The upcoming week in the forex market is poised to revolve around economic data from Canada and the United States, with a particular focus on the USD/CAD pair.
On Tuesday, August 20, the Canadian Consumer Price Index (CPI) is forecasted to rise by 0.40% month-over-month, a reversal from the previous decline of -0.10%. This data release could exert downward pressure on the USD/CAD if the pair has not already tested its low support areas.
However, a different scenario could unfold if inflation prints lower than expected, potentially pushing USD/CAD higher as traders reassess the inflationary outlook and its implications for the Bank of Canada’s monetary policy.
The forecasted 0.30% contraction in Canadian retail sales might give the CAD a brief reprieve. However, the overall structure at the time of data releases will ultimately dictate the market’s reaction.
In Europe, Thursday will be marked by the release of various Purchasing Managers’ Index (PMI) data, with particular focus on Germany, the Eurozone’s largest economy. The German Flash Manufacturing PMI is forecasted to slightly edge up to 43.4 from 43.2, while the services PMI is expected to dip slightly from 52.5 to 52.3.
These marginal changes suggest that the European economy remains in a precarious state, with manufacturing continuing to contract, albeit at a slower pace. This could weigh on the EUR if the data confirms ongoing challenges in the region’s industrial sector. Conversely, if the services sector shows unexpected strength, it could provide temporary support for the EUR, although the overall economic outlook remains fragile.
In the United Kingdom, the Flash Manufacturing PMI is forecasted to remain unchanged at 52.1, while the services PMI is expected to rise slightly to 52.7 from 52.5. This modest improvement could offer some support to the GBP, though it is unlikely to lead to a significant shift in market sentiment. The market will likely await more definitive signals before committing to a strong directional move.
By the end of the week, the attention will shift to the Jackson Hole Symposium and U.S. retail sales figures. Retail sales in the U.S. are forecasted to show a modest increase to 628,000, up from 617,000 in the previous month.
This data will be closely scrutinised as it provides insights into the health of U.S. consumers, a key driver of economic activity. A stronger-than-expected retail sales report could bolster the USD, reinforcing its position against major counterparts, especially if it may reflect the resilience of U.S. consumer spending amidst higher interest rates.
The Jackson Hole Symposium, starting on Friday, August 23, is an annual gathering of central bankers, economists, and financial market participants from around the world, held in Jackson Hole, Wyoming. Organized by the Federal Reserve Bank of Kansas City, it will be a focal point for traders and investors alike.
Central bankers’ speeches, especially those from the Federal Reserve, will be closely monitored for any hints regarding future monetary policy. As with past speeches, any indication of a hawkish stance could strengthen the USD, while dovish comments might lead to a retracement.
Looking at the technical charts, the USDX remains under pressure, with price action suggesting further downside risks if the index breaks below the 101.94 level. For now, traders are advised to monitor the price around the 101.50 area, where bullish price action could indicate a potential reversal.
Cable, or EUR/USD, on the other hand, has pushed up strongly and could target the 1.1100 level, where bearish price action might signal a pullback. Similarly, GBP/USD is likely to continue its upward trajectory, with the 1.3000 level as a key resistance point to watch for signs of consolidation.
USD/JPY and USD/CHF are both showing signs of potential retracement before resuming their respective trends. In particular, USD/JPY might find support around 146.80 or 145.30, while USD/CHF could see a bounce at 0.8600 before targeting higher levels.
The commodity currencies, AUD and NZD, have also seen upward momentum, with AUD/USD breaking above 0.6642 and NZD/USD surpassing 0.6030. Both pairs could see some consolidation in the near term, with the 0.6690 and 0.6070 levels as areas to watch for potential reversals.
In commodities, crude oil continues to hover around the 75.40 area, with the potential for either a strong rally or a corrective move that could lead to another drop before resuming its upward trend.
Gold, which recently made a new all-time high, will likely be influenced by movements in the USDX, with traders looking for clues on how much further the precious metal could rise before facing a correction.
