CAD Wholesales Sales (MoM) (SEP) (13:30 GMT; 08:30 EST)
Expected: -0.3%
Previous: -2.0%

US NAHB Index (NOV) (18:00 GMT; 13:00 EST)
Expected: 17
Previous: 18

How Will The Markets React?

With the Thanksgiving holiday in the US on Thursday, price action in the markets could prove to be subdued as US traders leave their desks for the week. On Monday, Canadian wholesale sales are anticipated to fall 0.3 percent during the month of September, boding ill for the retail sales figure on Wednesday. While the correlation between the two reports has fallen apart in recent months, large swings in the wholesale sector report should be watched as a caution signal for the retail index. Later in the day, the US National Association of Homebuilders housing market index for the month of November will be released and may garner much attention as it is likely to fall even further to a reading of 17. The index already sits at the lowest point since reporting began in 1985, and it is likely to get worse amidst continuing problems in the mortgage market, massive inventories of unsold units, and the increasingly negative sentiment among consumers and potential buyers. Indeed, after the Federal Reserve cut rates by 25bp on October 31 to 4.50 percent, the policy statement noted that “the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.” With no end in sight for improvements in the housing market and the risks of a recession rising, the news may only exacerbate the dour sentiment on the US economy.

Bonds – 10-Year Treasury Note Futures

Thursday’s break above 112-05 leaves the trend for Treasuries looking bullish as price remains contained to an ascending channel. The next major target is the 112-21 level, while support sits at 112-05. IFR recently reported that open interest is at its highest levels since mid-August, which is supportive of the Treasury bid tone. Event risk on Monday out of the US may help lead the contract higher as well, but traders should watch US equity markets as strong rallies could weigh Treasuries down.

FX – USD/CAD

The USD/CAD rebound from 0.9059 has seen price rocket more than 800 points higher, leaving many wondering if the pair stands to continue its strong recovery or if it will correct lower. Heavy resistance looms above at the 50 percent Fibonacci retracement level of the decline from 1.0866 to 0.9059 at 0.9960, as well as the psychologically important parity level. While Friday’s price action could see USD/CAD shaken up quite a bit, next week may be a bit quieter with many US traders away from their desks, given the US Thanksgiving holiday on Thursday. Nevertheless, traders should watch event risk out of Canada and the US, as surprising results could spark volatility. First, Canadian wholesale sales are anticipated to fall slightly, boding ill for retail sales later in the weak. However, the release of the US NAHB housing market index may be a bigger market-mover, as additional signs that the woes of the housing sector – which has led to billions of dollars in writedowns for banks like Merrill Lynch and Citibank – are far from over, and could weigh USD/CAD down.

Equities – Dow Jones Industrial Average

The Dow’s bounce from the 13,000 may prove to be short lived, as Wednesday and Thursday saw the index pull back from resistance at 13,350 and back below the 200 SMA at 13,230. With inflation pressures in the US confirmed to be growing rapidly, there is little chance that the Federal Reserve will cut rates in December. Looking ahead to next week, the Dow may remain contained to a range of 12,975 – 13,350 as the Thanksgiving holiday in the US on Thursday may result in light trading throughout the week. Nevertheless, traders should watch event risk from the release of the NAHB housing market index, as additional signs that the woes of the housing sector – which has led to billions of dollar in writedowns for banks like Merrill Lynch and Citibank – are far from over and could send the Dow plummeting, with a break of 13,000 targeting the August lows at 12,517.94.

Terri Belkas is a Currency Strategist at FXCM.