Pound Weakness Propels Canadian Dollar Into Range

The dire state of the British economy may rest in the hands of the Bank of England. With their sluggish economy nearing recession-like numbers, the bank may be required to continue its rate cutting campaign. Canada on the other hand has seen its growth numbers bulldoze through economist forecasts. Wednesday's coordinated rate cutting effort may be the last of such actions by the Bank of Canada, but probably not for Mervyn King at the English central bank.

Trading Tip - Volatility continues to plague most currency crosses, including this one. For those uncomfortable with rapid price action, waiting for these gyrations to smooth out may be an optimal approach. In addition to a stop loss, we will look to control risk further by removing any unfilled orders by the end of next week or should spot close below 1.8813 prior to our order being filled.

Event Risk for UK and Canada

UK - Britain ends the week with the release of the Trade Balance for August. Economist forecasts call for a small increase in the balance. Since the metric is comprised of the country's exports minus its imports, one may hypothesis that the weakening Pound throughout the month may have contributed to increased exports and thus to a stronger balance. Similarly, the ailing economy may have reduced the amount of spending income that consumers are able to use for expenditures from abroad. The combination of these two factors may see the metric come in much stronger than expected. Next week however sees much more important date come into the picture. Sunday sees the release of the Producer Price Index - the cost of materials used to manufacture goods. Last month's figure came in at 6.4%, but with crude prices dropping, the metric could fall well below that. Consumer prices are also expected to be release, on Tuesday. Like producer prices, this figure may very well depend on the magnitude that the decline in oil has played on the metric. But the CPI may find itself following producer prices. That is, if producer prices see a weaker rise, consumer prices may also see lagging strength.

Canada - This North American economy sees little schedule event risk over the next 10 days. Friday will see labor data come in weaker than last month, according to economist surveys. With the unemployment rates expected to rise by 0.1% percentage points to 6.2% in September, only deviations from this estimate will probably affect the Loonie. August's International Merchandise Trade data is expected to come in a bit weaker than it did in July. With the Canadian Dollar losing significant ground against its US counterpart through that month, the metric may even come in stronger than expected.

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