The European Central Bank and the Bank of Canada are due to release their statements this week. Also US May inflation data is closely monitored by market participants.
Every trading week, the market focuses on a particular event. Last week, it was all about the Non-Farm Payrolls (NFP) release in the United States. The week before it was the Personal Consumption (PCE) data, in order to form an educated guess about what the Fed will do at the June meeting. And so on.
This week it is all about two events in particular. One is the European Central Bank (ECB) decision, and the other is the inflation, or Consumer Price Index (CPI), from the United States.
Because both events are due at the same date and time, traders will have difficulties assessing their impact on the overall market and the EUR/USD exchange rate in particular. If anything, the week ahead is guaranteed to bring back the much-awaited volatility to the financial markets.
Two Central Banks to Deliver Monetary Policy Reports
The common currency (i.e. euro) has traded with a bid tone since the start of April. Regardless of what the economic data out of Europe or the United States showed, the euro moved only higher against the dollar.
Indeed, the ECB made sure to deliver a mixed message, mostly on the hawkish side. The Fed, on its part, remained dovish. As a consequence, the EUR/USD remained bid in the last couple of months, and this week we will see what lies ahead.
Inflation in the United States is running hot. In April, prices of goods and services rose much more than expected. Should the trend continue, the Fed will be forced to signal something at its next meetings.
Besides the ECB’s decision in Europe and inflation in the United States, another central bank is due to deliver its monetary policy decision. The Canadian dollar was one of the strongest currencies on the FX dashboard during the COVID-19 pandemic, and the Bank of Canada is in pole position to be the first major central bank to end its accommodative measures as the economy recovers. Most recently, Canada outpaced the United States in terms of the percentage of population vaccinated against the COVID-19 virus – yet another factor contributing to the Canadian dollar’s strength.
All in all, the week ahead is decisive for the quarter, but Wednesday and Thursday especially, when the Bank of Canada, the ECB and the US inflation data are due. Starting with Friday, the market participants will be preparing for the all-important Fed meeting next week – a possible game-changer for post-pandemic developed economies.