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Economic calendar: ECB to dominate this week

Summary:

  • Central banks’ decisions in the spotlight this week
  • Employment report from the Canadian economy could bring relief for USDCAD
  • UK’s construction PMI the sole reading of note today

Monday is not really calm on the markets due to the North Korean factor but in terms of calendar there is not much going on. What is more, there is no trading in the US and this could limit market’s reaction to another Korean incident. However, investors are going to stay busy with all the central banks ahead. Let’s take a closer look into the calendar: 

Monday:

9:30 am BST - UK’s construction PMI: As far as Monday is concerned, there are no many economic readings of note beyond UK’s construction PMI. The consensus indicates 52 compared to 51.9 seen in July. Let us recall that we got quite a rosy print of manufacturing PMI on Friday which beat forecasts across the board. Thus, if today’s release comes in above expectations as well, it could settle down GBP bears at least to some extent.

What to watch this week beyond Monday?

It’s all about the ECB meeting this week. While the central bank’s rate decision usually has traders’ attention, this time the announcement will be even more crucial. After months of positive data, including a long-awaited rise in the inflation rate, the ECB is set to the announce a tapering to its QE. However, while the market is almost certain that Mario Draghi will signal a reversal of the ultra-loose monetary policy, the reaction could be vulnerable. The end of last week saw EURUSD falling after breaking above 1.20 for the first time in years. What could happen next? It’s up to the ECB. Additionally, don’t forget about other central banks such as the RBA and the Bank of Canada, both of which publish their decisions this week.

ECB meeting - Thursday (Rate decision - 12:45 pm BST, Draghi’s press conference - 1:30 pm BST): Economic conditions in the Eurozone have recently improved, inflation has risen and production has expanded which supported the European currency. EURUSD has broken above 1.20 for the first time in three years, which could be a risk ahead of the meeting. We have heard from the central bankers that the strength of the currency could be a factor that limits progress on inflation, so it’s likely that if the tapering comes, it would be associated with a dovish message. That means that risks are tilted to the downside heading into the meeting and EURUSD could fall even if the ECB changes its policy.

Bank of Canada rate decision - (Wednesday, 3:00 pm BST), Employment report (Friday, 1:30 pm BST): At its last meeting the Bank of Canada delivered a rate hike, which was a little bit surprising. The market’s reaction was a heavy sell-off of the USDCAD that pushed the cross to multi-year lows. However, this time the market doesn’t expect a change in policy. The central bank will probably be careful in tightening policy and will await more data before moving forward. The latest GDP print was at the highest level in 15 years, but inflation could be a concern. What’s more, it’s worth looking at the employment report on Friday. If it beats expectations, the market could start pricing in another hike. If so, the USDCAD could fall further, even it the BOC stands pat.

RBA meeting - (Tuesday, 5:30 am BST): The Reserve Bank of Australia meets on Tuesday and no changes in policy are expected. The central bank feels comfortable with current rate, but watch out for a potential hawkish shift in its statement. If this appears, the AUD could resume its upward move. On the other hand, the market is net-long in the currency, so a dovish surprise could see the AUDUSD falling sharply.

link do file download linkSome fatigue could be seen at the weekly chart of the EURUSD. The pair drew a bearish candlestick which has a chance to bring about an extended pullback if the ECB’s retains its dovish rhetoric. Source: xStation5

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