The Week Ahead: Key Central Bank Decisions (BoJ, ECB) in Focus
The past week featured some key economic events, including the Bank of Canada’s interest rate and policy decision, and Australia’s latest employment data release. Stealing the limelight from these events, however, was drama surrounding a possible US government shutdown if lawmakers fail to reach an agreement by Friday night, as well as a sharp plunge in the price of Bitcoin and other cryptocurrencies due to reports of tightening regulations in Asia.
The week ahead will likely feature heightened volatility for currency markets, depending in part on developments in US government efforts to avert a shutdown, as well as two major central bank decisions from the Bank of Japan and the European Central Bank.
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NFP Recap and Week Ahead
The combination of strong job creation and unexpectedly robust wage growth prompted sharp market reactions, as anticipation of higher inflation and interest rates continued to build substantially. US Treasury yields extended their recent rise to new long-term highs, and the US dollar spiked sharply while gold prices plunged. US equity markets suffered a significant hit, extending the sell-off that began early this week on fears of accelerated interest rate increases.
Whether the jobs report’s substantially positive impact on the US dollar on Friday results in any bonafide rebound and recovery for the ailing currency remains to be seen. However, the anticipation of higher interest rates was strong and increasing well before Friday’s jobs data, and it still failed to provide the greenback with any respite from its persistent weakness.
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Gold undermined as rising yields offset support from stock market sell-off
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The Week Ahead: All eyes on inflation and interest rates
The roller coaster ride that equity markets took into correction territory this past week has been characterized mostly by dizzying plummets and much less so by hopeful rebounds. Key to the wild swings was exceptionally inflated market volatility that reflected sharply elevated fear as the short-volatility trade that had prevailed for several years rapidly unwound in the span of just a couple of days.
Helping to spark this high volatility were increased concerns about rising inflation and interest rates as signaled by surging government bond yields, notably in the U.S. Exacerbating these concerns on a global basis, the Bank of England issued a warning on Thursday that interest rates may increase more quickly than expected. When combined with other major central banks that are seen as actively moving towards policy tightening, including the US Federal Reserve and European Central Bank, this signal from the BoE further supported market expectations that the end of easy monetary policy on a global basis is likely impending.
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Week Ahead: New Fed Chair in focus as markets mull interest rate trajectory
The US dollar was still seeking direction while equity markets bounced back on Friday after a week of persistently volatile trading, as interest rates and Federal Reserve speculation continued to dominate headlines. The Fed again took center stage this past week, with Wednesday’s release of minutes from the central bank’s last FOMC meeting in late January, when interest rates were kept unchanged as expected.
Markets whipsawed severely on the release of those minutes, as investors initially took the Fed’s message to be somewhat dovish – boosting stocks and pressuring the dollar – but then digested the hawkish aspects of the minutes, reversing the initial market reactions.
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Are investors overreacting to Cohn’s resignation?
Investors panicked in response to Gary Cohn’s unexpected – although not entirely surprising – announcement that he’s resigning from his post as Donald Trump’s top economic adviser late in the day yesterday. The market’s reaction suggests investors are now even more concerned that with one of Trump administration’s strongest free trade advocates gone, that the US trade policy will head further into protectionist territory.
Investors are wondering how Cohn’s resignation will impact US trade policies and whether it will ignite a trade war, and what that may mean for monetary policy. Will Donald Trump now enact those hefty tariffs on steel and aluminium imports?
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NFP Forecast and Potential USD Reaction
For live coverage of the US Non-Farm Payroll report and real time analysis of what the numbers may mean for monetary policy expectations and the US dollar moving forward, join our Head of Research, James Chen, in a live webinar starting at 8 AM New York time on Friday, March 9th http://on.forex.com/2oZG7M5
Aside from renewed market turbulence stemming in part from ongoing political concerns in the US, positive news from the UK and EU on Monday regarding progress on a new Brexit transition deal prompted a strong rally for the British pound.
Will GBP/USD rise to re-test highs on Brexit transition deal and BoE?
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EUR/USD climbs as ECB officials fuel end of QE speculation
Ahead of next week’s major central bank meetings and key data releases, there have been some interesting moves in the markets with the EUR/USD in particular showing relative strength. Although the Federal Reserve is almost certain to raise interest rates next week, it is the European Central Bank which all of a sudden is looking to be the more anticipated meeting.
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EUR/USD: “World Cup Week” for Economic Data
The euro is the strongest major currency so far in World Cup kickoff week, perhaps reflecting the fact that three of the four biggest favorites for the tournament hail from the Eurozone.
More likely though, EUR/USD traders are keying in on a week chock full of key economic developments to help shape trade in the world’s most widely-traded currency pair:
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Tuesday: German ZEW Survey (9:00 GMT) & US CPI (12:30 GMT). The headlines out of the Trump-Kim Nuclear Summit could also have an impact on all markets.
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Wednesday: US PPI (12:30 GMT) & FOMC Interest Rate Decision/Statement/Press Conference (18:00-19:30 GMT)
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Thursday: ECB Meeting/Press Conference (11:45- 13:30 GMT) & US Retail Sales (12:30 GMT)
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Friday: Eurozone Final CPI (9:00 GMT) & US Industrial Production/Capacity Utilization (13:15 GMT)
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USD/JPY hit by dollar weakness and BoJ speculation
For now though the USD/JPY is clinging onto an important bullish trend line after the rally came to an abrupt halt around the 113 handle last week.
