On Tuesday we have the CPI m/m for Canada and housing starts data for the U.S., followed up Wednesday by the existing home sales data and probably the most expected event of the week: The FOMC meeting.
On Thursday the day will start with the BOJ press conference and its policy rate announcement, followed by the SNB press conference and policy rate. A few hours later we'll get the BOE monetary policy summary and official bank rate.
On Friday, SNB Governing Board Chairman Thomas Jordan is expected to speak about monetary policy at the University of Lucerne in Switzerland. This is not expected to be an event that could trigger volatility in the market and is more geared towards academia. However, it's worth remembering that the SNB is known for its ability to surprise the market, which could happen if Jordan says something in addition to what he said at the Press conference.
Also on Friday, Fed Chair Powell is due to deliver opening remarks at the Fed Listens event in Washington DC.
The inflation data for Canada is important to watch as it can provide clues about the BOC's future decision on interest rates in October. For now, markets are pricing in a hike of 50bps.
In the U.S. elevated mortgage rates have continued to negatively impact both housing starts and existing home sales, with a significant drop in July, especially in the single-family sector. Multifamily housing could see a rebound in August, but single-family housing starts are likely to drop further, leading to an overall decrease. Mortgage applications and sale contracts for existing homes decreased in both July and August, but the month also experienced a temporary drop in mortgage rates which could have a positive impact on the September NAHB Housing Market Index.
The market's consensus is a 75bps increase in the federal fund rate at this week's FOMC meeting. There are few analysts who are expecting an increase by 100bps, but a move like that could also be seen as a panicking reaction. All eyes are on the WSJ's Nick Timiraos who has correctly signalled higher than expected rate hikes before.
According to Citi, as a 75bps rate hike seems to be already fully discounted, it's more important to watch the Fed's quarterly update to its economic forecast and dot plot for "signs of peak hawkishness and the timeline accompanying that."
Credit Suisse expects Powell to continue the hawkish messaging that he had at the Jackson Hole symposium signalling the need for forceful action to counter inflation risks. Even though the market expects rate cuts next year, the analysts believe Powell will push back on this idea and view rate cuts in 2023 as unlikely, maintaining their expectation of a 25bps hike in Q1 2023.
No change is expected in monetary policy at the BOJ meeting. However, if inflation rises over 3%, the Japanese government might face strong public criticism, which could force Prime Minister Kishida to ask the BOJ for more impactful action, Credit Suisse analysts said.
For the SNB meeting, Citi analysts expect an increase of 100bps to 0.75% with a terminal rate of 2% by the end of the year. They also expect a 75bps hike in October and probably 50bps in December.
Given the recent economic data for the Swiss economy and the increase in inflation print, this meeting will definitely be a hawkish one. According to Citi analysts, the SNB likely doesn't want to allow a wide gap between interest rates in CHF and EUR because this could weaken the Franc. However, the SNB needs to be more aggressive in its steps to keep up with the ECB's rate hikes. City expects a 100bps rate hike from the SNB this week, eying a 2% rate by year-end, which could mean another 75bps hike in October followed by a 50bps one by end of December.
Inflation data for the U.K. suggests the BOE might be forced to act aggressively this week. In a survey from Reuters 40 out of 47 analysts favoured a 50bps rate hike and seven favoured a 75bps hike. Analysts from Credit Suisse believe a hike of only 50bps would be a dovish surprise after additional fiscal stimulus was announced. This would signal greater domestic inflationary pressures and trigger further weakening of the exchange rate with the euro and dollar. After the ECB and Fed's hawkish messaging and high rate hikes, Credit Suisse analysts believe the BOE needs a 75bps hike to keep up.
USD/CAD expectations
After last week's inflation data for the U.S., the USD gained strength signalling the Fed's fight against inflation is far from over. Inflation data for Canada is expected a day before the FOMC meeting this week.
On the H1 chart, USD/CAD looks good for buying opportunities. A correction is expected until the 1.3160 level of support. If that level doesn't hold, the next support is at 1.3057 which is safer taking into consideration that a bearish divergence seems to be forming on MACD, which could suggest a bigger correction. From there, the uptrend should resume. On the upside the next level of resistance is at 1.3380.
A risk for this trade is the Canadian CPI data and the FOMC meeting.
GBP/CHF expectations
On the H1 chart the pair closed the week near the 1.1035 level of resistance. A correction is expected until the 1.1100 level of resistance. From there the downtrend should resume. On the upside the next level of resistance is at 1.1180.
The pair has room for further depreciation especially if the SNB meeting is going to be more hawkish than expected. The SNB and the BOE meetings are on the same day so the pair could enter a consolidation phase until then. After the two meetings we should have a clearer picture about the pair's direction in the near future.
This article was written by Gina Constantin.
