The earnings season continues this week. Aside from the earnings report, market participants will focus on the Aussie inflation report, monetary policies statements from the Bank of Canada, Bank of Japan and the European Central Bank. US GDP, CAD GDP, US inflation expectation reports and the Treasury Currency Report will ensure there is enough volatility in the market this week.
Concerning risk, investors’ confidence is back. The global stock market made quick recoveries especially the US markets. Also, risk assets, led by the oil market, remain buoyant as the global GDP continues the recovery from the pandemic. Also, banks have continued the crackdown on their excessive stimulus. The RBNZ has gone ahead to not only reduce asset purchases but also double its interest rate. The BoC is expected to follow this week while the lagging ECB might save the Euro with tapering consideration for the first time, although the odd is slim. Overall, risk sentiment is still positive, thus the pressure on the dollar and other safe-haven assets might prolong this week.
There is a big number of high-impact macros and central banks events to interest traders and investors this week. While there is no major high-impact event on Monday and Tuesday, market momentum should be moderate but support for risk-on sentiment would be triggered again as the market digest the busiest week so far in the current earnings season.
BoC and Aussie CPI
On Wednesday, the market is expecting an unchanged inflation report from Australia compared to the previous month.
The BoC monetary policy statements will come during the New York session. CAD has printed one of the strongest moves since October following massive oil rallies and impressive economic recovery calling for a BoC rate hike. A disappointing BoC will cause the CAD to lose a significant size of the gains in the last two weeks. Otherwise, a gradual rise is very much likely especially if risk appetite is maintained in the larger part of the week.
BoJ and ECB
In the Asian session on Thursday, the BoJ monetary policy statements will grace the market. In contrast to CAD, the Japanese Yen has been the biggest FX laggard since October. A rate hike statement or some significant policy tightening will see the recent minor recovery get stronger. Otherwise, JPY could resume the weakness across the board.
While the BoJ will be keenly watched, the ECB will be traders’ and investors’ focus on Thursday. Will the ECB move toward policy tightening? The Euro is weak and has fallen largely against all major FX except the JPY. Bond tapering from the ECB will lift the Euro massively. However, if we should go by the recent gloomy data, the central bank might decline to taper later this week. Supply blockages continue to put pressure on growth which has therefore kept inflation consistently high. A waiting ECB will keep the Euro slow and makes the currency the darling of traders as it can be paired with any other FX of significant growth or weakness.
At the same time with the ECB press conference (pre-NY opening), the US quarterly GDP figure will be released. EURUSD is expected to be volatile around this time on Thursday.
CAD GDP & US Inflation Expectation
On Friday, attention will shift to the CAD monthly GDP report, the US Core PCE index the currency report from the treasury. Another potentially volatile day for the dollar. Traders should watch out for swift reactions on the USDCAD especially if the macro outcomes from the two countries are divergent.