It’s the week of the banks and the market is expected to be volatile. Monetary policies from the central banks of the Eurozone, Australia and Canada will dominate the headlines at some points this week. However, it remains to be seen whether there will be a change in the general risk sentiment.
Last week was fast and very directional. The risk-on sentiment that dominated the previous week lasted throughout the last week. Equities market added to gains as well as commodities especially metals. Oil bulls regained control in the last days of the week from the OPEC+ induced fall. With investors’ confidence so high, safe-havens – CHF, USD and JPY, felt the pressure while high-beta FX – AUD, NZD and CAD maintained dominance. The dollar couldn’t maintain the early recovery from the Jackson Hole sharp decline. Thanks to back-to-back disappointing employment reports on Wednesday and Friday. The index broke below 92 but was able to stagger above the key area before the last week closed. What should traders look forward to in the new week?
The Week of the Central Banks
The European Central Bank, Bank of Canada and the Reserved Bank of Australia will steal the spotlight this week. Meanwhile, more attention will be on the ECB as the bank debate on when it would start tapering its PEPP asset purchasing program amid encouraging recovery in the zone’s economic performance. Since August, the Euro has been the least volatile currency among the major FX although it has recovered significantly in the last two weeks especially against the dollar. ECB tapering talks, if it happens, is expected to lead to another bullish week for the currency.
Before the ECB on Thursday, the RBA will announce its rate statement on Tuesday. The cash rate is expected to remain at 0.1% while the bank will most likely maintain its current policy stance amid the recent lockdown relaxation in some parts of the country after the Covid delta variant struck in late July. Despite Covid, the Aussie economy expanded by 0.7% in the last quarter, beating estimate in the process, but retail sales dip in the last month shows why the bank could play the waiting game this week. Meanwhile, amid the current risk-on sentiment, the Aussie has gained against all the major FX apart from the NZD. Investors will watch out for the language of the bank – dovish or hawkish and respond accordingly. Apart from the RBA, the general risk sentiment will play a key role this week.
After a bank holiday in Canada on Monday, the Bank of Canada will read its rate statements on Wednesday. The market expects an unchanged rate of 0.25% but further tapering could happen. However, the market will decipher whether the bank has plans to hike the interest rate later this year or early next year. A rate hike clue should push the CAD further upside. OPEC+ disrupted the rally last week but the CAD is back on the bullish track as risk appetite remained strong throughout last week. Aside from risk sentiment and BoC, CAD traders should also watch the development around the oil market.
Macro-economics
Very soft macros together with bank holidays in the US and Canada could lower market volatility on Monday. The dollar came back to 92 later on Friday after a disappointing job data pushed the price below it. A drop below 92 is still very likely in the early hours of the London session on Monday. However, traders can expect low volatility.
Action will resume on Tuesday with the RBA rate statement at the tail of the Asian session before MPC member Mann speaks at the G20 conference at the start of the London session.
On Wednesday, the BoC rate statement will be eyed together with the Ivey PMI coming from the same country. An hour after, BoE Governor will face the MPC members during a monetary policy report hearings. A few hours later, FOMC member Williams will speak at an event.
The big ECB is on Thursday. In the US, traders should look forward to the week’s unemployment claims data and of course, the crude oil inventories for the last week.
The week will end on Friday with the CAD employment reports – another very volatile event for the CAD. The US monthly PPI figures will be released at the opening of the New York session.
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