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Weekly Currency Update

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Will the CAD rally on this week’s inflation data?

Will the CAD rally on this week’s inflation data?

US dollar: Weekly Trading Range (93.50 – 95.00)

Spot
DXY 94.00
Week ahead bias
Mildly Bullish
Weekly range
93.50 – 94.50
1 month target
95.00
  • The recent broad-based dollar rally seems to have stalled and the market is searching for a new trigger to have the USD climb. There doesn’t seem much in the way of data or trigger points this week suggesting further range trading. In terms of the local calendar, the data is second tier (US industrial production, housing data) and a few Fed speakers. We will also see the release of the Fed’s Beige Book ahead of the 3 November FOMC meeting.
  • Broader FX trends, including for the dollar, may be set by events in emerging markets. The week starts with China releasing 3Q GDP data, where consensus expects a slowdown to 5% YoY from 7.9% YoY. The week will also see some big rate meetings in the likes of Hungary, Turkey and Russia. Global risk appetite is likely to drive FX this coming week.

Canadian Dollar: Weekly Trading Range (1.2260 – 1.2500)

Spot
USD/CAD 1.2360
Week ahead bias
Neutral
Weekly range
1.2260 – 1.2500
1 month target
1.2400
  • CAD’s rally continued this past week, with USD/CAD breaking below 1.24. This week’s focus will be on Canada’s CPI numbers for September. A headline rate around 4.0% should allow markets to reinforce their view around the prospect of the Bank of Canada ending QE by year-end. Any above consensus read will fuel speculation that the Bank will start tightening earlier in 2H22 and add fuel to the already strong CAD.
  • One topic that will certainly have market participants talking is the Bank of Canada mandate, which is due for renewal at the end of this year. The topic of inflation targeting is obviously quite hot, and rising inflation has been quite central in the latest election’s debate. Markets are betting on the fact that the current inflation target (2%, with a +/- 1% tolerance band) will be renewed.

Euro: Weekly Trading Range (1.1500 – 1.1650)

Spot
EUR/USD 1.1590
Week ahead bias
Mild Bearish
Weekly range
1.1550 – 1.1650
1 month target
1.1500
  • EUR/USD has shown no interest in wanting to break below the 1.1500 which leads us to believe that this week is likely going to remain rangebound. The top of the range should be the 1.1650/70 area.
  • On the data front, the highlight of the week will be the flash October PMIs. Confidence in the manufacturing sector has been softening a little, but we could get to see the first impact of the gas crisis that is hitting the European industrial base. We will also see October consumer confidence for the Euro area. We also have quite a few ECB speakers over the coming week.

British Pound: Weekly Trading Range (1.3650 – 1.3800)

Spot
GBP/USD 1.33750
Week ahead bias
Mildly Bearish
Weekly range
1.3650 – 1.3800
1 month target
1.3600
  • GBP has done some damage to those taking a view that stagflation would be GBP negative. Instead, the first reaction is for GBP to be rallying along with BoE tightening expectations.
  • This week sees September UK CPI – upside risks seen to the 3.2% YoY consensus. We will also hear from BoE speakers, including the Governor, Andrew Bailey. Most of his speeches seem to be on climate change topics, but Chief Economist Huw Pill also speaks later in the week. He has warned about the persistence of inflation. A rate protest may not be forthcoming from the BoE this week and it seems that GBP has legs to creep higher.

Currency Chart

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