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Forex: Markets to Look Past BOE Minutes, Focus on FOMC Outcome

Forex: Markets to Look Past BOE Minutes, Focus on FOMC Outcome

Ilya Spivak, Head Strategist, APAC

Talking Points

  • British Pound Unlikely to Find Lasting Volatility in BOE Minutes
  • All Eyes on FOMC Result, $5-10 Billion QE Reduction Expected
  • US Dollar’s Fate Hinges on “Taper” Outlook Beyond September

Minutes from September’s Bank of England monetary policy meeting headline the economic calendar in European trading hours. Traders will be keen to size up the voting pattern for and against an expansion of quantitative easing (QE) at the first sit-down of the rate-setting MPC committee since it introduced its forward-guidance regime in August. Data compiled by Citigroup shows UK economic news-flow notably improved relative to expectations between this and last month’s BOE meetings, policymakers were probably not under particularly strong pressure to expand stimulus. Furthermore, it seems unlikely that even the more dovish members of the MPC were prepared to introduce something new into the policy mix without wanting to see the guidance framework in play and assessing its impact for longer than a few weeks. On balance, that suggests today’s release may be a non-event for the British Pound and financial markets at large.

From here, the spotlight shifts to the much-anticipated Federal Reserve policy announcement. The outing is expected to produce the first “taper” of the QE3 stimulus program, with the latest median forecast of economists polled by Bloomberg calling for a $5-10 billion cutback in monthly asset purchases. The path forward beyond that remains highly uncertain however. That means the updated set of FOMCeconomic forecasts as well as Chairman Ben Bernanke’s press conference following the policy decision will offer ample fodder for speculation and volatility. If investors are met with Fed rhetoric that (directly or indirectly) argues in favor of a sustained QE reduction cycle into the end of the year, market-wide risk sentiment is likely to deteriorate while the US Dollar advances. A more cautious tone that fails to map out a defined trajectory for the near-term policy outlook stands to produce the opposite result.

New to FX? Watch this Video. For live market updates, visit the Real Time News Feed

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Current Account Balance (2Q)

-1.252B

-1.9B

-0.416B

22:45

NZD

Current Account Deficit/GDP Ratio (2Q)

-4.3%

-4.8%

-4.5%

0:00

AUD

Conference Board Leading Index (JUL)

0.3%

-

-1.1%

0:30

AUD

Westpac Leading Index (MoM) (JUL)

0.6%

-

0.0%

1:30

CNY

China August Property Prices

-

-

-

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:30

GBP

Bank of England Sept Meeting Minutes

-

-

High

9:00

EUR

Eurozone Construction Output (YoY) (JUL)

-

-3.0%

Low

9:00

EUR

Eurozone Construction Output (MoM) (JUL)

-

0.7%

Low

9:00

CHF

ZEW Survey (Expectations) (SEP)

-

7.2

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3265

1.3308

1.3334

1.3351

1.3377

1.3394

1.3437

GBPUSD

1.5809

1.5859

1.5881

1.5909

1.5931

1.5959

1.6009

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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