Weekly Market Review 05-11/10/2015

Central Banks to draw Market’s Focus

The trading week is generally intense, but never more so than when there is an interest rate decision or protocol of it from one of the world’s central banks. Next week, we have not just one, not even two, but four major events. First, on Wednesday, the Bank of Japan will release its decision. On Thursday, the Bank of England will render its decision. Then, later in the day, we will get the European Central Bank protocols of its latest policy decision. Last, but not least, late the Federal Reserve will release its latest meeting minutes and that will be the market’s main mover.

Bank of Japan Decision: An Open and Shut Case?

Market sentiment is ferociously swinging from side to side, for and against more easing from the BOJ. Valid arguments can be made in either case. The economic situation in Japan has not improved and many believe a recession is imminent. The most recent data showed a decline in industrial output which validates that scenario.

However, as the BOJ Governor recently emphasized, the Japanese government needs to step up its game via fiscal policy and reforms. Governor Kuroda believes that monetary policy has reached its peak effectiveness. The question is can Kuroda continue to just stand by as the Japanese economy implodes? The market consensus doesn’t think the BOJ’s resolve is really that resolute.

Bets are growing for the BOJ to shake its proverbial head in resignation and step up to the plate, once again.

Bank of England Decision: Will Growth Weigh?

Last month, the Bank of England maintained its benchmark rate at 0.5%. Like the Fed, many had expected the BoE to begin monetary tightening. The question is has the BoE missed its golden opportunity? The Office of National Statistics reported last week that GDP fell to 2.4% (year-over-year) for Q2 down from 2.6%, falling short of expectations.

The Monetary Policy Committee may need to rethink its position entirely. Rather than tightening, or even the status quo, is more easing on the horizon? Adam Haldane, the BoE’s chief economist, thinks so and hinted that the MPC might consider cutting rates to negative.

European Central Bank: Is Draghi Boxed In?

The ECB’s release of meeting protocols will give us some insight into the thinking of the Mario Draghi and the Governing Council and how they might respond to new events and data. Last week, Eurostat reported that inflation in the Eurozone fell below zero. Though that is the first instance of negative inflation, it could be a concern for the ECB chief.

Mario Draghi had recently hinted that the ECB might have to provide even more stimulus to spark a flailing economy. Will the negative inflation rate be the spur for Super Mario? Draghi has had the “big guns” out for some time now, so the question is what’s left in the ECB’s arsenal?

FOMC Minutes Could Enlighten

The FOMC meeting minutes will be the market mover of the week. Last month, markets were positive that the Fed was on the brink of lift off. In other words, a rate hike was imminent. When that didn’t occur, it left markets wondering what happened.

Well, with the release of the FOMC minutes we’re going to find out. What markets want to know is how many of the Fed’s FOMC members were for a rate hike and how many were against. With that, the markets should get a clearer view of the timing of the Fed’s next rate hike.

Down to Business

Consider the BOJ, BoE and even the ECB the opening act because it really is all about the Fed minutes. If the BOJ, BoE and ECB expose an easing bias and seem ready to pour on more stimulus that will enforce the Dollar’s rally. If the Fed minutes hint at a fairly imminent rate hike, that will further enforce the Dollar’s rally.

The bottom line is this: If the ECB appears to be on the verge of further easing and the Fed looks to begin its tightening cycle, you can expect that the next target for the EUR/USD will be parity.

On the Plate

RBA Rate Decision (Tuesday): If the RBA Slashes the benchmark rate the Aussie could be hit with more loses.

BoJ Rate Decision (Wednesday): If the BoJ rules out more stimulus the Yen could rally

ECB Minutes (Thursday): If the ECB minutes , the protocol from the last meeting will reveal if the ECB is indeed leaning towards more stimulus and if it is , it could push the Euro closer into parity with the dollar.

FOMC Minutes (Thursday): The main event of the Week. If the Fed protocol reveals a rate hike in October is likely, the dollar could surge.

 Chart of the week – GBP/USD


Economic Calendar:

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