Traders are in for a busy week as we deal with not one, not two, but FOUR new monetary policy decisions in the next few days!
Think you’re ready to trade the potential catalysts over the next few days?
Before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
FOMC interest rate hike (Sept 21, 6:00 pm GMT) – Surprisingly higher and stickier inflation in August led some market players to price in a 100 basis point interest rate hike from the Fed last week.
Still, more traders believe that the Fed would instead raise its rates by 75 bps for a third consecutive time in a row. After all, growth prospects in the U.S. and around the world remain uncertain. A 100 bps rate hike would also read “panic” in some circles.
We could get a “hawkish hike,” however. Keep in mind that the Fed is also printing a new set of economic projections including a dot plot that may point to 75 bps (not 50 bps) interest rate hikes in November and December.
A hawkish hike could extend USD’s rally across the board, while hints of a peak in the Fed’s rates could inspire profit-taking and risk-taking in the markets.
BOJ’s policy announcement (Sept 22, Asian session) – Markets don’t expect the Bank of Japan (BOJ) to make monetary policy changes this week.
With USD/JPY sitting at multi-year highs, though, traders expect at least some jawboning to protect the yen’s rapid decline.
SNB’s monetary policy decision (Sept 22, 7:30 am GMT) – A report printed earlier this month showed Switzerland’s annualized inflation at 3.5% in August, still higher than Swiss National Bank’s (SNB) “less than 2% per year” target.
With a strong CHF helping keep prices low and other major central banks raising their rates left and right, SNB may be comfortable enough to raise its own rates by 75 basis points this month. That would take SNB’s rates to 0.50%, its first POSITIVE print since 2011!
BOE’s interest rate hike (Sept 22, 11:00 am GMT) – Recall that the Bank of England’s (BOE) Monetary Policy Committee (MPC) postponed its decision by a week to observe the death of Queen Elizabeth II.
With an extra week to weigh growth and inflation risks, markets narrowly see a 50 bps rate hike.
I wouldn’t rule out a 75 bps hike, however. Inflation may have surprised to the downside in August but prices are expected to eventually pick up, especially after consumers and businesses use the money they’ve saved from the government’s energy bill on other economic activities.
Other notable central bank events – Other non-decision central bank events that may cause ripples in the central bankers’ local currencies include RBNZ Gov. Orr’s climate change-themed speech today at 3:00 am GMT, RBA’s meeting minutes on Sept 20, 1:30 am GMT, ECB President Lagarde’s speech on Sept 20, 5:00 pm GMT, and FOMC Gov. Powell’s opening remarks on Friday at 6:00 pm GMT.
Global manufacturing and services PMIs – If you’re looking for more pips after the central bank events, then you’ll want to stick around for the parade of manufacturing and services PMIs coming out towards the end of the week.
PMIs from Australia, France, Germany, the Eurozone, the U.K., and the U.S. are all expected to reflect further deterioration in both the manufacturing AND services sectors in September.
Keep closer tabs on releases from the Eurozone, which are already in contractionary territory and could see weaker confidence even before the winter months.
Forex Setup of the Week: GBP/USD
Will Cable see multi-decade lows this week?
GBP/USD has been in a downtrend since ̶f̶o̶r̶e̶v̶e̶r̶ finding resistance at the 1.4250 zone in mid-2021.Traders who don’t believe that GBP/USD will drop to its March 1985 lows can take cues from the bullish divergence price is making with Stochastic on the daily time frame.
Meanwhile, the 100 SMA widening its gap against the 200 SMA suggests trend continuation.
This week’s FOMC and BOE decisions will definitely factor in GBP/USD’s downtrend.
A hawkish rate hike from the Fed or a 50bps rate hike from BOE could drag Cable firmly below the 1.1500 support all the way to multi-decade lows.
On the other hand, a round of USD-selling or risk-taking could inspire a bounce and take GBP/USD to areas of interest like 1.1750.