While a couple of important support levels such as 112.05 and 111.35 have broken down, the USD/JPY is yet to break its market structure of higher highs and higher lows. But if the most recent low at 110.80 breaks, then this would be a bearish development in the short-term outlook.
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Super Week Ahead: BOE, BOJ, FED and NFP
Here is a summary of next week’s data highlights:
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Tuesday: China manufacturing PMI, BOJ and Eurozone CPI
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Wednesday: New Zealand employment figures (late Tuesday BST/EDT); ADP private sector payrolls report, ISM Manufacturing PMI and FOMC
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Thursday: BOE rate decision (hike expected) and inflation report
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Friday: Aussie retail sales, UK services PMI, NFP and ISM services PMI
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Tonight’s BOJ meeting could well be one of the more interesting of this week’s events…and no, that’s not a typo!
Japan’s central bank has left its primary interest rate essentially unchanged in the -0.1% to 0.00% range since late 2010, preferring to conduct monetary policy through its asset purchase program (QQE).
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Source: TradingView and FOREX.com
Some market participants believe this program of stock and bond buying could be meaningfully changed for the first time since it was enacted in 2016.
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NFP Preview: Tired King Dollar Requires Big Beat
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Source: TradingView and FOREX.com. Please note, this product is not available to US clients
The consensus expectations for Friday’s headline non-farm payrolls data point to around 190,000 jobs added in July, after June’s forecast-beating 213,000 print. The July unemployment rate is expected to have dropped back to 3.9% after it unexpectedly rose to 4.0% in June from 3.8% previously. In terms of wage growth, average hourly earnings are expected to have increased by 0.3% after last month’s slightly weaker-than-expected 0.2% increase.
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Dollar extends post NFP gains
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Source: TradingView and FOREX.com
The dollar has remained bid against most currencies post Friday’s US jobs report. The greenback rose on Friday in reaction to the mixed-bag nonfarm payrolls report which showed a weaker-than-expected headline number, but that was offset by positive revisions to the previous reports and a decent but expected rise in average hourly earnings figure.
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What a week it has been!
The biggest story this week was perhaps the easing of trade wars as China apparently blinked first in its dispute with the US. Global stock markets, led by China, and base metal prices all staged a relief rally. In Europe, Brexit remained in focus and the incoming mixed headlines tossed the pound around throughout the week.
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Source: TradingView and FOREX.com
Looking ahead to next week, we have two major central bank meetings on the agenda, namely the US Federal Reserve and Reserve Bank of New Zealand both on Wednesday, while in terms of data the economic calendar will be light. It will be also be interesting to see how the EU would respond to Theresa May’s speech.
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USD/JPY in danger of breakdown as stocks weaken again
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NFP Preview: Dollar drops ahead of US jobs report
Will the nonfarm payrolls report help to limit the downside for the buck, or will the selling accelerate in what has been a poor start to the penultimate month of the year?
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GBP/JPY arrives at critical juncture as Brexit vote looms
The GBP/JPY has staged an impressive rally off its 2019 low at 131.95 which it hit on the January 2. Ahead of the Brexit vote, it has now reached the pivotal technical area between 139.35 and 140.00. This range was the last support prior to the latest breakdown. Once support, this region could turn into resistance going forward. But if the bulls reclaim this resistance zone then rates could push further higher in the short-term, with the next potential resistance coming in at 141.60.
Meanwhile, the next support levels come in at 137.65 and 136.80 respectively. If the latter breaks, say, on the back of the Brexit vote on Tuesday, then we wouldn’t rule out a potential drop towards the next psychological level around 130.00. In any case, traders need to be extra vigilant to the prospects of price spikes, flash crashes, and indeed flash melt ups, and take appropriate measures to minimise these risks. Good traders are, above all, good risk managers.
You’re invited to a special Brexit webinar
On Tuesday, January 15 the UK Parliament will vote on Prime Minister Theresa May’s Brexit deal. Political analysts are predicting a rejection in the Commons, which could lead to several different outcomes.
Join our market analyst Fawad Razaqzada on the day of the vote to look at how the vote could unfold and what the different scenarios could mean for the markets.
- Date: Tuesday, January 15, 2019
- Time: 8:00 AM ET / 1300 GMT
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GBP/USD: UK Parliament still likely to reject May’s Brexit deal
In fact, the technical outlook of the GBP/USD is beginning to look promising. After forming a couple of doji candles in as many months, there is a hammer candle in the making on the monthly chart of the cable around the 1.26-1.27 long-term support zone (see the inset). Obviously, we are in the middle of the month, and the candle is subject to change.
On the main daily chart, meanwhile, the GBP/USD has broken above its bearish channel and moved beyond the 50-day moving average. So, the path of least resistance looks to be to the upside for the pound, as things stand. However, we can’t ignore the fundamentals and importance of tomorrow’s vote. So, at this stage, we are proceeding with extreme caution despite the apparent bullish reversal pattern on the technical charts of the cable.
You’re invited to a special Brexit webinar
On Tuesday, January 15 the UK Parliament will vote on Prime Minister Theresa May’s Brexit deal. Political analysts are predicting a rejection in the Commons, which could lead to several different outcomes.
Join our market analyst Fawad Razaqzada on the day of the vote to look at how the vote could unfold and what the different scenarios could mean for the markets.
- Date: Tuesday, January 15, 2019
- Time: 8:00 AM ET / 1300 GMT
Register Now
