4 things to watch as the trading week unfolds:
1) DXY is coming of a strong week that saw it reach its highest level since August, although it did give back some of the gains on Friday. There will be plenty of data releases for traders to digest, and I expect we will see some volatility in the dollar for most of the week. US is kicking of the week with September inflation readings, and will book-end the week with payrolls and earnings on Friday. We also have EU GDP and Inflation as well, which, in my opinion, are more likely to be disappointing than anything. If US data is solid, and EU numbers disappoint, I expect DXY to at least test the 97.00 level. If the markets continue the risk-off mood, we could see a perfect storm brewing for Dollar bulls.
2) With the and S&P both turning negative for the year, market sentiment is quickly turning sour. With just a few days left in October, it appears US stocks are on pace for their worst month since October 2008. There are some big names releasing earning this week and any major misses will only deepen the selloff.
3) If things things do continue to go south in equities and the dollar continues to strengthen, I expect another painful week for commodities. The Bloomberg Commodity index was down 2% last week, with energy and grains taking the biggest hits. That said,I do think we could still see a bounce back in Oil this week. As we push closer to the implementation of the Iran sanctions, I think oil bulls will pick prices back up again. From a technical perspective, another close above the 200 DMA could see oil push towards the 69.00 handle and the 100 DMA (69.64).
4) The Loonie went on a rollercoaster ride last week after the BoC raised rates and was more hawkish than expected. This initially sent tumbling, but the strong Greenback and selloff in risk assets saw it quickly reverse to end the week slightly higher. Canadian employment data will be released Friday, and the consensus is the unemployment rate will remain the same, but the net change in employment should be much stronger than last months figure. While I am bearish on the pair in the long term, I can’t see it going anywhere but up this week if global market sentiment doesn’t pick up. Unless the risk aversion subsides, I only see downside risks for the Loonie this week. In the worst case scenario where employment data disappoints, and King Dollar continues to strengthen, we could see USDCAD reach 1.3200 by the end of the week.
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