Buckle your seatbelts and brace for some big moves in the markets this week. Everything from equities, currencies to Treasuries and crypto have been itching for breakouts. With five major central bank rate decisions, U.S. retail sales, PMIs from Europe, job reports from the U.K. and Australia, along with major option expirations this Friday, there are plenty of catalysts for big moves. The most important event risks will be the Federal Reserve and European Central Bank monetary policy announcements. But all of these events have market moving potential.
The top 10 events to watch this week will be the following:
- Federal Reserve rate decision
- European Central Bank rate decision
- Bank of England rate decision
- U.S. Retail Sales
- Eurozone PMIs
- U.K. PMIs
- U.K. CPI
- Australia Employment Report
- Canadian CPI
- New Zealand Q3 GDP
These reports and events are also important but likely to illicit smaller market reactions:
- Bank of Japan rate decision
- Swiss National bank rate decision
- U.K. Retail Sales
- U.K. Employment Report
- German IFO
Typically, currencies take their cue from the overall appetite for risk and U.S. dollars. But this week, the abundance of major reports from other countries means relative growth and monetary policy divergence could play a big role in currency direction. Currency crosses in particular could see exaggerated moves. The Federal Reserve is widely expected to accelerate taper, but the U.S. dollar weakened against the euro, the Japanese Yen and Swiss Franc during the New York session because this announcement is baked in. Instead, U.S. dollar traders took their cue from Treasury yields and stocks, both of which fell sharply on Monday. The prospect of less U.S. stimulus and the U.K.’s first death from the Omicron variant sent equities tumbling lower. In the next 48 hours, Omicron will become the dominant variant in the U.K. Sterling snapped a two-day rally to end the day lower against the U.S. dollar and the euro.
The euro held steady ahead of the European Central Bank monetary policy announcement. We’ll discuss that in more detail later this week. But its resilience has more to do with U.S. dollar weakness and short covering than optimism about the Eurozone economy. Risk aversion hit the Australian, New Zealand and Canadian dollars the hardest. The most important release for Australia this week is the jobs report, and economists are looking for the strongest job growth in two years. Service-sector activity accelerated in New Zealand and, with the government moving ahead with easing restrictions, activity and sentiment should improve. Unfortunately, for AUD and NZD, risk off flows can easily overshadow data like it did today. The Canadian dollar also sold off as oil prices trended lower.