5 Reasons Why Next Week is Big for FX So far, September has proven to be a big month for currencies. After consolidating for a large part of 2014, most major currencies hit multi-month and in some cases multi-year highs this past week. In almost every scenario, the moves were driven by the voracious demand for U.S. dollars but negative developments abroad also increased the attractiveness of the greenback. What makes the latest moves interesting is that they came during a relatively quiet week in the financial markets but perhaps it was the lack of market moving data that gave investors the perfect opportunity to digest and reassess the risk of holding other currencies. Next week will be an even busier one for the forex market because all of the speculation on what the Federal Reserve, Scotland and Swiss National Bank will say or do will be determined in the coming days. The Federal Reserve has one of those key monetary policy announcements that is followed by a press conference. Theres a ton of U.K. data on the calendar and the Bank of England will release the minutes from its last monetary policy meeting. On Thursday, the European Central Bank will also conduct its initial Targeted Long Term Refinancing Operations (TLTRO). Regardless of whether these events exacerbate or reverse existing trends, we expect the moves to be big because they will most likely harden or alter existing market sentiment. Considering that the U.S. dollar dictated most of the flows in the FX market this month, the Federal Reserves meeting will be one of the most important event risks next week. The Fed is widely expected to continue tapering asset purchases, sticking to their plan to end Quantitative Easing in October. However many questions still need to be answered such as will re-investments continue, has the central bank accelerated its timeline for raising rates and will Yellen downplay the improvements in the U.S. economy. We know the Fed plans to hold rates steady for a considerable time once QE ends but the performance of the dollar suggests that investors are hoping for a more hawkish statement that either involves the central bank dropping this line from the FOMC statement or Yellen admitting that rates could rise early next year. The more forward guidance the Fed provides on rates, the better it will be for the dollar. Ambiguous and noncommittal comments would be a disappointment that could erase a large part of the dollars gains. Unfortunately given Yellens usual disposition, chances are she will provide as little guidance as possible and for this reason we expect the dollar to trade lower on the back of the FOMC meeting. In summary, here are the Top 5 events that will make next week a big one for FX (in order of appearance): Bank of England Monetary Policy Meeting Minutes FOMC Rate Decision and Testimony from Janet Yellen Swiss National Bank Rate Decision ECB TLTRO operation Scotland Referendum
Posted on: Mon, 15 Sep 2014 10:21:06 +0000