Forex Market Outlook Central Bank Meetings On Tap

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Forex Market Outlook: Central Bank Meetings On Tap

The dollar has begun to strengthen once again but traders should be cautious. While the dollar is indicated higher the longer-term forecast for most pairs is range-bound. While the U.S. economy is stabilizing, reducing expectations for FOMC policy changes, so to is the rest of the world. No single economy stands out as a winner right now, the trade war has taken a toll on them all, but the U.S. is clearly in the strongest position. With the Phase One Deal in the bag, it is very likely the worlds economies will start to reaccelerate and that will cap gains in the dollar. Until then, this is what traders should expect this week.

The Bank of Japan is meeting this week, now, today, and will release their statement on Tuesday. The bank is not expected to change policy but may make statements supportive of the economy. The banks focus this week will likely be on the consumer. Consumer spending has taken a sharp downturn in the last months of 2020 following a sales-tax increase in October. The tax increase is expected to aid Japan’s government but not if sales slow significantly and remain subdued. The USD/JPY is in uptrend right now and moving higher. The pair bounced off of a strong support level at the start of the year and is indicated higher. Current resistance is at the 110.00 level, a move above that will likely take the pair up to 112.00.

The ECB Meets This Week

The ECB meets later this week and is also not expected to alter policy. While there have been some signs of economic stability within the region the data is still weak. What the bank is expected to do is double-down on its commitment to support the economy if needed. The EUR/USD is moving lower after confirming the top of a trading range at 112.00. Since then, the downtrend within the range has also confirmed with a fall from the short-term EMA. The pair is now expected to continue lower but there are support targets to worry about. the first is near 1.10750, a fall below there could go to 1.1050 and 1.1000 with quickness.

The BOE is meeting next week, concurrent with the FOMC, and is also not expected to alter policy. The BOE may come out with a positive statement about the economy, mostly due to the expected soft-Brexit, but there are still risks. The Brexit is expected to move forward at the end of the month but the drama isn’t over. The stage 2 round of negotiations will start on February 1st and shows every sign of being contentious. The GBP/USD has been trending sideways since hitting a one-year high in December. The pair is showing signs of support at the 1.300 level. This level is going to be key over the next two weeks, if it confirms as support traders can expect to see the recent high retested or surpassed. If support fails the GBP/USD could slide to 1.2800 or even 1.2600.

Weekly Market Outlook: Central Bank Meetings To Continue

Economic data for the week ahead will see the momentum being maintained. Following the ECB’s meeting last week, the focus shifts to other central banks.

This week, the Federal Reserve, the Bank of England, the Bank of Japan, and the Swiss National Bank will be holding their respective monetary policy meetings.

Among the various central banks, the Fed’s meeting will be closely watched.

Elsewhere, economic data over the week will see New Zealand releasing its GDP figures, while Canada will be coming out with inflation and retail sales numbers.

China will be releasing the industrial production and retail sales figures which are expected to improve.

USD Busy with Economic Reports and Monetary Policy

The week ahead will be somewhat busy as far as the US dollar is concerned. A mix of forward-looking economic reports alongside the Fed’s monetary policy decision is on the docket this week. Investors head into the week ahead with expectations.

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US Housing Data on the Tap

The week ahead will see various measures of the housing market. These include building permits, housing starts, and existing home sales reports.

Existing home sales could rebound after falling for two consecutive months. Meanwhile, building permits are forecast to slow modestly during the period.

But with the Fed meeting being the big-ticket item, the economic reports could be brushed aside.

Fed Expected to Cut Interest Rates

The central bank concludes its two-day FOMC meeting on Wednesday. The meeting will see a release of the central bank’s decision on interest rates. There will also be fresh economic projections and the Fed members’ dot plot.

Markets are already discounting a quarter basis point rate cut this week. As a result, the Fed funds rate will move down to 1.75%-2.00%. The economic projections and the dot plot will be of interest. Fed Chair, Jerome Powell will also be hosting a press conference later in the day.

The Fed meeting comes amid President Trump’s call for lower interest rates.

Will There be any Surprises from Japan?

This week will be somewhat busy as far as the yen is concerned. The week ahead will see various reports such as trade balance and inflation numbers. Not to forget, the Bank of Japan’s meeting is due on Thursday.

The events could keep the yen somewhat volatile. The BoJ meeting comes just a few hours after the FOMC meeting.

Trade Balance and Inflation Numbers

Ahead of the BoJ meeting, trade balance figures are due.

In July, Japan’s exports fell for eight consecutive months. This coincided with investor confidence turning negative as well for the first time in six years. It was as a result of a fall out with the US and China trade dispute.

On Friday, Japan will be releasing its inflation figures too. The national core CPI figures are due. Expectations show a 0.5% increase in the core CPI. This marks an unchanged print from the previous report.

Anything new from the Bank of Japan?

The Bank of Japan’s monetary policy meeting might not garner that much attention as that of the Fed. But recent narrative from various policymakers shows growing concerns. Inflation remains stubbornly low.

