Oct | 1315 | EU | ECB Deposit/ Main Refi/ Marginal Lending Rate |
| 17-Oct | 1345 | EU | ECB Monetary Policy Press Conference |
| 17-Oct | 1515 | EU | ECB Podcast: Lagarde presents MonPol Decision |
| 18-Oct | 900 | EU | EZ Current Account |
| 18-Oct | 1000 | EU | Construction Production |
| 21-Oct | 700 | DE | PPI |
| 21-Oct | EU | ECB's Lagarde & Cipollone in IMF/World Bank Meetings | |
| 21-Oct | 1400 | EU | MNI Connect Video Conference on EZ Inflation and MonPol Developments |
| 22-Oct | 1600 | EU | ECB's Lane in fireside chat at Seminar of Bank of New York |
| 22-Oct | 2100 | EU | ECB's Lane at Columbia University seminar |
USDCAD TECHS: Winning Streak Extends
- RES 4: 1.3885 2.0% 10-dma envelope
- RES 3: 1.3822 76.4% retracement of the Aug 5 - Sep 25 bear leg
- RES 2: 1.3791 High Aug 7
- RES 1: 1.3784 High Oct 11
- PRICE: 1.3776 @ 15:51 BST Oct 11
- SUP 1: 1.3587 20-day EMA
- SUP 2: 1.3473/3420 Low Oct 2 / Low Sep 25 and the bear trigger
- SUP 3: 1.3413 Low Feb 9
- SUP 4: 1.3358 76.4% retracement of the Dec 27 ‘23 - Aug 5 bull run
USDCAD extended the winning streak of higher highs and higher lows to seven consecutive sessions on Friday - the longest streak of higher highs since August 2023. This confirms an extension of the bull cycle that started Sep 25. The move higher this week has resulted in a break of 1.3647, the Sep 19 high and a key resistance. Clearance of this level signals a possible reversal, which firms through 1.3791, the Aug 7 high. Initial firm support to watch lies at 1.3587, the 20-day EMA.
US OUTLOOK/OPINION: Fed's Waller, Sept Retail Sales Highlight Next Week's Agenda
Two key events to watch next week in the US:
While Monday is a US holiday for cash bond markets, Fed Governor Waller's speech on the economic outlook at 1500ET will garner attention for any updated views on the rate cut outlook. His last public appearance, which came immediately after the September FOMC meeting, was perceived quite dovishly for his seeming openness to another 50bp cut in November were the labor market to worsen or inflation to come in softer than expected.
- Since then, a strong September nonfarm payrolls report and an upside surprise in September CPI have seen markets price out a 50bp cut, and even put a pause into play - any commentary from Waller about potential a November "skip" will be closely eyed.
The Advance Retail Sales report for September (Thursday) is the highlight of the coming week's US data calendar, and will provide a key update on consumer activity at the end of Q3. Consensus expectations are for a pickup in overall sales growth (to 0.3% M/M, vs 0.1% in Aug).
- Countervailing factors include a potential pickup in the single largest retail category - auto sales - after a soft August, while gasoline stations are likely to see another pullback on the back of lower pump prices (all figures are nominal, not price-adjusted).
- The key "control group" will be most closely eyed as an input to the quarterly GDP calculations, and is seen rising 0.4% (vs 0.3% in Aug), with a strong figure potentially weighing against the case for a Fed cut in November.
