FX: Canadian CPI, Quadruple Witching

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Early gains in the currency market are beginning to fade, particularly for the EUR/USD, which has ben experiencing unusual intraday volatility today. The lack of economic data out of the Eurozone and the U.S. makes the wild swings even more peculiar but flows out of Switzerland and the Middle East along with reports that demands from Italy could delay German ratification of the European Stability Mechanism (Europe’s permanent rescue fund) explains part of the moves. However considering that it is also quadruple witching today, where contracts for stock index futures, index options, single stock options and futures all expire on the same day, unexplained swings are not that unusual. Quadruple witching only happens 4 times a year on the third Friday of March, June, September and December and traditionally has been positive for the stock market. If currency traders continue to take their cues from equities, this could mean a positive close for risk currencies as well. Quadruple witching hour, which is last hour of trading (3 to 4pm ET) usually brings about even more turbulence in the equity market and hence currency market.

The only piece of North American data on the calendar today is Canadian consumer prices and according to the report, inflationary pressures in Canada increased last month by 0.2%, which was slightly less than expectations but up from a decline of 0.1% in July. Core prices rose 0.3%, which was in line. Wholesale sales in Canada on the other hand dropped 0.6%, a steeper decline compared to the prior month. Overall, these latest economic reports continue to question of how much longer the Bank of Canada can hold onto their hawkish monetary policy stance. At bare minimum, they may need to move to neutral when they next meet. Earlier this month, the Bank of Canada reminded the markets that they are looking to raise rates, making them the only G7 central bank thinking about tightening monetary policy.

Kathy Lien
Managing Director

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