FOMC To Dominate This Week’s Forex Moves
With all eyes on this week's crucial FOMC decision, last week's thin economic calendar failed to strengthen the greenback, ignoring the upbeat Jobless Claims and PPI details, as uncertainties for the first Fed rate hike since 2006 forced market players to trim some of the USD longs, resulting into the negative closing of US Dollar Index (I.USDX). Moreover, the year's low by preliminary reading of UoM Consumer Sentiment, coupled with Chinese pessimism, favored forecasters expecting no interest-rate change during the current FOMC and triggered increased USD selling pressure. The Euro region currency observed fragile trading sessions with no major releases while the GBP strengthened against some of its counterparts with the BoE seeing UK inflation picking up around the end of the year and sees no effects of Chinese turmoil on Britain's economy. Further, the JPY plunged against majority of its counterparts as the Japanese policy maker signaled further monetary easing while the AUD registered considerable gains with better employment number and the NZD failed to decline much even after the RBNZ cut its benchmark interest rate, as expected.
Looking forward, two-day monetary policy meeting by the US Federal Reserve is likely to command this week's forex moves where the FOMC would reveal whether the central bank will be the first developed economy bank to opt for monetary policy tightening or not. Moreover, monetary policy meetings by the Bank of Japan (BoJ) and the Swiss National Bank (SNB), coupled with inflation numbers from US, UK and EU, and the UK labor market details, are some of the second tier details/events that could continue making the forex traders busy during the week.
All Eyes on Fed
Stronger labor market details and upward revision to the GDP numbers keep all eyes stick on this Thursday's FOMC announcement to see whether the US central bank triggers its first interest rate hike since 2006 or postpone it to next meeting. Moreover, Inflation reading, another important part to determine the Fed move (in addition to already released job details), manufacturing indices and the monthly US Retail Sales, are some of the additional numbers that could help foresee near-term USD moves.
Prior to the Thursday's FOMC, monthly details of US CPI, scheduled for release on Wednesday, becomes an important part of data flow to determine the Fed's move. Even if the US job numbers and the growth details have impressed some of the policy makers, favoring interest rate hike, the inflation mark, previously at +0.1%, is way too less than the 2.0% target set by the US Fed and restricting any monetary policy change. The Core CPI is likely to match its previous 0.1% mark. Should the actual CPI release matches its -0.1% forecast, odds limiting the interest rate hike increases, providing additional reason for the policy makers in delaying the much awaited interest rate lift-off.
Monetary policy meeting by the Federal Reserve, scheduled to announce its decision on Thursday, becomes unarguably the most important event of the week when the policy makers could decide whether the world's largest economy is capable enough to trigger first interest rate hike since 2006 or it is still better to wait for some time. In addition to the interest rate announcement, the quarterly FOMC Economic Projections and the speech by the Fed Chair, Janet Yellen, following the rate decision, are also important details to be revealed on Thursday that could determine USD moves.
Considering the sustained improvement in US labor market details, together with better growth numbers and hawkish comments by some of the policy makers, chances of the interest rate hike during the current year can't be denied. However, recent financial turmoil, mainly pressured by Chinese pessimism, keep restricting the central banker from introducing an interest rate lift-off at this meeting. Hence, uncertainty concerning the interest rate alternation could continue hurting the USD ahead of the monetary policy decision. Should the Fed fails to announce the much awaited interest rate hike, the greenback is likely to witness considerable downside on an immediate basis; however, signals to hike the interest rate during the December meeting, coupled with improved economic projections, may help limiting further downside by the US Dollar.
Other than these top-tier economic details, monthly reading of Retail Sales and Empire State Manufacturing Index, scheduled for Tuesday release, coupled with Building Permits, Housing Starts and Philly Fed Manufacturing Index, to be announced on Thursday, are additional numbers that could help determine intermediate USD moves. While the manufacturing indices are showing unclear picture with Empire State Manufacturing Index expected to reverse prior declines, the slow growth in Retail Sales and weakness in housing market numbers could continue signaling further downside by the greenback unless there are strong positive numbers to read.
UK Job numbers And CPI To Determine Pound Trades
With the recent BoE comments that the CPI is likely to witness up-moves soon, the monthly reading of UK CPI, scheduled for Tuesday release, coupled with the Wednesday's job market details, could provide considerable GBP moves. Moreover, the Retail Sales, contributing majority of UK GDP, scheduled for Thursday, is another number to help forecast GBP strength.
While the CPI is likely to print a lesser than prior 0.1% reading, to 0.0% mark, plunge in Claimant Count Change, to -5.1K v/s -4.9K, coupled with higher average earnings, to 2.5% against 2.4% prior, could strengthen the policy makers comments that the recent Chinese pessimism isn't hurting the UK economy and can help trigger considerable GBP up-move. However, a negative reading of CPI could counter the recent hawkish comments from BoE and may force the UK currency to witness near-term decline.
Fewer European Releases to Help Forecast EUR Moves
Unlike US and UK, the European economic calendar has fewer releases scheduled during the current week. Amongst them, the ZEW economic sentiment indices for EU and Germany, scheduled for Tuesday, and the Final reading of CPI, to be announced on Wednesday, are the only reading to help trigger some EUR moves. The CPI is likely to match its initial forecast of 0.2% while the ZEW indices are expected to register weaker than previous readings, indicating EUR downsides, should the actual releases match forecasts.
BoJ, SNB and New-Zealand GDP Are Amongst The Rest To Fuel The Forex Market
Recent comments by the Japanese policy maker, indicating further monetary easing in near future, helped the upcoming BoJ meeting, scheduled for Tuesday, to gain more market attention. Even if the central banker isn't expected to alter its current monetary policy, comments revealing weaker economic situation, coupled with the hint to further monetary easing, could provide considerable downside to the JPY. Alternatively, discussion relating to positive economics by the BoJ Governor, after the rate announcement, may reimburse some of the recent JPY losses.
After the January's surprise interest rate cut, that shook the global financial markets, the Swiss National Bank has been on hold and hasn't discussed any further measures to monetary policy alteration. The central bank is expected to maintain its intact status during its Thursday's meeting as well and is less likely to affect the CHF moves. However, dovish remarks in the monetary policy statement and/or surprise interest rate cut, could become drastically negative for the CHF.
Quarterly reading of New-Zealand GDP, scheduled for Thursday, becomes important in forecasting further moves of the RBNZ after the central bank recently said that it won't retreat from further interest rate cuts, if the economy needs. The growth measure is likely to print 0.6% mark against its 0.2% previous release and can help expect a policy halt during next RBNZ meeting, On October 28. However, weaker than expected reading could strengthen the speculations that the central bank would continue cutting its benchmark interest rates, providing further NZD declines.
Follow me on twitter to discuss latest markets events @Fx_Anil
