Possible Action Before The Weekend

The Canadian Dollar (CAD) and Euro (EUR) are probably going to be the major actors in currency markets on Friday. Those two are pretty much the only major currencies with important economic data due tomorrow. The CAD has the CPI index, which is very closely watched by the Bank of Canada, while Germany, the largest economy in Europe, has the Producer Prices tomorrow. And we can not forget the never ending Greek debt situation, of course.

As in almost every economy in the world, the CPI is one of the most important indicators that the Bank of Canada uses to evaluate the inflationary expectations and buildups in the country. While today’s US inflation data did not really move the markets, because it came out almost exactly the same as expected, we probably should expect a different scenario with the CAD. Most of the Canadian economic reports beat the expectations for the last two weeks, so CPI could easily follow that pattern. Higher than expected inflation report will give investors another reason to believe that the rate hike by the Bank of Canada is imminent. Considering that the rumors about the rate hike have been around for some time now, even the same as expected report can become a proof for the investors that the rumors are soon going to realize. If the CPI is substantially lower than expected, however, then it can potentially lead to a sell-off, depending on how much of the recent CAD rally had a speculative nature.

Euro is a little different. While the German Producer Price is an important economic indicator, the main concern still remains the Greek debt situation. It looks like investors are not very optimistic about a quick outcome as even the positive news does not really pick up the Euro, while the negative reports drag the currency further down. Tomorrow is the last trading day of the week, so any kind of negative news can lead to another EUR sell-off, as investors usually do not like to spend the weekend with riskier assets in their hands.