Central Bank Cacophony

Central Bank Cacophony

It will a busy Central Bank week this week, with the Fed, BoJ and BOE all on tap. The markets are fully subscribing to a March Fed rate hike, so the focus will be on the dot plots and any hint of accelerating the path of interest rate normalisation.

Beyond the central banks, the markets will deal with the messy and expensive Brexit divorce proceedings and a possible article 50 trigger. And of course, markets will be closely eying the Dutch elections as tensions rise across Holland, while US President Trump meets with German Chancellor Merkel. Regionally, US Secretary of State Tillerson visits Asia amid rising geopolitical noise, plus the first budget outline for the US fiscal 2018 year is expected along with a confrontation about the US debt ceiling, which could be the moment of truth for the markets.

While the NFP was supposed to be the key attraction Friday, the debate surrounding the ECB and President Trump outstayed the NFP effect. Friday’s solid NFP data will certainly open the door for the March Hike, but the print was simply not strong enough to move the Fed dial for repricing in June, and with dealers underwhelmed, they were quick to take profit on long dollar positions heading into the weekend.

Australian Dollar

The dollar rally, for the time being, has been less significant against the AUD, and with risk trading well, the market has been unable to move below.7500, likely supported by a relatively hawkish RBA statement.

Attention focuses on expectations surrounding commodity prices, and while the oil markets roll over, sentiment in the hard  commodity space remains buoyant which should be supportive to the Aussie dollar

Euro

Draghi’s forward guidance in the Q&A (despite the statement unchanged) has left the Euro looking solid as traders’ pile into the Euro crosses, particularly against the JPY and CAD. There has been an aggressive move higher on the Euro as political risk positioning unwinds with French election volatility dropping, as it appears a Le Pen victory was overestimated and as traders establish newly minted long Euro positions on Draghi’s suggestive guidance.

Japanese Yen

It is widely expected that the BOJ money printing presses will continue to churn and it is unlikely that the BOJ, with USDJPY trading below 120, will risk any shift in policy. In the meantime, it is over to the Federal Reserve board to do the heavy lifting.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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