The German ZEW report is the main event during the European session, with expectations for a decrease to 27.3 from 34.7. This report is not anticipated to alter the European Central Bank’s current course.
Focus On Canadian And US Data
In North America, attention shifts to Canadian and US data. The Canadian Trimmed Mean CPI Year-over-Year is forecast to remain steady at 3.0%, within the upper limit of the Bank of Canada’s target range. Despite steady inflation, the focus has shifted to a weakening labour market, with unemployment rising to 7.1% from 6.9%.
Rate cuts are anticipated, with a 25 basis points cut expected soon and another by year’s end. Today’s data might not significantly impact these expectations, although a negative surprise might influence predictions of further cuts.
The US Retail Sales Month-over-Month growth is expected to slow to 0.2% from 0.5%, while ex-Autos is projected to rise to 0.4% from 0.3%. The Retail Sales control group is anticipated to be at 0.4% from 0.5% prior. Despite influencing the markets, its reliability is often questioned due to volatility. Overall, upcoming FOMC decisions and US Jobless Claims will remain the focus.
In Europe, we are not expecting the German ZEW economic sentiment report to cause much of a stir. The data is likely to be ignored as the European Central Bank already signalled on September 11, 2025, that its focus remains squarely on taming core inflation, which has been stubbornly high. This means any short-term trades on EUR options or futures based on this sentiment data will likely face headwinds.
Implications For The Canadian Dollar
The Canadian inflation data is the more interesting release today, with the market watching to see if it holds at 3.0%. Inflation has been creeping up since it bottomed at 2.5% in December 2024, but the Bank of Canada seems more concerned with the job market. With unemployment rising from 6.2% in January 2025 to 7.1% last month, the central bank has a clear reason to cut rates.
For traders, this creates a clear dynamic for the Canadian dollar. Since the market is already pricing in two rate cuts by the end of the year, a softer inflation number today could see traders increase bets on a third cut, making put options on the CAD an attractive strategy. A surprise jump in inflation might temporarily boost the currency, but it is unlikely to change the overall dovish path for the Bank of Canada.
Turning to the US, the Retail Sales data is expected to show a slight slowdown in consumer activity. This release is often volatile and is being overshadowed by the Federal Reserve’s interest rate decision tomorrow. We have seen consumer spending moderate through 2025, so a weaker number is unlikely to shock anyone.
Therefore, any knee-jerk reaction in S&P 500 futures or the US dollar to the retail sales figures will likely be temporary. The real market-moving event is tomorrow’s FOMC statement, where the Fed’s projections will dictate market direction for the weeks ahead. Traders will be looking past today’s noise and positioning themselves for potential volatility around the Fed’s announcement.
