It's going to be a light week ahead in terms of economic events as is usual after the NFP. There are no notable economic events on Monday, but Tuesday SNB Chairman Jordan will deliver a speech at the High-Level Conference on Global Risk, Uncertainty, and Volatility, in Zurich.
This type of event is not generally supposed to create volatility in the market, but the SNB is known for its ability to surprise, so it's worth keeping an eye out for any remarks about monetary policy in Jordan's address.
SNB continued its tightening cycle and hiked the rate to 0.50%, out of negative territory. The inflation rate in Switzerland is above target but didn't rise alarmingly high compared to other developed countries. Additional rate hikes are expected in the future.
Also, on Tuesday we have the U.S. midterm elections. According to FiveThirtyEight estimations there's an 80% probability the Republicans will take control of the House. The Democrats could maintain control of the Senate.
If this happens, passing legislation could be difficult for the next two years. Bank of America suggests that a Republican win suggests that the electorate wants low inflation, while a Democrat win will signal a desire for low unemployment.
The most important event of the week will be the inflation data for the U.S. on Thursday, and it will also be important to watch the unemployment claims. On Friday, we'll have the GDP data for the U.K. and the Prelim UoM consumer sentiment in the U.S. Some Fed members are expected to deliver their remarks over the week.
Last week the nonfarm payrolls surprised again and rose 261K indicating that the labour market is still tight. The rise was especially in healthcare, professional and business services, and manufacturing.
In the construction sector the employment was flat despite the fact that real estate was negatively influenced lately. In the near future, job growth is expected to cool down, but the FOMC will keep tightening policy even if at some point the pace of tightening will slow down.
Some analysts expect the Fed to hike the rate by 50bps at the next meeting in December, but hot inflation data could force another 75bps hike, so this week's CPI data is very important. The FOMC said for the first time that it will take into account the cumulative amount of tightening when deciding future moves which could point to a slower pace of tightening.
The CPI y/y for October is expected to print lower to 8% from 8.2%, but the monthly gain is expected to print above expectations. It's likely that core inflation data will see some relief but will remain above target.
On Friday the consumer sentiment data in the U.S. could reflect pessimism, with consumers concerned about high inflation and recession risks. The University of Michigan Consumer Sentiment index is at a historical low level and Citi analysts expect a further modest decline in November to 59.6 from 59.9.
The GDP data in the U.K. is not yet expected to show improvement. The consensus is that the economy likely contracted 0.4% q/q in Q3 making the U.K. one of the most affected economies among developed countries with recession possibly being under way already. The BoE will continue to fight against inflation and keep rising rates, but analysts from Wells Fargo believe the BoE will likely not tighten to the extent that's currently priced by markets, meaning the pound will remain under depreciation pressures for the foreseeable future.
USD/CAD expectations
On the H1 chart the pair looks good for selling opportunities. Last week, the pair closed below the 1.3500 level of support, at 1.3480, which can open the path for further depreciation. A correction is expected until the 1.3650 resistance level. If that holds, the next level of support is at 1.3420. On the upside, the next level of resistance is at 1.3805.
The unemployment rate for the Canadian economy remained at 5.2% and the participation rate rose to 64.9%. There was also an increase in the average hourly wages from 5.2% YoY to 5.5% YoY which reflects excess demand for workers.
A risk for this trade is the U.S. inflation data. The outlook for the USD remains bullish until the end of the year, but in the short term, its correction might not be over.
This article was written by Gina Constantin.
