The US central bank has no plans to raise rates Opting Instead of making use of rhetoric and forecasts
central banks around the world are running out of options to stimulate growth. The European Central Bank (ECB) delivered during the last week in a better than expected easing of monetary policy measures. With lower rates deeper into negative territory, the central bank announced an expansion of 20 billion euros to its quantitative easing (QE) program is now € 80 billion per month. The EUR did not react as expected and appreciated after comments from ECB President Mario Draghi and is now waiting for the Fed to do their part.
The US Federal Reserve will release the Federal Open Market Committee statement (FOMC), Wednesday, March 16 at 14:00 EDT. The US central bank is expected to keep the federal funds rate unchanged at <0.50 percent that the economic fundamentals are weaker than in December that prompted the first rate hike after the start of monetary easing it 7 years ago. The market will focus on economic projections and the language of the rate of return. The press conference of President Janet Yellen begins at 2:30 pm EDT and will give more insight for the confidence of investors in the Central Bank on the state of the US economy. The latest FOMC press conference following the December rise awaited rate.
The EUR / USD has been trading in a narrow range after the market reaction to the European Central Bank (ECB). The EUR depreciated after the announcement of stimulus and additional deeper negative rates, to reverse the course as ECB president Mario Draghi took the stage to give more details on the easing program. Draghi's comments do not provide for deeper rate negative and rejecting a system with two levels of deposit was interpreted by the market as the CB involves.
The euro is trading at 1.1110 and had a wide range weekly from 1.0822 all the way to 1.1218. The high and low of the week both came after the announcement of the easing policy and press conference of the ECB Mars. The single currency remains caught in a tight trading range waiting for the FOMC statement that the market needs the other shoe to drop on monetary policy divergence to set the price in the foreign exchange market.
The EUR / USD depreciated slightly Tuesday. The euro lost 0.028 versus the USD. The biggest movers of the day were the commodity currencies because of the volatility of the energy market. The USD rose against the CAD (0.73 percent) AUD (0.77 percent) and NZD (1.34 percent). Brexit fears have taken a toll on sterling. The Swiss franc is considered a safe haven and seems attractive to investors seeking to hedge against the impact of a Brexit. The GBP lost 1.19 percent against the CHF and 1.24 percent versus the USD.
U.S. Economic foundations have been mixed. Employment continues to be the strongest pillar, but deep cracks show through retail sales as consumers save more and spend less. The Fed had planned four rate hikes in 2016, but with the current economic conditions these expectations could get adjusted during the release of the Fed's economic projections. There is concern in the markets that the US central bank could point to June as strong as possible FOMC meeting to announce a follow-rising rate in December.
The CME FedWatch tools points to a 94.2 percent chance that the Fed will keep rates on hold at 0.50 percent in March. Chances improve for the June meeting with a 23.9 percent price increase rate against 71.8 percent no change and a small 4.3 percent chance of falling rate.
The market saw the ECB to do their part and now looking to Washington to act on the solidification of a monetary policy divergence. President Yellen and the Fed have endured their own communication disasters and be careful to try to give enough information to guide the market in the direction that is beneficial to the economy of the United States. Investors are increasingly weary of central bank actions and rhetoric so that the task ahead for the Fed is not easy.
Fed to stay on hold and choose words wisely
After keeping the rate of quantitative easing (QE) and low following of the crisis in 08, the US Federal reserve made the trek premier awaited to begin a tightening cycle in December. weak economic indicators and a struggling global stock market after the Chinese crisis earlier this year did the 4 planned increases in rates in 2016 farfetched. The sudden drop and the oil price recovery had a profound impact that commodity currencies outperformed one day, only to give gains the next day that volatility is powered by a global production record with a freeze on oil production possible in the near future.
The Federal Open Market Committee (FOMC) will release its statement Wednesday, March 16 at 14:00 EDT. Given the market reaction was aggressive showing by the European Central Bank (ECB), the Fed will be more careful in how he crafts his rhetoric as it will not give advice on the next move by the central bank . The minutes of the meeting in December released in January showed that there were members who are not entirely convinced that the economy was ready for a rate hike. The horrible early validated some of the concerns of its members and may delay monitoring rate hike until June, but then the election cycle, it would be difficult for the central bank to intervene without the experts accuse the Fed having . a political agenda
Forex market events to watch this week:
Wednesday, March 16
8:30 CAD manufacturing sales m / m
8:30 annual budget GBP output
8:30 USD CPI m / m
10:30 USD crude oil inventories
2:00 pm USD FOMC economic Projections
2: 24:00 USD FOMC declaration
2:00 p.m. USD Federal Funds Rate
2:30 p.m. USD FOMC Press Conference
5:45 p.m. NZD GDP q / q
8:30 p.m. AUD employment Change
* All times EST
for a full list of events planned in the foreign exchange market check the economic calendar MarketPulse
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