Central bank speak will take a chill pill this week with only the BOC under the spotlight. But that doesn’t mean we won’t see volatility!
Traders will pay attention to top-tier reports like the U.S. GDP and core PCE as well as manufacturing and services PMIs around the world for clues on global growth trends.
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
BOC’s last rate hike? (Jan 25, 3:00 pm GMT) – After a dovish shift from “interest rate will need to rise further” in October to “Governing Council will be considering whether the policy interest rate needs to rise further” in December, markets are expecting the Bank of Canada (BOC) to raise its interest rates by a smaller 25 basis points to 4.50%.
A 4.50% interest rate would mark the highest since 2007. But with BOC sharing that “price pressures may be losing momentum” and that “growth will essentially stall” in 2023, Governor Tiff Macklem and his team will likely pause from further rate hikes until further notice.
Will traders read “pause” and get “last rate hike for 2023?” Watch BOC’s statement for the members’ criteria for further rate hikes this year. If the central bank focuses on the downside impact of further tightening, then we could see CAD lose pips against its major counterparts.
US advance GDP (Jan 26, 1:30 pm GMT) – Last week’s retail sales and manufacturing numbers cast doubts on a “soft landing” for Uncle Sam. The economy is now expected to have grown by an annualized 2.6%, slower than the 3.2% growth seen in Q3.
Keep close tabs on the details of the report! Consumer spending, for example, factored in October’s growth. GDP that’s propped up by higher imports and inventory is also not good news as they point to lower domestic demand.
In case the GDP report turns out to be a non-mover, then maybe the durable goods, initial jobless claims, and new home sales data scheduled in the same trading session could serve as intraday catalysts.
US core PCE price index (Jan 27, 1:30 pm GMT) – No Fed speak? No problem! The Fed’s preferred inflation gauge is expected to have maintained its 0.2% growth in December.
A lower-than-expected rate would support lower readings in the headline consumer and producer price indices and encourage “peak inflation” narratives.
Global PMIs (Jan 24) – This week’s parade of manufacturing and services PMIs should give us a clearer picture of global growth trends.
Further slowdowns in Australia’s PMIs (Jan 23, 10:00 pm GMT) could set the tone for CPI expectations later in the week and next month’s RBA decision.
Meanwhile, a jump in services and softer contraction in the manufacturing PMIs in January would point to stabilizing conditions in France, Germany, and the Eurozone.
The U.K. is expected to show mixed results, with manufacturing showing less contraction while services slow down a bit after December’s growth.
Last but not the least is the U.S., which is expected to print improvements in both the manufacturing and services sectors from December to January.
Forex Setup of the Week: USD/CAD
With the BOC under the spotlight and the U.S. printing GDP and consumer price reports, you can bet that I’m watching USD/CAD this week!
The pair is about to hit the 1.3350 zone that has been holding as support all month. As you can see, 1.3350 can be considered the bottom of a 350-pip range that’s been around since late November.
The wicks on the last 4-hour candlesticks and Stochastic about to hit “oversold” territory suggest that the selling momentum could soon lose ground.
But will USD/CAD actually bounce from the range support?
Expectations of a “final” rate hike from BOC or signs of only a soft landing for Uncle Sam could push USD higher against CAD.
USD/CAD could bounce from its current levels and test the mid-range zone near 1.3500 or the range resistance levels closer to 1.3700.
But if investors focus on the pro-risk, anti-USD market themes, then USD/CAD may extend its bearish momentum.
USD/CAD could drop down to 1.3300 or even the 1.3250 lows before seeing sustained buying pressure.
