Technical Analysis

Market Outlook for the Week of October 24-28

This week will start
with some PMI surveys in the eurozone and the flash services PMI in the U.S. on
Monday, followed by the core CPI y/y in Japan and the CB consumer confidence
for the U.S. on Tuesday.

Wednesday will be a
busy day with the CPI q/q and trimmed mean CPI q/q prints in Australia; the
monetary policy report, overnight rate and BOC press conference in Canada; and
the new home sales data for the U.S. On Thursday, the main event will be the
ECB press conference and main refinancing rate and in the U.S. all eyes will be
on the unemployment claims.

The week will finish
off with the BOJ press conference and policy rate on Friday, along with the
core PCE price index m/m in the U.S.

The Q3 CPI q/q in
Australia is likely to print lower to 1.6% from 1.8% the previous quarter, but
the y/y rate is expected to run hot — 7.0% from 6.1%.

In Canada, the
consensus according to the Reuters survey was that the BOC will hike rates by
50bps, but the survey was conducted before the latest CPI data surprised on the
upside. Because of the new data, some analysts now expect the Bank to deliver a
rate hike by 75bps, which according to Scotiabank, has more or less been priced
in. Analysts will be watching this meeting for any clues about future rate

In the U.S. the new
home sales are expected to see some slowdown due to high mortgage rates. The
housing market has been negatively impacted by rising rates overall and will
likely see further decline in the near future, despite a 30% increase in new
home sales in August, which was more likely a temporary relief from the overall
market downtrend. On Friday we will also get the data for pending home sales
which will provide clues about the demand conditions.

The ECB is expected
to hike the rate by 75bps this week and the market has already priced in an 80%
possibility. The economy in the euro area faces many challenges due to the
rising energy and commodity prices so the outlook for the euro is not very optimistic.
The ECB seems to be committed to fighting inflation despite the economic
condition and President Lagarde said that hikes will be spread out over the
next several meetings.

ING analysts believe
it’s too early to talk about Quantitative Tightening (QT) but said “the
Bank will seek to mop up bank liquidity.” The analysts think the things to
watch for in this ECB meeting are: the excess liquidity, quantitative
tightening and the terminal rate.

No change is expected
at this week’s BOJ meeting and it’s clear that the Bank will leave FX
intervention in the government’s hands. The Bank will likely maintain the QQE
with Yield Curve Control to flexibly target 10yr JGBs at around 0%. The Bank’s
Outlook Report will also be released which will contain its members’ forecasts
for the Real GDP and Core CPI and the expectation is that the CPI will increase
from the previous forecast of 2.3%.

In the U.S., the
personal consumption expenditures (PCE) — the Fed’s favourite inflation gauge
— is likely to rise. Wells Fargo expects PCE to rise at a 0.8% annualized pace
for the third quarter, up from the previous 0.6%. An increase in consumption
would translate to import growth as well. Equipment spending is expected to be
strong, but residential investment likely took a hit due to the higher mortgage

Table of Contents


The pair closed the
week near the 1.3605 level of support. The CAD strengthened on Friday against
the USD, but overall, on the H1 chart the pair lacked a firm direction, but
rather moved in a range between 1.3650 and 1.3840. For this week it’s likely
we’ll see some choppy moves as well.

A risk for this pair
will be the BOC meeting and the U.S. GDP data for Q3. Expectations for the GDP
are encouraging as the consensus is for 2.1% SAAR. Strong data will support the

On the H1 chart the
next levels of support are at 1.3605 and 1.3500. A move below 1.3500 likely
opens the path for some depreciation. On the upside we have the levels of
resistance at 1.3705, 1.3835 andthe 1.3970.

This article was written by Gina

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