Traders on the Fence Ahead of Fed and BoJ

A quiet session in Asia overnight is offering little direction for European traders ahead of the open on Tuesday, as people appear to position themselves nicely on the fence ahead of two major central bank decisions on Wednesday.

It’s not unusual for traders to adopt a more cautious approach ahead of these events, particularly when we have two on the same day, both of which have the potential to create huge amounts of volatility in the markets. Markets appear quite confident about what the outcome of the Federal Reserve meeting will be, although they have often thrown a few surprises our way in the past, while the Bank of Japan could do any one of a number of things depending on the outcome of its review, which poses a problem for traders positioning themselves ahead of the announcement.

Market Unsure of Bank of Japan Next Move

The BoJ has a particularly difficult job as it appears to be limited in what it can do that will both help it achieve its inflation target, which it is currently far from doing, and appease the markets and prevent the yen appreciating once again, making its job even more difficult. The move into negative interest rates previously had the opposite effect of what was intended and its experiment with quantitative easing appears to be reaching its limits. If the central bank doesn’t find another alternative, we could once again see the yen catching a strong bid.

We’ll have to wait for this afternoon for some economic data from the US, with building permits and housing starts for August being released. In all likelihood, these are likely to have little impact ahead of tomorrow’s events, with movements in commodities, particularly oil, potentially sparking some life into the markets once again.

XAU/USD – Gold Edges Higher After Late Week Losses

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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.

Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam