USD: Bulls Keep Running, but for How Long?
Speculative positioning data from the CFTC shows USD long positions against G10 currencies rising to their highest since July, now accounting for 12% of open interest. While significant—just over the 1-standard-deviation threshold—this is still well below April’s 24% peak. Long USD positions likely grew further last week, though the CFTC data may understate the market’s structural bullish shift following Donald Trump’s election. Despite the dollar’s strength, it faces a potential near-term technical correction given stretched positioning.

That said, the macroeconomic backdrop hasn’t signaled a pause for the dollar rally. Inflation remains above the Federal Reserve’s tolerance, and Fed Chair Jerome Powell recently tempered expectations for future rate cuts. With little fresh US economic data this week, the Fed’s policy divergence from other G10 central banks may limit any correction to a brief dip.

Looking ahead, the Fed is expected to cut rates in December, with markets pricing a 15bp move, leaving room for a dovish repricing to pressure the dollar. However, this scenario may hinge on upcoming jobs data in 18 days. Until then, the “Trump trade” on USD dominance may remain a dominant FX theme, with DXY likely supported at 106.0 and a potential push beyond 107.0 by Thanksgiving.

This week, markets will watch for developments on Trump’s cabinet appointments, particularly for Treasury. Aside from jobless claims, data releases like the leading index are unlikely to impact markets significantly. S&P Global PMIs may highlight the US economy’s ongoing narrative: weak manufacturing offset by resilient services. Keep an eye on Fed speakers, starting with Chicago Fed President Austan Goolsbee today.

EUR: Holding Off a 1.05 Break
As the European Central Bank (ECB) shifts its focus from inflation to growth, the eurozone’s PMI data has gained importance. Friday’s release of composite PMI figures—expected at 50.0, the threshold between contraction and expansion—could sway market sentiment, especially if the data underwhelms.

Economists anticipate a slight uptick to 50.2, but concerns remain over German data, which could disappoint. Meanwhile, attention is building on February’s German snap elections and their potential to reshape Europe’s political and fiscal landscape. Fiscal stimulus under a new government may eventually materialize, but for now, the ECB is expected to continue driving economic support, particularly amid growing protectionist headwinds.

In the short term, EUR/USD may hold above 1.050 this week as USD momentum takes a brief pause, though downside risks remain if PMIs disappoint. Markets are pricing a 50bp ECB cut in December, and EUR/USD could slip to 1.04 by year-end in line with expectations.

ECB President Christine Lagarde and Chief Economist Philip Lane are among key speakers this week. With divisions emerging within the Governing Council on the drivers of disinflation, upcoming speeches could provide clarity on the central bank’s stance.

GBP: CPI in Focus, Limited Excitement for EUR/GBP
The UK’s October CPI report, due Wednesday, is the headline event for GBP markets. Services inflation is expected to tick up slightly from 4.9% to 5.0%, but “core services” inflation may slow significantly to 4.3% when less relevant categories are excluded.

While this would be welcome news for the Bank of England, it’s unlikely to justify another December rate cut. Markets may pay closer attention to non-core CPI components, keeping EUR/GBP’s recent modest rebound in check. With dovish BoE repricing more likely after a December ECB rate cut, EUR/GBP remains vulnerable to further downside.

In summary, USD bulls remain in the driver’s seat, EUR/USD faces downside risks if PMIs disappoint, and GBP markets await CPI data for clues on the BoE’s next steps. Stay tuned for a dynamic week in FX!