There is a slight consensus that the Bank of Japan could ease policy further this week. This comes amid the flattening yield curve. The solution to this is seen by lowering the short-term rates even further.

Japan’s interest rates currently stand at -0.10%. While not fully discounted, a surprise rate cut could, however, jolt the markets. It should be mentioned that the BoJ previously tried this approach when it lowered interest rates to -0.10%.

Forex Market Weekly Outlook (Nov. 27-Dec. 1)

Start your trading prep for the week by plotting these upcoming economic releases and market events on your schedule and checking out these potential plays.

BOE Financial Stability Report (Nov. 28, 7:00 am GMT)

Brexit has been on everyone and his momma’s mind for the past few months as uncertainties are starting to take their toll on businesses and financial activity. However, the upcoming bank stress test results included in the BOE Financial Stability report could shore up a bit of confidence in the sector if it shows mostly passing marks.

Note that this report is released only twice a year (less frequently than Cyclopip‘s quarterly bath time!) so it could have a pretty huge impact on pound pairs.

U.S. preliminary GDP (Nov. 29, 1:30 pm GMT)

Dollar fans may be down in the dumps after getting wind of the less upbeat view on inflation shared by Yellen and most FOMC members last week, but the upcoming preliminary GDP release could still lift its spirits.

This particular report, which is the second version of the GDP adjusted as more information trickled in, is expecting an upgrade from the initial 3.0% estimate to 3.3% for Q3.

Along with this, the preliminary version of the GDP price index, which is also used as an inflation gauge, would likely stay unchanged. Fed head Yellen has a speech scheduled after these releases, so she might touch upon the numbers real quick.

Euro zone flash CPI figures (Nov. 30, 10:00 am GMT)

The shared currency has been on quite a run recently, buoyed mostly by upbeat leading and lagging economic indicators. This has bolstered ECB rate hike expectations after the central bank starts its taper process next year.

For the month of November, the headline figure is slated to advance from 1.4% to 1.6% while the core reading could climb from 0.9% to 1.0%. Note that the German, Spanish, and French preliminary CPI readings will be printed earlier on and might provide clues on how the region’s numbers would turn out.

U.S. core PCE price index (Nov. 30, 1:30 pm GMT)

Since the spotlight has been on U.S. price levels last week, traders are likely to pay much closer attention to the core PCE price index, which is said to be the Fed’s preferred inflation measure.

Analysts are expecting to see a 0.2% gain in price levels, slightly faster than the earlier 0.1% uptick. Still, weaker than expected readings could reinforce the view that inflation would take longer to meet its target.

Canadian GDP and jobs data (Dec. 1, 1:30 pm GMT)

Friday could prove to be an eventful day for the Loonie as Canada has its monthly GDP and employment figures on tap.

The economy is expected to have expanded slightly in September after printing a 0.1% contraction for August and a flat reading in July. However, another figure in the red could remind traders that the BOC is turning its tightening bias down a notch and could keep it down for a bit longer.

OPEC meetings (Nov. 29-30)

Last but most certainly not least is the highly-anticipated OPEC summit in Vienna starting on November 29 and concluding on the 30th. The cartel is widely expected to announce an output deal extension, whether by six or nine months.

Keep in mind, however, that this scenario has been priced in for quite some time, which means that profit-taking during the actual event is a strong possibility. There might even be the slight chance that the Black Crack Mafia disappoints!

Crude oil has already been on a tear for the most part of the month, which eases the pressure for the cartel to take additional measures to prop prices higher. Russia’s participation in the deal could also be a crucial market factor.

Charts to Watch:

Euro setups from the previous week favored the bulls, so are we about to see a repeat performance this time?

USD/CHF: 1-hour

First off, mad props to Huck for catching this stellar downtrend on USD/CHF! Another test of the descending trend line and Fibs may be in the works as price is stalling close to the .9800 handle.

An upbeat U.S. GDP release or core PCE price index could bring back some love for the Greenback, but disappointing results could continue to undermine 2020 tightening expectations and simply lead to another break lower for this one.

GBP/USD: Daily

Here’s another potential play for the anti-dollar traders out there! I’ve had my eye on Cable’s descending triangle pattern for quite some time, and it looks like it has made a convincing upside break.

This might be enough to take price up to the resistance or at least halfway through, depending mostly on how Brexit-related updates pan out. Then again, the U.K. manufacturing PMI release later in the week could put fundamentals back in the limelight.

EUR/CAD: Daily

I seem to be leaning towards long-term setups lately, but I just couldn’t resist this one on EUR/CAD. Price is testing the long-term ascending channel resistance just ahead of the euro zone CPI releases and the OPEC meeting.

A combination of upbeat CPI figures from the region and a disappointing announcement from the cartel could be enough to trigger an upside break from this consolidation pattern. In that case, the pair might be in for a 1,300-pip climb, which is the same height as the chart formation.

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