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Forex Top 5: The Key Events You Need to Watch Next Week

Friday, 14 March 2008 21:29:01 GMT

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Written by Terri Belkas, Currency Analyst

Find out more about the key events that will drive price action in the forex markets next week, including the FOMC rate decision and the possibility of intervention by the Bank of Japan.

·          FOMC Rate Decision – March 18
The one thing we can count on next Tuesday is that the Federal Open Market Committee will decrease rates. The question is: how much will they cut by? According to a Bloomberg News poll of 78 economists, expectations range from a 25bp reduction to a more severe 75bp cut. However, following Friday’s news of a Bear Stearns bailout by JP Morgan Chase and the Federal Reserve Bank of New York, Treasuries are fully pricing in a 75bp cut and a 56 percent chance of a 100bp cut. Given the Federal Reserve’s continued efforts to alleviate the credit crunch, the broad deterioration of economic conditions (e.g., retail sales, consumer confidence, and labor markets), and growing risk aversion amongst investors, the odds are in favor of a 75bp cut. The news could lead to further weakness in the US dollar, though traders should watch the concurrent release of the monetary policy statement as a gauge of the FOMC’s bias going forward. How much do you think the Fed will cut next week? Vote in our poll and discuss the topic with other traders in the DailyFX Fed Cut Forum.
 
·          BOE Meeting Minutes – March 19
The Federal Reserve’s meeting will be the primary central bank news to watch, but the release of the minutes of the Bank of England’s Monetary Policy Meeting is a known market-mover for the British pound. The BOE left rates steady at 5.25 percent on Thursday, March 6, which led GBP/USD to rally. However, the news this time around could weigh on the pair as there were likely a few votes for at least a 25bp rate cut. We can bet that über-dove David Blanchflower was one of the MPC members in favor of a cut, but the more members in favor of a rate reduction, the more bearish the minutes will be for the British pound pairs.
 
·          Bear Stearns Q1 Earnings – March 20
There’s no doubt the markets are jittery, and analysts are throwing all sorts of labels around. Is it a credit crunch, credit seizure, or is it a solvency issue? Shares in Bear Stearns (BSC) face a volatile week following news on Friday that J. P. Morgan Chase & Co. and the Federal Reserve Bank of New York have joined forces to provide secured funding for up to 28 days. Bear Stearns CEO Alan Schwartz said in a release, "...our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations." Just a few days earlier, Schwartz denied that the company faces a liquidity squeeze, saying the company has a $17 billion cushion to work with, and that he is “comfortable” the investment bank turned a profit in the fiscal first quarter. Investors will get their answer on March 20, and the news will be a major market-mover for US equities, meaning that carry trades like USD/JPY and GBP/JPY could see exceptional volatility as well.

**Update on March 17 - Late on Friday, Bear Stearns announced that they would move the Q1 earnings report up to this morning. However, according to a press release issued by Bear Stearns, the firm will not be releasing the results today and the announcement does not go on to say when they will.
 
·          US Markets Closed for Good Friday Holiday –  March 21
Low liquidity can sometimes bring about wild FX market price action. Traders beware!
 
·          Intervention May Still Be An Issue for the Japanese Yen
The US dollar remained weak across the board on Friday and led the currency to finally break the 100 yen mark, a point which we though may be a Line in the Sand for Japanese Policy Makers. With two instances of low-liquidity trading coming up – next week’s market open and next Friday’s US market holiday – the Bank of Japan may be weighing their options. Furthermore, with the euro and New Zealand dollar surging as well, will the European Central Bank or the Reserve Bank of New Zealand consider intervention?






Written by Terri Belkas, Currency Analyst, Forex Capital Markets LLC, DailyFX.com

Tell us what you think about this article. Email tbelkas@dailyfx.com

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