Forex Volatility to Remain High Amidst BOJ, SNB Rate Decisions, Inflation Reports

Forex traders are likely to see choppy price action persist in currencies like the US dollar, Japanese yen, British pound, Swiss franc, and Canadian dollar this coming week amidst three central bank releases and two key inflation reports.

[B]• Bank of Japan Rate Decision - June 15[/B]
The Bank of Japan is anticipated to announce on June 15 that they are leaving rates unchanged at 0.10 percent, but this is not the part of the central bank’s announcement that will garner the most attention. Instead, the FX markets may only respond to the sentiment reflected in their subsequent policy statement. After the BOJ’s last meeting, they raised their outlook on the economy for the first time in nearly 3 years, saying that “economic conditions have been deteriorating, but exports and production are beginning to level out.” There is speculation that the BOJ will upgrade their outlook once again, and if this is the case, the Japanese yen could gain on a very short-term basis. On a longer-term basis, though, risk trends have been driving price action and the impact of positive BOJ commentary may not go very far.

[B]• Bank of England Meeting Minutes – June 17[/B]
The minutes from the Bank of England’s June 4 meeting may not be as market-moving as they’ve been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds, but there are indications that they may increase the scope of the program even further as they recently published a paper in which they sought comments on the prospect of including purchases of secured commercial paper in their Asset Purchase Facility (APF). That said, the inclusion of secured commercial paper doesn’t necessarily mean that they will allocate more money toward the APF, and this is a detail that will be critical to British pound price action as past QE announcements have weighed on the currency.

[B]• US Consumer Price Index (MAY) – June 17[/B]
The latest inflation figures for the US are forecasted to show slight increases on a monthly basis, but clear weakness on an annual basis. Indeed, headline CPI is projected to have risen 0.3 percent during May, while the core measure, which excludes food and energy, is anticipated to rise 0.1 percent. Meanwhile, headline CPI is expected to have fallen 0.9 percent in May from a year ago, the steepest drop since February 1950, compared to a decline of 0.7 percent in April. On the other hand, core CPI may have only eased to a 1.8 percent annual pace of growth from 1.9 percent, suggesting that volatile commodity prices are the sole reason for the contractions in headline inflation. Weaker than expected results have the potential to stoke deflation fears, but overall, the FX markets haven’t shown a strong reaction to past CPI reports, and this time around we may see more of the same.
• Swiss National Bank Rate Decision – June 18[/B]
The Swiss National Bank is like to leave their 3-month LIBOR target range unchanged at 0.0 percent – 0.75 percent, but the thing to watch for in the SNB’s subsequent policy statement is talk of FX intervention. Indeed, the SNB’s last statement on March 12 indicated that the central bank wanted to “prevent any further appreciation of the Swiss franc against the euro” in an effort to “counter the risk of deflation and of a dramatic deterioration in the economy.” Similar comments have the potential to drive the Swiss franc lower upon this 3:30 ET release, while a neutral policy stance and no mention of currencies will likely lead the Swissie higher.

[B]• Canadian Consumer Price Index (MAY) – June 18[/B]
According to the Bank of Canada’s last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately “eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market.” As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE, but looking ahead to upcoming reports, this shouldn’t be the case and thus, the news shouldn’t be too market-moving. Headline CPI is projected to have risen 0.4 percent in May, leading the annual rate to fall negative for the first time since November 1994 at a rate of -0.2 percent. Meanwhile, core CPI is forecasted to have risen 0.1 percent during the month, leaving the annual rate down at 1.6 percent from 1.8 percent. All told, the Canadian dollar may only respond if CPI rises more than expected (CAD bullish), or if CPI contracts on a monthly bases and drags the annual rates of price growth much lower (CAD bearish).
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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