The following week is going to be an important one for the currency markets with two of the major currencies in focus: the GBP (Great Britain Pound) and CAD (Canadian Dollar).
Tuesday and Friday market participants will focus on the CPI (Consumer Price Index) release out of the UK, respectively Canada. The CPI, or inflation, is the only thing that matters for central bankers in order to fulfill their mandate, as interest rates are moved based on the presence, or lack of inflation. Therefore, high volatility levels are expected for next week on the currency pairs that include either the GBP or CAD, and traders should be aware of that.
In the UK the economy is in an interesting spot right now. It is growing at a nice pace, but yet the central bank is not removing the stimulus (Asset Purchase Facility still in place), nor raising the interest rate. However, prior to the Scottish referendum, the Bank of England’s Governor, Mr. Carney, said that a rate hike is coming sooner rather than later. However, market participants failed to bring the pound higher as US dollar buyers were all over the place.
This coming Tuesday we’ll have the chance to see if really there is a case of a rate hike in the UK as if the CPI fells below expectations, then the Bank of England really has no case in rising the rates so GBP sellers should emerge again.
As for Canada, Friday’s jobs data was really impressive, almost 4 times the median forecast, and this shows an economy that is resilient to go lower and add jobs at a healthy pace. This should translate into a more hawkish central bank, therefore favoring a higher CAD for the short to medium term.
If CPI next Friday will confirm the recent jobs numbers, the USDCAD should see 1.06 again as sellers start weighing in the possibility for the central bank to raise rates, or at least to have a hawkish tone.
All in all, volatility should be the name of the game and the upcoming week should give us the path for end-of-year trading for both GBP and CAD.
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Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
