October 22-26: Forex week before – BOC and ECB monetary policy on the radar!

This week has been quite productive for Greenback as the U.S. dollar index jumped near its one-week high on Thursday as treasury yields rose. Much of this came after the Federal Reserve’s September meeting showed in minutes that Fed policymakers broadly agreed on the need to raise borrowing costs further.

It was a fun week, and special thanks to the Federal Reserve, which caused huge volatility in the market as FX team leaders were able to take 28 trades, 20 of which closed with a profit, representing a 71% success rate.

The upcoming week also includes some high-impact economic events, including a monetary policy report by the Bank of Canada and the European Central Bank. Investors will also focus on preliminary U.S. GDP qoq data to determine further trends for Greenback. Here’s what to expect from them.

Watchlist – The most important economic events of the week

Monday – October 22

On Monday, the market is likely to consolidate in tight ranges due to a lack of major funds. The economic calendar doesn’t offer much on Monday, and investors want to trade with technical trading options.

AUD – RBA Assistant Gov. Debelle speaks

Guy Debelle, Deputy Governor of the Reserve Bank of Australia, is scheduled to deliver a speech at a conference of the International Swaps and Derivatives Association in Sydney. The audience question is expected at 22:35 (GMT).

Debelle is responsible for advising members of the reserve bank’s board of directors, who decide where to set the country’s key interest rates, on economic issues, and her public commitment is often used to give subtle clues about future policy shifts, so her comments may be important to the Aussie. .

Tuesday – October 23

GBP – BOE Governor Carney speaks

At 3:20 p.m. (GMT) on Tuesday, BOE Governor Mark Carney is scheduled to deliver a speech at a machine learning conference hosted by the University of Toronto. As the head of a central bank that controls short-term interest rates, it has more influence over the nation’s currency than anyone else. Traders examine their public commitment, as these are often used to throw off fine clues about future monetary policy.

However, the event may fall silent as the BOE governor is not expected to talk about the monetary policy event. However, audience questions can generate clues about upcoming policy decisions.

USD – Bostic, a member of the FOMC, speaks

At 17:30 (GMT), Raphael Bostic, president of the Federal Reserve Bank of Atlanta, is expected to speak on economics and monetary policy at Louisiana State University in Baton Rouge. The house is opened to questions from the audience, so the chances of unstructured questions and unstructured answers remain. This can be useful in trading sudden market fluctuations.

Wednesday – October 24

EUR – euro area

On Wednesday, the economic dock is full of a number of PMI numbers that come from the eurozone, but before we talk about that in detail, let’s look at what a PMI number is and how it can affect the market.

PMI is an index of purchasing managers and is a leading indicator of economic condition. Businesses respond immediately to market conditions, and their sourcing managers provide perhaps the most up-to-date and relevant insight into the company’s economic landscape.

These figures are compared with the 50 reference rate. Above 50 indicates an expansion of the industry and below indicates a decline. In fact, large global economies give out this value well above 50, making it increasingly difficult for investors to understand its effects on the foreign exchange market.

So how do you trade PMI data?

Fellas, the idea is to compare the current value of PMI with your estimate and previous data. Therefore, if the output is significantly higher or lower than the forecast and past data, it becomes very easy for us to determine the direction of movement, regardless of whether it is above or below the 50 reference values.

Now let’s take a look at the PMI data scheduled for today…

  • French Flash Manufacturer PMI – Data is due at 7:15 (GMT) with forecasts of 52.4 and 52.5 for the previous month.
  • French Flash Services PMI – In addition to the French manufacturing PMI, the services PMI will also be observed. It is expected to decline slightly to 54.7, compared to 54.8.
  • German Flash Manufacturer PMI – Data will be released at 7:30 (GMT) after 15 minutes of French service and PMI production. With a negative forecast and expected to decline from 53.7 to 53.5.
  • German Flash Services PMI – is planned with a forecast of 55.5, which is slightly lower than the previous month’s 55.9.
  • Flash Manufacturing PMI – Data is released at 8:30 (GMT) and is expected to drop from 54.7 to 54.9.

Potential impact: The single currency, the euro, may remain under selling pressure, as most of the figures are negative. European services and manufacturing PMI data have been declining since early 2018, which is why the ECB is reluctant to raise interest rates.

CAD – Monetary Policy Report

On Wednesday, the Bank of Canada will focus on other economic data.

The BOC was one of the few central banks among the liberal economies (with the exception of the US Federal Reserve) that was able to raise interest rates despite the crises and the trade war. The Bank of Canada has raised interest rates four times since 2017 and is now expected to deliver another 0.25% rate hike on Wednesday.

What are the chances of raising interest rates?

Economists are very optimistic about further interest rate hikes, and this is mainly due to the successful conclusion of the NAFTA renegotiation earlier this month. Therefore, the emotion of raising interest rates is likely to support the Canadian dollar.

What happens when the BOC raises the interest rate?

By Wednesday, Loonie will presumably trade as investors will price in the mood of a rate hike.

If the BOC actually raises the overnight rate by 25 basis points, we can see a sharp CAD buy, but it could stay short-lived and the market could reverse its profit-taking.

While in the event that the overnight interest rate does not change, we can see dramatic sales of at least 100-200 pips in the first minute of communication. So you are ready for the opportunity.

Thursday – October 25

EUR – European Central Bank policy decision

Main refinancing rate – At 11:45 (GMT) the European Central Bank will release its refinancing rate (interest rate), which is expected to remain unchanged at 0.00%. Out of curiosity, an initial rate hike is expected by mid-2019.

So what can we expect at this meeting? This is Mario Draghi and his press conference.

ECB press conference – The ECB is expected to bounce this month and investors are speculating that it could give hints on plans to start making interest on its bond purchases this year. Any update or reduction in inflation and GDP forecasts could signal the central bank’s next steps. Overall, no major movement is expected on this release.

Friday – October 26

USD – Advance GDP q / q

This is the annualized change in the inflation-adjusted value of all goods and services produced by the economy. The Bureau of Economic Analysis will release U.S. GDP data at 12:30 p.m. (GMT). Developed GDP is expected to fall from 4.2% to 3.3%. For newcomers, if the actual number exceeds 3.3%, that’s a good reason to consider two more interest rate hikes by the Federal Reserve.

Impact on various trading tools

US Dollar – GDP growth in excess of 3.3% could drive growth in the dollar. However, Greenback could fall sharply due to its release below 3.3% of GDP, as it is already below 4.2% growth in the previous quarter.

Gold – Similarly, negative GDP will drive waves in gold due to the negative correlation between gold and the dollar.

Stock Indices – As you know, better-than-expected GDP is considered good for the economy. But at the same time, it raises the chances of raising interest rates. Therefore, with the release of positive GDP in the US stock market indices, we can only expect a bullish momentum for the initial hours. The chances of a bearish turnaround remain there, as stock market investors don’t really like higher interest rates.

That’s pretty much it for now. We’ve just reviewed everything you need to know before trading next week. All the best and pay attention to FX executives for exciting trading options and forex trading signals.

Have a fantastic weekend.