Brace yourselves, fellas! This week could be one hell of a ride with a bunch of top-tier forex market catalysts lined up. Among these are three central bank decisions that could spark strong moves for the Aussie, euro, and pound. Here’s what’s in store for each event:
1. Reserve Bank of Australia (Tues, 5:30 am GMT)
RBA Governor Glenn Stevens and his men are set to get the ball rolling with their interest rate statement during Tuesday’s Asian trading session. Forex market analysts seem to be divided on this one, with some expecting RBA policymakers to cut interest rates again and others predicting that they might sit on their hands for now.
Recall that the RBA decided to lower interest rates from 2.25% to 2.00% in their May rate statement, marking their second time to ease monetary policy so far this year. The central bank’s official statement and the minutes of the RBA meeting featured a long laundry list of concerns, which included the ongoing slowdown in China, a weakening labor market, uncertainty in the housing sector, and the negative impact of the Aussie’s appreciation on trade and inflation.
Since then, the Aussie has tumbled by a few hundred pips against most of its forex counterparts, which suggests that the RBA might not need to announce another rate cut just yet. Data from the Australian economy has been mostly weaker than expected though, increasing the odds of hearing more cautious comments and possibly another round of jawboning from Governor Stevens in their statement this week.
2. European Central Bank (Wed, 12:45 pm GMT)
On Wednesday, it will be ECB Governor Draghi’s turn to grab the mic and share their assessment and outlook for the euro zone economy. No actual monetary policy changes are expected since the ECB practically used up all the easing tools in the shed and economic data from the region has shown a bit of progress.
Take note, however, that a few ECB officials have recently raised the possibility of seeing even lower deposit rates and front-loaded QE. According to ECB members Coeure and Noyer, the central bank might need to ramp up their stimulus efforts to reduce the downward pressure on inflation. It doesn’t help that the possibility of a Grexit is still looming like a dark cloud on the region’s economic horizon, keeping the threat of debt contagion on the table.
Head honcho Draghi doesn’t seem to be bothered by all this, as he maintained that a “sustained recovery” is taking hold in the euro zone. Recent reports from the region have been so-so, which suggests that the ECB might stick to their cautiously optimistic spiel in this week’s announcement.
3. Bank of England (Thurs, 12:00 pm GMT)
Last but certainly not least is the BOE’s monetary policy statement on Thursday. Governor Mark Carney and his boys are likely to keep interest rates on hold at 0.50% and leave bond purchases unchanged at 375 billion GBP as usual.
Note that the BOE interest rate statement isn’t usually accompanied by a lot of fanfare when it comes to pound price action, as forex traders typically wait for the minutes of the meeting to be released before piling on their positions. That’s because policymakers usually stay mum about their economic assessment and outlook during the actual statement.
As much as BOE officials try to stay hush-hush about their economic plans, one of their secrets managed to slip out in public recently. I’m referring to Project Bookend, which is their codename for their confidential research on the financial repercussions of a potential Brexit – a big issue that BOE Governor Carney might tackle in this week’s announcement.
Although there’s a strong chance that these three central banks might just stand pat during their rate decisions over the next few days, it’s still important to pay close attention to what policymakers have to say and to make the necessary adjustments in your trades. I’ll keep you posted on the takeaways from these announcements to help y’all figure out what these could mean for longer-term forex price action so stay tuned!