USD/CAD fell sharply last week. The dollar lost ground for a second straight week, while oil climbed back above $100 a barrel.
Now the pair faces its busiest day in weeks. On Wednesday, the Bank of Canada and the Fed both announce rate decisions, just over four hours apart. Then, on Thursday, US growth and inflation data arrive before markets have fully absorbed either message.
This trading week ahead also covers EUR/USD. The euro ended last week within sight of a 17-month low, and the ECB decides on Thursday.
Four Central Banks in Two Days
Last week was relatively quiet for currencies. UK, Canadian and New Zealand inflation all landed close to expectations. Even so, 26% of notable currency pairs and crosses moved by more than 1%.
This week looks very different. The Bank of Canada and the Fed decide on Wednesday. Then the ECB follows on Thursday morning, and the Bank of Japan also plans to announce its decision on Thursday.
As a result, markets have little time to digest one decision before the next one lands. Each statement could reset rate expectations. In turn, those expectations feed directly into currency prices.
Canadian Strength or Dollar Weakness?
USD/CAD can fall for two reasons. Either the US dollar weakens, or the Canadian dollar strengthens. Last week, the evidence points to a mix of both.
The Dollar Side
The US Dollar Index (DXY) slipped again last week. However, it held the former resistance level at 101.39, which now acts as support. Its longer-term uptrend therefore has not broken.
Meanwhile, the fundamental picture has softened. Markets now expect fewer US rate hikes, and 10-year Treasury yields have fallen. Lower yields reduce the return on holding dollars, so they can weigh on the currency.
Still, the dollar's slide was not uniform. The euro also fell last week. In fact, it was the only major currency besides the dollar to lose ground. Broad dollar weakness alone, then, cannot explain the drop in USD/CAD.
The Canadian Side
Oil is the obvious candidate. Brent crude rose more than 6% last week to roughly $117 a barrel, while US crude finished above $103. Fears of wider supply disruption in the Middle East drove the rally.
Canada is a major oil exporter. Consequently, higher crude prices can lift its export income and support demand for its currency.
However, the domestic data tells a softer story. Canadian CPI came in slightly below expectations last week. That reading does not, on its own, point to stronger price pressure at home.
So the picture is mixed. Softer US yields weighed on the dollar, while higher oil gave the Canadian dollar a tailwind. Wednesday could show which force carries more weight.
USD/CAD: Why 1.40 Matters
USD/CAD now sits near 1.40. Several technical references meet in that area.
First, 1.40 is a large round number, and many traders watch such levels closely. Second, the 61.8% Fibonacci retracement level is still holding there. Fibonacci retracements measure how much of a prior move price has given back, and many traders treat 61.8% as a key reference.
Third, the 50-week exponential moving average (EMA) is approaching the same zone. This average smooths weekly prices while giving recent ones more weight.
That overlap makes 1.40 worth watching. A hold would show the area still attracts demand. By contrast, a sustained break would remove a reference that has held so far. However, no technical level can guarantee either outcome.
How Wednesday Could Change the Outlook
The Bank of Canada moves first, at 9:45 AM ET. It publishes its rate statement and Monetary Policy Report together, and its press conference follows at 10:30 AM. The calendar forecast points to a quarter-point hike, to 2.50% from 2.25%.
That forecast sets the bar. If the bank hikes and signals more tightening, the Canadian dollar could find further support. If it hikes but sounds cautious, however, markets may treat the move as a one-off. A hold would defy the forecast and could unwind some of the currency's recent strength.
The Fed follows at 2:00 PM, with its press conference at 2:30 PM. Here, the calendar forecast shows rates unchanged at 4.00%. Therefore, the guidance may matter more than the decision itself.
Any signal that revives hike expectations could support the dollar. Conversely, guidance that confirms the shift away from hikes could add pressure.
Because both decisions land on one day, USD/CAD absorbs two policy messages in a single session. The first reaction may not survive the second.
Thursday Adds Another Test
Advance GDP and Core PCE arrive at 8:30 AM on Thursday. Core PCE is the Fed's preferred inflation gauge, while GDP measures quarterly economic growth.
Together, they test whatever message the Fed delivers the day before. A strong reading on either could challenge dovish guidance. Similarly, a weak one could undercut a hawkish tone.
EUR/USD: Within Sight of a 17-Month Low
EUR/USD fell last week and closed right on 1.1200. Earlier in the week, the pair met resistance at the 200-week EMA, which also marked the prior week's high.
The weekly candle then formed a bearish inside pin bar. In this pattern, sellers push price back from the high, and the whole candle stays within the previous week's range. Meanwhile, the recent 17-month low sits just below 1.1150.
