Weekly Market Outlook

The relevance of the Bank of Japan and the Federal Reserve bank monetary policy decisions to the currency market this week cannot be overstated, especially as the market now brims with confusion stemming from the Bank of Japan’s position. The absence of a decision will also cause a potentially high volatility, especially as the Bank of Japan plans to steepen the yield curve liable to work against any fresh policy easing. After the bond market showed some steadying in the last few days on the trail of an aggressive sell-off at the start of the week, the Bond market will also get some more attention this week in the moment following the release.

Some Major Events coming this week are;

Bank of Japan Policy Decision

The Bank of Japan is due to make its latest policy decision announcement on Wednesday September 21^st. The exact time is unknown but the announcement will come around 22:30 EST on Tuesday. Together with the regular monetary policy decision, the Bank of Japan will also announce the result of its detailed policy review that was stated at their previous meeting. This review has been requested by the Government as a result of the persisting failure of the Japanese economy to reach higher inflation levels. With the current policy review, there is an even higher uncertainty than the usual over the outcome and potential for policy changes. There is an apparent support for action, but the BoJ has failed to reach an agreement on the best course of action.

There is the possibility that the programme of bond purchases will be expanded, although there are already substantial concerns over the amount of securities held by the central bank. There is also the potential for a further cut in interest rates, although this would also be very controversial given criticism of January’s move to introduce negative rates.

US Federal Reserve Meeting

The US Federal Reserve Open Market Committee (FOMC) is due to release a statement on Wednesday September 21^st at 14:00 EST. Together with this statement the FOMC will also release its latest economic forecasts and its interest rate forecasts of individual members of the FOMC also called ‘dot plot’. The Federal Reserve Chair has also scheduled a press conference in the same day at 14:30 EST. The market anticipation for a Fed rate hike has edged higher on the trail of more hawkish comments made by the Fed vice chair Fischer and comments made by Yellen implying that there was a stronger case for higher interest rates, but the anticipations have been dampened as the chances of a move next week is now lower than 15% according to futures markets.

The FOMC is usually very reluctant to increase interest rates without the move being substantially priced in, although there is a greater element of uncertainty surrounding this meeting given mixed signals. There will clearly be increased divisions within the committee with most of the regional Fed Presidents calling for a near-term increase in rates and 8 of the 12 banks called for a discount rate hike in August. The Fed Governors overall are more cautious with notably dovish rhetoric from Brainard and Tarullo.

Eurozone Flash PMI

The Eurozone flash PMI will next week release fresh data on Friday September 23^rd at 04:00 EST. France and Germany are also set to release individual data for the index at 03:00 EST and 03:30 EST respectively. The August Eurozone PMI data also posted a general disappointing data showing a marginal fall in the manufacturing index and a slight growth in the services sector. France’s manufacturing sector has maintained a consistent slowing as German services sector also posted a slump to its lowest level since early 2015. Given the very supportive monetary policy, there will be further fears over disappointing data amid fears that structural weakness and political stresses are continuing to undermine activity. Any further deterioration in the Eurozone data this month would increase fears surrounding the Eurozone outlook. There would be additional pressure for a further policy easing by the ECB and greater demands for more aggressive fiscal policy action.

Other Releases for the Week Include:

• US Building Permits, Tuesday, 12:30


• BOC Governor Stephen Poloz speaks, Tuesday, 17:45


• US Crude Oil Inventories, Wednesday, 14:30


• New Zealand rate decision, Wednesday, 21:00


• US Unemployment Claims, Thursday, 12:30