Summary:

  • Bank of Canada is expected to hike rates this week following the stunning jobs report
  • A key test for the pound as the inflation and retail sales data loom
  • Oil keeps soaring, the weekly DoE report might shake the market though

As usual Monday is remarkably calm when it comes to macroeconomic releases. The sole figures being worth looking at are trade balance from the Eurozone (10:00 am BST) and business confidence from the New Zealand’s economy (9:00 pm BST). On top of that one needs to put emphasis on a BoE’s Tenreyro speech (6:15 pm BST) as she is anticipated to speak about causes and implications behind the fall in productivity. Notice that the pound might be exceptionally vulnerable to even a bit more hawkish references suggesting that more tightening could be just around the corner. Finally it needs to highlight that the US markets are closed today due to holiday (Martin Luther King Jr. Day).

What to watch for the remainder of the week?

The first part of January was full of events important for the EURUSD. This time the focus will move elsewhere. First it’s oil where a rally has really been stunning. Could it be halted by inventory increases? Second it’s the CAD, oil-related currency. The Bank of Canada decision will be crucial for the currency. Finally we are in for some important data from United Kingdom.

The Bank of Canada (Wednesday, 3:00pm GMT): The Bank of Canada really made a huge impact on the CAD last year, especially in the third quarter when it unexpectedly increased rates twice. Then it poured some cold water on investors’ heads in the final quarter but given very strong data expectations for another hike are back. The move has not been fully priced yet (markets see about 75% probability) so whatever decision it is we can be sure a volatility will be there. Affected markets: USDCAD, EURCAD.

Crude oil inventories (Thursday, 3:30pm GMT): A rally in oil prices continues and Brent (OIL on xStation) has already touched the key level below $70 per barrel. Investors will track US inventory and production data as we are entering a period when inventories could be on the rise due to seasonal factors (although this will be more true from the next week). Traders should bear in mind that the data could be disrupted by snowstorms that hit the US. Affected markets: OIL, OIL.WTI.

UK data on inflation (Tuesday, 9:30am GMT) and retail sales (Friday, 9:30am GMT): The pound has held its own against the dollar this year so far due to the USD weakness but it has struggled against other European currencies. Uncertainty over Brexit is not going to abate any time soon and the data is clearly weaker than on the continent. Reports on inflation and sales will be important this week. Inflation should start decelerating soon due to base effects and unless domestic demand improves the central bank will have very few reasons to even think about the next interest rate hike. Affected markets: GBPUSD, EURGBP.

link do file download linkThe USDCAD could be poised to resume its downtrend after drawing a three black crows pattern at a weekly interval. Once the price slips below a 1.24 handle it could result in the acceleration of a decline. Source: xStation5