Week Ahead in FX March 15-20 USD Rally to be Tested by FOMC Patience

The Federal Open Market Committee (FOMC) will release its interest rate statement, and Federal Reserve Chair Janet Yellen will speak at a press conference on March 18 at 2 p.m. ET, in the most anticipated event for next week in the forex market.

Central banks will be well represented this week as the Reserve Bank of Australia (RBA) and the Bank of England (BoE) will also publish minutes from rate-setting meetings earlier in the month, as well as the Bank of Japan (BoJ), which is scheduled to deliver a monetary policy decision on Monday.

There are no major changes expected in the actual rate decisions, but the rhetoric that will be delivered via statements and press conferences will give further direction to the market.

Here is more information on the week’s top forex market events:

Reserve Bank of Australia Meeting Minutes on March 16

The Australian central bank will release the minutes from its benchmark rate-setting meeting that took place on March 2. The RBA decided to hold rates at a record low of 2.25%. The market expected another rate cut after the surprise rate cut in February. The central bank has hinted that the Australian dollar is overvalued and the RBA’s Assistant Governor Christopher Kent made a comment this week about lowering the interest rate further in upcoming meetings. The minutes from March 2 will give further insight into what policy members discussed and what the background of the final call to hold rates was. Employment, business confidence, and the fears of a housing bubble will be present in the notes.


The AUD/USD initially appreciated after the lack of a rate cut was announced but since March 2 the pair has depreciated 1.95%

Bank of Japan Monetary Policy Statement and Press Conference March 16

The BoJ is not expected to announce any changes to its monetary policy on March 16. Six out of nine of the BoJ’s board members have made public statements preparing the market for a lack of inflation in the coming months. The expansive monetary policy put in place after Governor Haruhiko Kuroda joined the central bank to make the 2% inflation a reality has devalued the JPY, but it has not yet persuaded corporate Japan to increase investments or raise wages. The Nikkei touched a 15-year high as there is optimism around exporters faced with a weaker currency. The BoJ has attacked publicly the biggest reason for adding more stimuli: to create a lower inflation expectation. With the stock market roaring, it can wait until further action is needed if lower oil prices continue.


The USD/JPY continues to head higher as the monetary policies of both nations continue to diverge. The market is awaiting the Fed’s decision, and more importantly, any signals about the impending rate hike. Japan, on the other hand, will keep an expansionary policy in the hopes it can reignite consumer spending and create a virtuous cycle of higher wages and consumption.

German ZEW Economic Sentiment on March 17

The ZEW survey has a pool of 275 participants that includes investors and analysts that are highly informed with the economic health of Germany. The reading has been recovering from a near two-year low in October 2014. The survey registered a reading of 53 last month an 11-month high, but it was lower-than-expected given the improving German economy. Back in October there were a lot of doubts around the austerity and budget balancing measures Germany was attempting. The market hoped that Germany would lead by example in boosting the economy through extra liquidity. Germany has stuck to its principles and awaited the announcement of the European Central Bank’s (ECB) quantitative easing (QE) program. The market is forecasting a 58.9 reading that could end in the optimistic range given current global economic conditions, but it will be surprise if the final ZEW survey is not close to expectations even if it missed them.

Bank of England MPC Official Bank Rate Votes on March 18

The BoE held rates on March 5 to no one’s surprise given the change in the economic outlook in the last quarter of 2014, and the upcoming general elections in the U.K. The vote is expected to be 0-0-9, a unanimous vote to keep rates unchanged. It would be the third time there is a lack of dissent in the Monetary Policy Committee after the 2-0-7 trend which meant two of the nine board members wanted to increase rates. Given the political atmosphere and the macro headwinds coming from Europe and further abroad, there is very little the BoE can do but be patient and the minutes should reflect that.


Federal Reserve Statement on March 18

The big event this week will have the market have a laser-like focus on the FOMC on its rate decision, and more importantly, on its statement and press conference that goes along with it. The federal funds rate is not expected to change at 0.25%, but market watchers will be scouring the statement looking for changes in the language, particularly the possible exclusion of the word “patient.” Yellen has already gone on the record saying even without the word in the statement, it does not necessarily signal a rate hike.


The mixed data going into the FOMC pow-wow with a strong nonfarm payrolls (NFP) number, but weak U.S. retail sales, has divided opinion in two camps. The summer rate-hike proponents highlight the need for a rate hike sooner rather than later based on the employment recovery and the pace of the growth of the economy. Fall rate hike supporters are more concerned with the weak spending from consumers. Jobs have returned, but the wages have not kept up with the growth hinting at lower disposable incomes. Lower energy prices are putting more money in consumers’ pockets, but they are opting not to spend. The comments from the Fed about international developments validated the patience exhibited so far as macro headwinds continue to threaten the U.S. recovery, as there will be lower demand for U.S. goods as the American dollar appreciates.

The EUR/USD continues to head lower touching multiyear highs on a daily basis. The U.S. retail sales disappointment was only able to slow down the rally as rate divergence continues to drive the price of the EUR towards parity. The ECB’s QE program was officially announced in January, but it was only this week that it was launched. A strong U.S. NFP, and the start of European QE, has proven too strong for even the weak retail sales hurdle to stop. The FOMC is the next obstacle facing the USD rally, and it will be up to Yellen to steer the direction of the currency.

Visit the MarketPulse Economic Calendar for more details and the full list of forex market moving events.

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.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza