Technical Analysis

Market Outlook for the Week of October 17-21

It looks like Monday
will be a quiet day for the FX market, but on Tuesday traders will look forward
to the CPI q/q data for New Zealand and the monetary policy meeting minutes for

On Wednesday, the
focus will switch to the U.K. and Canada where inflation data is also expected.
On Thursday, we’ll get the employment change and unemployment rate for
Australia, as well as the Philly Fed manufacturing index, unemployment claims
and existing home sales data in the U.S. The week will close with the Japanese
CPI on Friday.

Some Fed members are
also expected to deliver remarks this week, before the blackout period starts,
and it will be interesting to hear what they think about the CPI data that
surprised on the upside last week. The Fed is expected to continue to hike
interest rates despite the weakening economic outlook.

The oil markets will
also pay attention to whether President Biden decides to extend the release of
oil from the Strategic Petroleum Reserve (SPR) which has fallen to its lowest
levels since 1984. Some wonder how low the reserve can be allowed to get but
based on U.S. government comments following the OPEC+ decision to cut
production, analysts speculate that the release could be extended at least
until the midterm elections.

In New Zealand, the
CPI data for Q3 is expected to print lower than for Q2 at 1.6% compared to
1.7%, while inflation forecast year-over-year is expected to drop to 6.6% from

The RBA will release
the minutes from its October meeting this week. The Bank hiked the rate by
25bps, a smaller hike than the market expected and there’s a possibility that
future hikes might reflect a slowdown in the pace of tightening. That said, the
RBA stressed that the size and timing of future rate hikes will be data
dependent and that the fight against inflation is far from over.

The labour market
data for Australia is also expected this week and strong data following the
solid print in August will make the Bank’s decision to scale back the pace of
its rate hikes difficult.

Inflation data for
the U.K. might not show any signs of cooling down, especially on the price
front. The consensus is for a 10.0% y/y and a rise of core CPI to 6.4%. The BOE
signalled that the next rate hike could be higher than expected, so it might
opt for a 75bps or even 100bps rise at the November meeting.

In the U.S., rising
mortgage rates are expected to put pressure on existing home sales, which are
expected to decline compared to last month. Existing home prices have declined
over the past two months, making owners less likely to keep their houses on the
market if they have to cut prices to remain competitive. The MBA mortgage
purchase index was resilient in the first three weeks of last month, but
declined during the last week, highlighting the continuous fall in mortgage
applications this year.

The Japanese CPI data
is expected to continue running hot after the 3.0% rise in headline National
CPI and 2.8% rise in the core CPI in August. But despite above target
inflation, the BOJ is not likely to have a change in monetary policy until the
end of the year. “BoJ Gov. Haruhiko Kuroda said he will stick with
monetary easing, signalling no change in stance after the yen continued its
rapid slide in the past week and dropped to a fresh 32-year low,” the
Japan Times reported. Meanwhile, ING expects Japan’s trade deficit to narrow in
September with imports growth slowing at a faster pace than exports.

USD/CAD expectations

On the H1 chart the
pair’s direction looks a bit uncertain at the moment. From a fundamental point
of view both central banks are expected to remain hawkish in the near future.
If Canadian inflation data comes above expectations this week, it will increase
the odds for a more hawkish BOC, while a softer print might set the tone for
smaller hikes. Regardless, the USD is likely to be well supported in the week

The pair closed the
week at 1.3880. A correction is expected until the 1.3760 or 1.3710 levels of
support. If either of those hold, the next target could be 1.3970.

On the downside we
have resistance levels at 1.3600 and 1.3500. A move below 1.3500 might suggest
a trend reversal but seems unlikely in the near future.

This article was written by Gina Constantin.

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