Market is already pricing in significant rate cuts - TD Securities

Analysts at TD Securities anticipate further flat yield curve during the week unless extremely weak data. They spot markets pricing of rate cuts and the Fed’s inability to propel growth/inflation as key drivers.

Key quotes:

While the broader market focus remains on trade developments, this week's top-tier economic data will capture the market's attention.

We think the biggest driver of the flatter curve is that the market is already pricing in significant rate cuts and is skeptical about the Fed's ability to stimulate growth or inflation. We think the curve can continue to flatten unless this week's data is very weak.

Barring any short-term adjustment inflows and positions, a stronger USD leaves markets likely to maintain a defensive stance. EURUSD took out the recent lows around 1.1027, making its first break below 1.10 in a few years.

Ahead of next week's central bank ball, we continue to like holding downside in EURCAD to capture some of the short-term themes alongside event risk of the ECB and BoC decisions.