By FX Empire.com
The USD/CAD pair extended its drop last week amid rising hopes and optimism in markets, which boosted demand for higher yielding assets, leading the Canadian dollar to rise as a result, especially as commodities gained as well, which provided the CAD with strong bullish momentum that pushed the USD/CAD pair to the downside.
Investors were optimistic that European leaders will be able to craft a plan that will ease the deepening debt crisis in the euro zone region, which put negative pressure on lower yielding assets including the U.S. dollar.
The week is full of economic fundamentals from all around the globe, especially from theUnited States, where data on inflation will be released next week, while other data include manufacturing and housing figures among several others.
We can see somewhat improved sentiment in the market and slightly eased fears on the pledges from the euro area to contain the debt crisis by supporting Greece and recapitalizing banks which eased the jitters over a financial system collapse in Europeand spreading to the global financial system.
This improvement was mirrored in the roadmap presented by EC President Jose Barroso and the pledges from Germany and France to present a plan as soon as the October 23 summit and ahead of the November G20 Summit.
Nevertheless, the market did not still see any concrete plans to the recapitalization or to what extent will the private sector participate in easing Greek woes, especially as the market is pricing 50-60% write-downs on Greek bonds much beyond the 21% according to the July agreement.
If optimism persists in markets, it could push the USD/CAD pair further to the downside, but economic fundamentals will play a major role in determining the pair’s direction next week, since important data will be released from the United States, while sentiment regarding the situation inEuropewill also play a major role. Accordingly, we still expect volatility to dominate the pair’s trading next week.
Highlights for this week that will probably affect the USD/CAD pair’s direction are:
Monday October 17:
The United States will start the week at 12:30 GMT with the Empire Manufacturing index for October which is expected with improvement to -4.0 from -8.82.
At 13:15 GMT the Industrial Production for September is due and expected to hold on the month with 0.2% gain and capacity utilization to move slightly higher to 77.5% from 77.4%.
Tuesday October 18:
At 12:30 GMT the U.S. Producer Price Index for September is due and expected with 0.2% rise on the month after it remained unchanged in August and on the year to ease to 6.4% from 6.5%. Core PPI index is expected also with 0.1% on the month in line with August and on the year to ease to 2.4% from 2.5%.
At 13:00 GMT the August TIC flows is due after in July the net long-term TIC flows recorded $9.5 billion rise and the total net TIC flows recorded net selling of $51.8 billion.
Wednesday October 19:
The United States continues with the inflation data at 12:30 GMT with the Consumer Price Index for September. The CPI is expected to rise 0.3% on the month after 0.4% gain and on the year to hold at 3.8%, while Core CPI is expected to hold the monthly gain at 0.2% and on the year to rise slightly to 2.1% from 2.0%.
The data continues with the Housing Starts for September also at 12:30 GMT and expected to rise to 594 thousand from 571 thousand. Building Permits on the other end are expected with 2.4% drop to 610 thousand from 620 thousand.
Canada will release the leading indicators index for September, where the leading indicators index was flat back in August.
The final release for the United States on Wednesday will be the Fed’s Beige Book at 18:00 GMT.
Thursday October 20:
The United States will start with the weekly jobless claims for the week ending October 14 at 12:30 GMT after last week they rose by 404 thousand.
Canada will release the wholesale sales index for August, where the index is expected to expand by 0.4%, compared with 0.8% back in July.
At 14:00 GMT the September Leading Indicators are expected with a slightly drop to 0.2% from 0.3%. The Philadelphia Fed Index for October is expected to improve to -0.9 from -17.5 and finally Existing Home Sales for September are expected with 2.5% drop to 4.91 million from 5.03 million.
Friday October 21:
Canada will release the consumer price index for September, where CPI is expected to rise by 0.1%, compared with 0.3% in August, while compared with a year earlier, CPI is expected to rise by 3.0%, following the prior rise of 3.1%. Core CPI is expected to rise by 0.2%, compared with 0.4% in August, and compared with a year earlier, Core CPI is expected to remain unchanged at 1.9%.
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