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WEEK AHEAD: APRIL 19

Short Description

This week there is the Bank of Canada & ECB meeting so I look at the USD/CAD and EUR/USD forex pairs plus review the economic calendar. Thanks! Rich

Video Script

ECB & BoC Meetings | WEEK AHEAD (Apr 12-16, 2021)
USD/CAD & EUR/USD

 

Hi everyone, for the week ahead in forex and financial markets I’m watching the USD/CAD and EUR/USD currency pairs. That’s because we’ve got the Bank of Canada and ECB meeting this week. Stay tuned for more.

Right before we delve into the Loonie and euro some more, let’s take a look at the economic calendar this week. It’s a bit of a slow start to the week but picks up with the first central bank decision of the week out of China where the one-year reference rate is expected to hold steady at 3.85%. There’s lots of inflation data out this week, which given rising inflation expectations from investors could be extra relevant. Without going through each datapoint here, what was interesting last week was the dollar falling after US inflation beat expectations. That’s basically the market not wanting to fight the Fed. If inflation from around the world hots up too, a softer dollar is extra reason for a strong reaction in the other currencies. The big ones for the week are the BOC on Wednesday and ECB on Thursday, which I discuss more in just a moment.

Outside of the economic calendar, we’ve got some big earnings this week, which could influence sentiment. Netflix, Snap and Spotify are some of the notable tech high-fliers reporting. 

Bigger picture, USD/CAD is in a 6-year trading range between 1.20 and 1.46. To reach the bottom of that range, the price would need to drop another 500 pips from here. More recently USD/CAD has been in a downtrend capped by a falling trendline, however a bullish engulfing candlestick off the 1.24 level is worth watching.

I think there are two main factors at play here with the Canadian dollar. One is that it’s a commodity currency and because commodity prices have been rising, commodity currencies are doing well.  USD/CAD traders should definitely have an eye on the price of oil. Two is that the Bank of Canada seems to be on the cusp of announcing plans to taper its asset purchases. Why would they do this? Well because they are set to own nearly half the stock of Canadian bonds, which is just unsustainable long term. This means less bond-buying and higher Canadian yields relative to elsewhere. If we want to add a third point, it’s that as a border nation of the United States, Canada should be an indirect beneficiary of President Biden’s stimulus.

EUR/USD avoided a re-test of its previous lows at 1.16, bottoming near 1.17 and after a strong couple of weeks, is back at the 1.20 level and above its 200-day moving average.

The move up is despite numerous ECB speakers talking down the prospect of tapering the QE program anytime soon. No change in policy is expected at this ECB meeting since it was only in March that Europe’s central bankers decided to front-load QE purchases into this quarter. All we can really expect is more strong talk against reducing stimulus from President Christine Lagarde. Then it’s just a question of whether markets take her at her word, or instead look ahead to the improving vaccination rollout and the implications for a stronger Eurozone economy, which shouldn’t need as much stimulus.

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.
 

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