By FX Empire.com
The USD/CAD pair extended its drop last week amid rising hopes and optimism in markets, which slightly boosted demand for higher yielding assets, leading the Canadian dollar to rise as a result, especially as crude oil prices gained as well, which provided the CAD with some bullish momentum that pushed the USD/CAD pair slightly to the downside.
Meanwhile, CPI inflation in Canada showed rising inflationary pressures in September, as inflation rose above expectations, which also provided the Canadian dollar with strong momentum to push the USD/CAD pair lower on Friday.
The European debt crisis dominated most of the headlines last week, as uncertainty dominated the scene, yet traders were somewhat hopeful that EU leaders will be able to craft a deal that will ease the debt crisis in Europe and ease tensions in markets as well. Nonetheless, it all remains to be seen, as EU leaders gather next week for the EU summit.
Traders all around the globe will be eyeing the EU summit next week, where traders hope that EU leaders will be able to craft a plan that will ease the tensions in the euro zone area and help support debt-laden countries. Nonetheless, the level of uncertainty remains very high amid mixed reports last week that EU leaders are struggling to reach a final resolution, however, any solutions are not expected to be final and more work has to be done in order to stabilize conditions in the euro zone area.
The week is full of economic fundamentals from all around the globe, especially from the United States, where data on growth, income, spending, and inflation will be released next week, as the first GDP estimate for the third quarter will be released, in addition to the income report, where both reports are expected to show improvement.
If optimism persists in markets, it could push the USD/CAD pair further to the downside, but the outcome of the EU summit will be the major market mover. We should also note that the Bank of Canada will announce its decision on interest rates amid expectations the BOC will leave rates unchanged. Overall, we expect high volatility levels to continue to dominate markets next week, and accordingly, we could see the USD/CAD pair fluctuating heavily throughout next week.
Highlights for this week that will probably affect the USD/CAD pair’s direction are:
Monday October 24:
We don’t have any major fundamentals from Canada or the United States on Monday, which means that the focus is likely to remain onEurope, and whether EU leaders will be able to reach an agreement to solve the euro zone debt crisis.
Tuesday October 25:
Canada will release the retail sales for August at 12:30 GMT, where retail sales are expected to rise by 0.2%, following the prior decline of 0.6%, while retail sales excluding autos are expected to rise by 0.4%, compared with the prior flat estimate.
The S&P/CaseShiller house price index will be released for the month of August at 13:00 GMT, where the S&P/CS 20 city house price index is expected to rise by 0.15%, compared with the prior rise of 0.05%, while compared with a year earlier, the S&P/CS Composite-20 index is expected to decline by 3.55%, compared with the prior drop of 4.11%.
The U.S. Conference Board will release the consumer confidence index for October, where consumer confidence is expected to improve slightly to 46.0 from 45.4 back in September.
The Bank of Canada will announce its decision on benchmark interest rates at 13:00 GMT, where the BOC is expected to leave the benchmark interest rates unchanged at 1.00%.
Wednesday October 26:
The U.S. will release the durable goods orders for September at 12:30 GMT, where durable goods are expected to fall by 0.7%, compared with the prior drop of 0.1%, while durable goods excluding transportation are expected to rise by 0.5%, compared with the prior drop of 0.1%.
The U.S. will release the new home sales index for September at 14:00 GMT, where new home sales are expected to rise by 1.7% to an annual rate of 300,000 units, compared with the prior estimate of 295,000 units.
The Bank of Canada will release the monetary policy report at 14:30 GMT, where the monetary policy report should provide traders with a better understanding over the recent developments regarding the decision making of the BOC monetary policy stance.
Thursday October 27:
The United States will start with the weekly jobless claims for the week ending October 22 at 12:30 GMT after last week they rose by 403 thousand, and expectations show jobless claims will fall to 400,000.
The U.S. Commerce Department will release the advanced Gross Domestic Product estimate for the third quarter of 2011, where theU.S.economy is expected to expand by 2.5%, compared with the prior expansion of 1.3% in the second quarter, as personal consumption is expected to rise by 1.9%, up from 0.7% in the second quarter.
The U.S. will release the pending home sales index for September, where pending home sales are expected to rise by 0.3%, compared with -1.2% in August, while compared with a year earlier, pending home sales are expected to rise by 10.8%, compared with 13.1% in the prior estimate.
Friday October 21:
The U.S. will release the income report for September at 12:30 GMT, where personal income is expected to rise by 0.3%, compared with the prior drop of 0.1%, while personal spending is expected to rise by 0.6% after rising by 0.2% in August. Core PCE is expected to rise by 0.2% in September, following the prior rise of 0.1% in August, while compared with a year earlier, Core PCE is expected to rise by 1.7%, up from 1.6% in the prior estimate.
The University of Michigan will release the final estimate for consumer confidence in October at 13:55 GMT, where consumer confidence is expected to rise slightly to 58.0 from 57.5.
Read more Weekly Forex Analysis here.
