special reports

5 Most Important Events for the Forex Market This Week

Monday, 07 April 2008 05:33:46 GMT  |  Terri Belkas, Currency Analyst

Event risk for the forex market will be coming primarily from central banks this week, as the US dollar must grapple with the FOMC meeting minutes from March, the British pound may face a rate cut by the Bank of England, while the European Central Bank’s rate decision and subsequent press conference could force volatile moves in the euro.

What to Watch This Week

• FOMC Meeting Minutes from March 18 – April 8
On Tuesday, the minutes from the Federal Open Market Committee’s March 18 meeting will be released at 14:00 EDT. During that meeting, the Fed cut rates by 75bps, though speculation that the Committee would actually cut rates by 100bps and two dissenting votes for less aggressive action by Richard Fisher and Charles Plosser led the US dollar to rally. The key thing to watch for in the release of the minutes is what sort of action the dissenters actually voted in favor of. Currently, fed fund futures are betting on a 25bp cut on April 30, but are pricing in a 36 percent chance of a 50bp cut. However, if Fisher and Plosser voted for only a 25bp cut, traders will likely start to bet that the rest of the Committee will follow their lead this month.

• Australian Employment Data – April 9
The Australian labor markets have tightened substantially over the past few years, as the unemployment rate has dropped to multi-decade lows of 4.0 percent. This has driven wages higher, boosted disposable income, increased domestic demand and economic growth in general, but has also fueled inflation. Indeed, the Australian labor markets are expected to add on another 10,000 workers in March, and like the US non-farm payrolls release, the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

• Bank of England Rate Decision – April 10
The Bank of England is expected to cut rates by 25bps to on Thursday. The rate decision will come at 7:00 EDT and will also include a monetary policy statement. Inflation pressures in the UK have not been quite as strong as in the Euro-zone, though CPI is still above the Monetary Policy Committee comfort zone. However, the credit crunch is taking a toll on the country’s financial and housing sector, as mortgage lenders start to raise rates in an effort to avoid taking on new loans. This has stoked concerns that the UK is in for a US-style housing market collapse, or worse, an all-out recession. As a result, the risks are tilted very much to the downside for the British pound late in the week.

• European Central Bank Rate Decision – April 10
Unlike the Bank of England, the European Central Bank is widely expected to leave rates steady at 4.00 percent for the tenth consecutive meeting. The rate announcement will come at 7:45 EDT, but the big show is at 8:30 EDT when ECB President Jean-Claude Trichet will give his monthly press conference. Will he remain hawkish, or focus more on the instability in the markets? Estimates for Euro-zone CPI in March rocketed to a nearly 16-year high of 3.5 percent, as energy and food costs surge. On the other hand, the ECB has stepped in to inject liquidity into the money markets, as credit conditions remain tight. There’s little doubt ‘price stability’ will be the foremost concern for Trichet, but if he suggests that price pressures will moderate in the near-term or that feeble financial market conditions are threatening economic growth, the euro could actually sell-off across the majors.

• The Stock Market Saga Continues…
The end of last week was quiet…perhaps a little too quiet. Periods of tight consolidation tend to lead to breakouts, leaving US equity indexes like the DJIA prone to sharp moves and high volatility. Forex traders should be aware of this price action as well, since major movements in the stock markets tend to impact carry trades like USD/JPY and GBP/JPY.

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