ECB Decision Today as Contentious, Important as FOMC Next Week
• General themes like risk trends has given way to targeted volatility from scheduled event risk
• The RBNZ rate decision triggered a dramatic New Zealand Dollar plunge on a surprise rate cut
• Is the RBNZ impact evidence for how the market will respond to today's ECB decision or next week's FOMC?
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Monetary policy is looking to revive heavy moves in the FX market. We are heading into a round of critical central bank policy meetings that will carry into next week and find its zenith in next Wednesday's FOMC event. The serious waves weren't expected to start until the upcoming ECB meeting announced its latest effort Thursday, but the RBNZ triggered volatility early. The Reserve Bank of New Zealand unexpectedly cut the benchmark lending rate by 25 basis points. Given that was seen as a meager 28 percent probability by the market, the reaction was abrupt - a near instant, two percent drop from NZDUSD. As remarkable as this reaction was, its follow through will be limited to certain pairs and circumstances. In contrast, the upcoming ECB rate decision can move the Euro for much longer, larger moves. What's more; it can carry deeper implications for the broader financial system as the world's most accommodative, major central bank. How should we prepare for this charge in event risk and volatility, we discuss that in today's Trading Video.
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