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We have not one, but TWO central bank events this week!

What are markets expecting from this week’s top-tier reports?

Here’s a list of the major economic calendar events you’ll need to watch out for:

Major Economic Events:

Australia’s quarterly CPI (Jan 25, 12:30 am GMT) – Annual inflation eased from 3.8% to 3.0% in Q3 2021 partly due to the continued unwinding of free childcare from 2020. The quarterly trimmed mean CPI – Reserve Bank of Australia (RBA)’s preferred core inflation gauge – beat markets’ 0.5% expectations with a rise to 0.7%.

This week’s inflation reports could set the stage for RBA’s February policy changes next week. Traders expect annual inflation to exceed RBA’s 2% – 3% target at 3.2% in Q4 2021, with the trimmed mean quarterly CPI maintaining its 0.7% growth.

If we see faster-than-expected price increases, then traders could price in the end of RBA’s bond-buying in February and maybe even interest rate hikes as soon as May or June.

BOC’s policy statement and presser (Jan 26, 3:00 pm GMT) – Back in December the Bank of Canada (BOC) signaled that it would raise interest rates sometime in the middle of 2022.

But a rebound from the Omicron wave and annual inflation hitting its fastest rates since 1991 may force BOC members to raise rates this week. Markets see a 25 basis point hike from 0.25% to 0.50% with hints of more to come for the rest of the year.

FOMC statement and presser (Jan 26, 7:00 pm GMT) – Markets will look to the Fed’s first 2022 meeting to see if members are easing, maintaining, or stepping up their aggressiveness to combat high inflation. Recall that they doubled the pace of their tapering in December and moved forward their plans to stop adding to their balance sheet from mid-2022 to March 2022.

Will they be more aggressive and risk a market crash or be more cautious and risk falling “behind the curve” in fighting high inflation?

Traders are expecting a buildup to a March rate hike and hints of balance sheet unwinding in Q2 or Q3. Less-hawkish-than-expected statements could inspire a risk rally and profit-taking from the safe-havens.

U.S advance GDP (Jan 27, 1:30 pm GMT) – The combo of rising COVID-19 cases, new restrictions, and decreased government assistance payments have dragged the economy from 6.7% to annual growth of 2.3% in Q3 2021.

Analysts see the first Q4 2021 reading coming in at an annual rate of 5.5%, which would confirm the diminished need for more stimulus.

Forex Setup of the Week: USD/CAD

USD/CAD Daily Forex Chart
USD/CAD Daily Forex Chart

USD/CAD bulls and bears are in for some action with both the Bank of Canada (BOC) and the Fed scheduled to share their first policy decisions for 2022 this week.

Markets expect the BOC to raise its rates by 25 basis points to 0.5%, which could drag USD/CAD below a trend line support that has been valid since mid-2021.

CAD could also benefit from the Russia-Ukraine tensions if it pushes prices of crude oil – one of Canada’s biggest exports – higher.

On the other hand, traders are also preparing for a more aggressive Fed this week. Not only do they expect hints of a March rate hike, but they also see the members talking about unwinding their balance sheet in the next couple of months.

Increased dollar demand would work for bulls who are already taking cues from an oversold Stochastic signal and a bounce from the 200 SMA and an ascending triangle support. We could see trading above the 1.2625 zone and maybe a visit to the 1.2900 triangle resistance if there’s enough momentum.