A Euro Problem, Not Just a Dollar Story
This setup differs from USD/CAD. In USD/CAD, a softer dollar and firmer oil pulled in the same direction last week. In EUR/USD, they pulled against each other.
The dollar softened, yet the euro still lost ground. Several regional pressures explain that gap. They include concerns over French and eurozone debt, an energy crisis and conflict with Russia. Protests centred on France have also spread to other eurozone countries.
What the ECB Faces on Thursday
The ECB announces its decision at 9:15 AM ET, and its press conference follows at 9:45 AM. The calendar forecast shows the main refinancing rate unchanged at 2.65%.
Higher energy costs complicate the picture. In theory, rising prices could justify tighter policy. However, an energy-driven spike differs from persistent inflation, and policymakers may look through it. That tension makes the press conference worth watching.
The timing adds pressure too. It comes just 45 minutes after the US GDP and Core PCE figures.
Key Events This Week (ET)
The selected events below include economic releases, central bank decisions and press conferences. All times use Eastern Time and may change.
- Tue Oct 27, 8:30 PM: CPI m/m, CPI y/y and Trimmed Mean CPI m/m (AUD)
- Wed Oct 28, 8:30 AM: Annual Budget Release (GBP)
- Wed Oct 28, 9:45 AM: BoC Rate Decision, Rate Statement and Monetary Policy Report (CAD)
- Wed Oct 28, 10:30 AM: BoC Press Conference (CAD)
- Wed Oct 28, 2:00 PM: Federal Funds Rate and FOMC Statement (USD)
- Wed Oct 28, 2:30 PM: FOMC Press Conference (USD)
- Thu Oct 29, 8:30 AM: Advance GDP q/q and Core PCE Price Index m/m (USD)
- Thu Oct 29, 9:15 AM: ECB Rate Decision and Monetary Policy Statement (EUR)
- Thu Oct 29, 9:45 AM: ECB Press Conference (EUR)
- Thu Oct 29, Tentative: BoJ Policy Rate, Monetary Policy Statement and Outlook Report (JPY)
- Fri Oct 30, Tentative: BoJ Press Conference (JPY)
Tuesday Evening: Australian Inflation
Australia's CPI data arrives late on Tuesday, Eastern Time. It includes the trimmed mean, a core measure that strips out the most extreme price changes. As a result, it adds evidence for the Reserve Bank of Australia's policy debate.
Wednesday Morning: The UK Budget
The UK budget lands at 8:30 AM ET, just over an hour before the Bank of Canada. Fiscal plans can shift gilt yields and, in turn, sterling.
Sterling enters the week with some momentum. GBP/USD rallied last week, and the 1.32 area held as support. UK inflation also came in slightly above expectations.
Thursday and Friday: The Bank of Japan
The Bank of Japan plans to announce its decision on Thursday, although the exact time is not yet fixed. Its Outlook Report arrives alongside the decision, and the press conference follows on Friday.
What This Means for Traders
This week squeezes four central bank decisions and key US data into roughly 48 hours. Consequently, the order of events matters as much as each result.
USD/CAD sits near 1.40, where several technical references meet, and both its central banks decide on one day. Meanwhile, EUR/USD sits near its lows as the ECB weighs an energy-driven inflation problem.
This is a week that rewards preparation over prediction. Reactions can reverse quickly when the next decision arrives, so a plan for each scenario matters more than a single view.
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Frequently Asked Questions
Why Does 1.40 Matter for USD/CAD?
The 1.40 area is a large round number. In addition, the 61.8% Fibonacci retracement level is still holding there, and the 50-week EMA is approaching. However, a technical level describes market context and cannot guarantee that support will hold.
Why Did USD/CAD Fall Last Week?
Two forces likely contributed. The US dollar lost ground as rate hike expectations eased and Treasury yields fell. Meanwhile, oil rose above $100 a barrel, which can support the Canadian dollar.
What Is Core PCE?
Core PCE tracks changes in consumer prices, excluding food and energy. The Fed treats it as its preferred inflation gauge. Therefore, a surprise in either direction could shift expectations for US rates.
How Could the BoC and Fed Decisions Affect USD/CAD?
Both decisions land on Wednesday, just over four hours apart. The guidance from each bank could shift rate expectations on both sides of the pair. As a result, the reaction to the first decision may change once the second arrives.
Disclaimer
This article serves educational purposes only. It does not constitute investment advice, a recommendation, or a solicitation to trade any financial instrument. ThinkCapital’s challenge programs use simulated trading in a virtual environment; they do not place real capital in live markets. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Technical levels discussed here describe current market structure; they do not predict future results.