Talking Points:
- British Pound May Rise on Status-Quo Bank of England Policy Announcement
- Japanese Yen Edges Higher as BOJ Minutes Dent Stimulus Expansion Hopes
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A monetary policy announcement from the Bank of England is firmly in focus in European trading hours. Policymakers will unveil an updated quarterly Inflation Report as well as minutes from the meeting of the decision-making MPC committee along with the rate decision. Governor Mark Carney will also hold a press conference.
The broad trend in UK economic news-flow has steadily improved since mid-June. A steady uptrend in revisions to economists’ forecasts is also encouraging. This would probably set the stage for BOE tightening if inflation readings were not stubbornly stuck in a 4-year down trend. Last year’s oil plunge is only half of the story however: core inflation is also worryingly low.
Beyond energy prices, the Bank has linked sluggish price growth to the impact of Sterling strength. Indeed, the UK unit has trended higher against the currencies of key trade partners, weighing on import costs. On balance, this means the BOE will probably opt for a wait-and-see posture for now, marking time until it can assess the degree to which on-coming ECB easing and Fed tightening alter FX headwinds while the oil slump drops out of year-on-year CPI calculations.
Options pricing suggests investors are biased in favor for a stronger British Pound against most of its top counterparts. In this context, a result that keeps mid-2016 tightening bets intact against a backdrop of swelling global growth fears may give the currency a near-term boost, but follow-through might be limited. It may also hurt risk appetite however, weighing on sentiment-linked FX like the Australian and New Zealand Dollars.
Currency markets consolidated in narrow ranges in Asian trade as a quiet economic calendar allowed investors to digest recent volatility. The Japanese Yen edged slightly higher after minutes from October’s Bank of Japan policy meeting revealed a sanguine tone, hinting an expansion of the QQE stimulus program is unlikely in the near term.
Officials said the existing easing effort is exerting the intended effects while the trend in inflation continues to improve. Most BOJ members believe price growth will accelerate when the impact of last year’s crude oil plunge fades through re-basing.
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Asia Session
| GMT | CCY | EVENT | ACT | EXP | PREV |
|---|---|---|---|---|---|
| 23:50 | JPY | Bank of Japan Oct. 6-7 Meeting Minutes | - | - | - |
| 00:30 | USD | Fed’s Fischer Speaks to National Economists Club | - | - | - |
European Session
| GMT | CCY | EVENT | EXP | PREV | IMPACT |
|---|---|---|---|---|---|
| 06:45 | CHF | SECO Consumer Confidence (OCT) | -17.0 | -19.0 | Low |
| 07:00 | EUR | German Factory Orders (MoM) (SEP) | 1.0% | -1.8% | Medium |
| 07:00 | EUR | German Factory Orders (YoY) (SEP) | 1.9% | 1.9% | Medium |
| 08:00 | GBP | Halifax House Prices (MoM) (OCT) | 0.6% | -0.9% | Medium |
| 08:00 | GBP | Halifax House Price (3Mths/Year) (OCT) | 9.5% | 8.6% | Medium |
| 08:15 | CHF | CPI (MoM) (OCT) | 0.0% | 0.1% | Medium |
| 08:15 | CHF | CPI (YoY) (OCT) | -1.4% | -1.4% | Medium |
| 08:15 | CHF | CPI - EU Harmonized (MoM) (OCT) | - | 0.4% | Low |
| 08:15 | CHF | CPI - EU Harmonized (YoY) (OCT) | - | -1.2% | Low |
| 08:30 | EUR | Markit Germany Construction PMI (OCT) | - | 52.4 | Medium |
| 09:00 | GBP | New Car Registrations (YoY) (OCT) | - | 8.6% | Low |
| 09:00 | EUR | ECB Publishes Economic Bulletin | - | - | Medium |
| 09:10 | EUR | Markit Germany Retail PMI (OCT) | - | 54.0 | Medium |
| 09:10 | EUR | Markit Eurozone Retail PMI (OCT) | - | 51.9 | Medium |
| 09:10 | EUR | Markit France Retail PMI (OCT) | - | 49.6 | Low |
| 09:10 | EUR | Markit Italy Retail PMI (OCT) | - | 51.7 | Low |
| 10:00 | EUR | Eurozone Retail Sales (MoM) (SEP) | 0.2% | 0.0% | Medium |
| 10:00 | EUR | Eurozone Retail Sales (YoY) (SEP) | 3.0% | 2.3% | Medium |
| 10:00 | EUR | European Commission Economic Forecasts | - | - | Medium |
| 10:45 | EUR | ECB's Draghi Speaks in Milan | - | - | Medium |
| 12:00 | GBP | BOE Asset Purchase Target Nov | £375B | £375B | High |
| 12:00 | GBP | Bank of England Bank Rate (Nov 5) | 0.5% | 0.5% | High |
| 12:00 | GBP | Bank of England Inflation Report | - | - | High |
| 12:45 | GBP | BOE’s Carney Holds Press Conference | - | - | High |
Critical Levels
| CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
|---|---|---|---|---|---|---|---|
| EURUSD | 1.1017 | 1.1101 | 1.1154 | 1.1185 | 1.1238 | 1.1269 | 1.1353 |
| GBPUSD | 1.5264 | 1.5319 | 1.5344 | 1.5374 | 1.5399 | 1.5429 | 1.5484 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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