The Forex Week Ahead

The Forex Week Ahead: March 13th – 17th

The Forex Week ahead USD Wednesday’s Fed meeting will overshadow most other market developments this week, but domestic data risk could also be elevated while the debt ceiling returns to being front and centre to policy risks. It seems fairly clear that the Federal Reserve will raise the fed funds target range by 25bps to 0.75–1.0% next Wednesday. Chair Yellen’s recent omission of ‘months ahead’ in plural form as guidance to rate hike timing and a greater overall sense of immediacy support a hike call. Almost all primary dealers confirm 100% market probability for a hike. It would truly be a surprise to markets if the FOMC got a collective case of cold feet on game day. CPI (Wednesday): This is not the Fed’s preferred inflation gauge—which is the price deflator for total consumer expenditures, or the PCE deflator—because it only periodically adjusts the weights on what people spend and where they spend it. Retail sales (Wednesday): This will further our understanding of how the US consumer is performing in Q1 and hence aid forecast tracking of about 70% of the US economy represented by total consumer spending of which retail sales are a subset. Headline and core retail sales are expected to be roughly flat in this release for February.
EUR The Dutch election (Wednesday) entails choosing between 28 parties. Most stand no chance whatsoever at forming a government. One leading contender is the incumbent PM Mark Rutte who, while more moderate, has nevertheless campaigned with the immigrant-focused slogan “act normal or leave.” Eurozone CPI revisions with Germany’s on Tuesday and the Eurozone aggregate on Thursday; Germany’s ZEW investor confidence metric on Tuesday
GBP The Bank of England delivers another policy decision next Thursday.  BoE likely side lined in a non event meeting as the BoE needs more wage and consumption data, it’s too soon to include the effects of the Budget, and recent data has been mixed.
JPY The Bank of Japan issues a policy decision next Thursday. Among global central banks, the BoJ is perhaps most notorious for prematurely declaring victory. Recent public comments by BoJ officials suggesting an exit from deflation risk may be furthering this tendency. This will not likely lead to a majority tendency of opinion in favour of tightening policy for a considerable time yet. But the issue at hand is whether to a) continue to defend a 10 year bond yield target of “around 0%” and b) whether to encourage yield curve steepening
AUD Australia’s latest jobs report on Wednesday will be watched for whether the streak of solid gains over the past four months is continuing.
CAD The coming week in Canadian markets is likely to be more about spillover effects from Wednesday’s Fed meeting and speculation over what may be in the Canadian Federal Budget the following week on March 22nd than anything on the domestic calendar in the meantime.

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