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Weekly Market Review 16-22/11/2015

Central Banks’ Wild Ride

It’s that time of the month again; when the world’s major central banks take markets on a roller coast ride of ups and downs and downs and ups. It begins on Wednesday in the US with the week’s main event. That’s when the Federal Reserve Bank releases its minutes from October’s policy meeting. Then on Thursday, we have a monetary policy decision and rate announcement from the Bank of Japan. Later that day we will get the minutes from European Central Bank’s latest policy meeting.

Dollar Could Go into Overdrive on FOMC Minutes

On Wednesday the Federal Reserve Bank will release October’s policy meeting minutes. Generally, the outcome of the Fed’s policy decisions are made immediately known. However, the meeting’s protocol or minutes can often help investors better understand an impending policy change. Markets know that the Fed is leaning heavily toward a rate hike, but the timing has always been an issue. One of the Fed’s mandates is to ensure full employment in the US. The protocols, then, could reveal how much importance is being placed on the labor aspect.

If that is the case, then the latest NFP results could put that question to rest. October’s jobs numbers smashed all estimates, with new private sector jobs amounting to 271,000—well above the 185,000 predicted. That makes the likelihood of a rate hike much closer than ever before. Investors will want to closely scrutinize the minutes to better understand the opinions and voting history of the FOMC members. It could also help to validate bets on a December rate hike, which would push the US Dollar higher.

Will the BOJ Finally Let Loose?

On Thursday, we will get the BOJ’s monetary policy decision. The BOJ has made it clear that they’re on a loosening trajectory to stimulate dismal growth. Still, they can and do surprise markets with decisions to “wait-and-see.” However, the pressure has been mounting from all directions for the BOJ to add more stimulus. Previous actions, including massive amounts of quantitative easing, resulted in only lackluster improvement.

That pressure is coming, in large part, from the Japanese government. The success of Abenomics, a concept spearheaded by Shinzo Abe, the Japanese Prime Minister, is still in question. The BOJ Governor, Haruhiko Kuroda, wants Abe to be more proactive. Markets will be waiting to see if the BOJ yields or if, once again, it intends to sit out on the sidelines.

Euro in Focus as ECB Minutes Scrutinized

Also on Thursday, we will get the minutes from European Central Bank’s latest policy meeting. Like the Fed minutes, the ECB protocol will provide insight into the thinking of the ECB’s Governing Council. Expectations are running high that the ECB will move for more stimulus in December. What investors will be looking for are some signs that Draghi is about to act. Market players have been very anxious for a clue.

Many thought they might have gotten one last Wednesday when Mario Draghi spoke in London. For 20 minutes he talked about the future of the Eurozone banking system, making a case for a proper banking union, a deposit insurance scheme and pooling sovereignty. Unfortunately for FX traders, he didn’t drop even one single hint on future easing. That makes this protocol even more important for the Euro’s future.

Down to Business

If everything goes as planned, we’ll soon see a higher Dollar and a lower Euro and Yen. For that to happen, the Fed’s FOMC minutes need to be clear and transparent. Investors need to see that the Fed is on an imminently hawkish trajectory. Conversely, the BOJ needs to push through more easing plans. And the ECB’s protocols need to clearly indicate more easing in some way, shape or form in the very near future.

For the EUR/USD, the bottom line is that markets want to some clarity before they embark on another round of Dollar buying and Euro selling. The FOMC and ECB minutes could certainly provide that clarity.

On the plate

RBA Meeting Minutes(Tuesday) – If the minutes reflect a dovish RBA, the Aussie could slide lower.

US CPI & Core CPI(Tuesday) – If US core inflation moves above 2% , that will be perceived as highly bullish for the dollar.

ECB Non-monetary meeting(Wednesday)- This is not a rate decision meeting. But if some sort of an outlook on the Eurozone economy is echoed from the meeting it might have some impact on the Euro.

FOMC Minutes(Wednesday)- The main event of the week. If the minutes reveal a hawkish Fed , it will pin down expectations of a rate hike in December. This could potentially ignite a broad dollar rally.

BoJ Rate decision(Thursday)- If the BoJ will unleash more easing , the Yen could turn bearish once again.

ECB Meeting Minutes(Thursday)- If the ECB minutes reveal a high likelihood of more easing in December the Euro could resume its selling momentum.

Chart of the week:

SPX500

Economic Calendar:

Real Time Economic Calendar provided by Investing.com.

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