The week ahead is marked with important economic events likely to strongly affect the market’s volatility. Tomorrow is September 1st, making it the end of the summer holidays for many market participants. As always, the first trading week in the month brings the NFP, but before Friday, HICP inflation is likely to drive the price action.
Euro Stuck at the Highs
The euro keeps trying at the €1.20 level. It failed so far on every attempt, with the €1.1960 area proving to be tough to break so far.
The pair keeps being bought on every dip so far, a trend visible during the whole summer. Tomorrow’s HICP, the inflation metric in the Eurozone, may be a game changer in the short term.
The previous release for the core inflation was 1.2%, but now that market expects 0.9%. If we get an even uglier number, the pressure on the ECB increases to do something in September.
Last week, the Fed showed once again that it leads by example when moving to average inflation targeting. While the ECB monetary policy review is ongoing, it is unlikely that the ECB will signal a similar monetary policy framework anytime soon.
Until tomorrow, there is still one trading day in the month. Usually, flows are important during the last trading day, so pay attention to the market moves during the main fixing time. However, today is a bank holiday in the UK, which may lead to lower volatility than would otherwise be the case for the last trading day in the month.
The Reserve Bank of Australia is set to announce its monetary policy this week, but the market does not expect any surprises there. As one of the best performers during the Covid-19 crisis, the Australian Dollar (AUD), sits comfortably above $0.73 against the USD. However, the strength in the Aussie pair looks to have been generated by USD weakness rather than AUD strength.
ADP on Wednesday, Canadian unemployment on Friday, and ISM on Tuesday will drive price action this week. But out of all economic releases, the HICP and the NFP will be responsible for most of the market moves.
As we head closer to November, U.S. elections will drive the price action. A recent poll showed that the Trump and Biden race would be as tight as four years ago. The more uncertainty, the more the election will drive the price action for the USD.