Week Ahead Central Bank Patience Left Unanswered Questions for Markets

The BoJ and the Fed kept rates awaiting further economic data

The USD is mixed against major currencies after a week filled with central banks statements but little action. The Bank of Japan (BOJ) and the U.S. Federal Reserve published their respective rate statements less than 24 hours between them. The status quo was maintained with very little in way of changes to monetary policy. Markets were for the most part prepared for the cautious approach from monetary policy makers. The BoJ was under more pressure and has now desisted on a 2 year goal for its inflation target. The Fed seems to once again be putting all its policy eggs in the December Federal Open Market Committee (FOMC) basket.

The week of September 26 to 30 is more subdued as policymakers will stick to talking. The Swiss National Bank Chairman will kick things off on Monday, September, 26 at 5:30 am EDT. Later that same day European Central Bank (ECB) President Mario Draghi will speak at 10:00 am EDT and Bank of Canada (BoC) Governor Poloz will close the day at 7:10 pm EDT. BoJ’s Kuroda and the Fed’s Yellen will speak on Thursday, September 9. The BoJ Governor will speak at 2:35 am EDT and Chair Yellen at 4:00 pm EDT.

Oil prices have been volatile in the past two years but one major factor in crude holding on to current levels has been the comments between Organization of the Petroleum Exporting Countries (OPEC) members and other major producers about the possibility of an oil production freeze. The first attempt at the Doha summit in March was a failure but not it appears that the meeting in Algiers will be where they announce the agreement. The market has already priced in an output freeze, at record high levels, and lack of commitment to a production cut has driven oil lower ahead of the gathering of crude producers.

The EUR/USD gained 0.683 percent in the last 5 days. The single currency is trading at 1.1231 after the Fed decided to keep rates unchanged at its latest monetary policy meeting on Wednesday, September 21. The market had already priced in a cautious Fed, but Chair Yellen’s speech at the Jackson Hole central bank summit in late August raised the possibility of an interest rate hike. Those probabilities took a hit when FOMC member Lael Brainard warned against moving too fast on tightening monetary policy. Brainard dovish rhetoric was more than a match for the surprising hawkish statements from Yellen.

The September FOMC was always going to be a hard sell as the U.S. presidential election process will be gearing up for a November showdown. The market marked down the probability of a pro-active Fed specially as there are domestic and foreign risks.

West Texas gained 2.325 percent in the last week. The price of crude is trading at $44 after trading in a range between $45 and $42. OPEC and non-OPEC producers have been trying for months to stem the slide of energy prices. The biggest win came early in the year when both Russia and Saudi Arabia used the press to send very public messages of being open to a deal to freeze output. The Doha meeting was setup but ultimately failed to reach an agreement as there were divisions within the OPEC. Iran opted out of the deal as its production was still ramping up from the subdued levels imposed by Western sanctions. Production has not recovered to near pre-sanction levels and the meeting in Vienna between Saudi Arabia and Iran hints at a more amicable relationship between the two large OPEC producers ahead of Algiers.

Market events to watch this week:

Monday September 26
OPEC meeting in Algiers
4:00am EUR German Ifo Business Climate
5:30am CHF SNB Chairman Jordan Speaks
10:00am EUR ECB President Draghi Speaks
7:10pm CAD BOC Gov Poloz Speaks
Tuesday September 27
OPEC meeting in Algiers
10:00am USD CB Consumer Confidence
Wednesday, September 28
8:30am USD Core Durable Goods Orders m/m
10:30am USD Crude Oil Inventories
Thursday September 29
OPEC meeting in Algiers
2:35am JPY BOJ Gov Kuroda Speaks
8:30am USD Final GDP q/q
8:30am USD Unemployment Claims
4:00pm USD Fed Chair Yellen Speaks
9:45pm CNY Caixin Manufacturing PMI
Friday September 30
4:30am GBP
Current Account
8:30am CAD GDP m/m
9:00pm CNY Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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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