Week Ahead: Markets to Digest Latest Round of Central Bank Actions

Weekly Recap

It’s been another highly eventful week in financial markets. The headline focus of the week was September’s FOMC. The Fed delivered a further 75bps hike along with signalling its intention to continue pushing ahead with further rate hikes. Those looking for any signs that the Fed might take its foot off the gas were left disappointed. Instead, the Fed’s tone of concern over the persistence of elevated inflation suggests that a ‘Fed pivot’ is still some way off. 

The USD surged higher on the back of the Fed meeting, leaving every other currency as well as commodities and stocks in its wake. 

The BOE meeting saw a much more disorderly approach. The British central bank hiked rates a further 50bps, disappointing those who were looking for a more considerable 75bps hike. Policymakers were split between a 25, 50 and 75 bps hike. Additionally, the BOE’s economic assessment and guidance worried UK investors with governor Bailey warning that the UK is likely already in a recession. Looking ahead, Bailey warned that the slowdown would likely worsen as the bank continued with its monetary tightening. 

Alongside the Fed and the BOE, we also saw rate hikes from the SNB and Norges Bank who hiked by 75bps and 50bps respectively. 

It was the Bank of Japan that stole the show this week with the central bank seen launching its first FX intervention since 1989. It did so in a bid to prop up the yen, while maintaining negative rates, the BOJ sold huge amounts of US Dollars (details to be announced next week), which was seen causing wild 500 pip swings in JPY pairs on Thursday. 

Coming Up This Week

  • Fed’s Powell to Speak 

Along with some other key central bankers speaking next week (including Lagarde and Macklem), traders will be paying close attention to Fed chairman Powell who speaks midweek. On the back of the September FOMC last week, we are unlikely to get any new information. However, traders will certainly be keen to receive any further details regarding the Fed’s outlook on the economy and inflation specifically. 

  • US CB Consumer Confidence 

On the back of the four central bank meetings we had this week, next week will see a much quieter data schedule.  Within next week’s releases, the latest US CB consumer confidence reading will be one of the key data events. Given the recessionary fears gripping the US, a weak consumer confidence report here will no doubt add to the bearish sentiment in US assert prices currently. 

  • US Core PCE

The headline data event of the week then will be the latest US core PCE index due on Friday. Given that this is the primary inflation gauge used by the Fed, the release will be closely tracked. Should there be any signs of prices having softened, this might cause the USD rally to lose some momentum though it would likely take a meaningful drop to truly dent it. 

Forex Heat Map 

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Technical Analysis

Our favourite technical chart of the week – GBPJPY

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The reversal lower from the latest failure at the 168.0 level has seen the market selling off heavily. Price is now testing the bull channel low and the structural support at the 157.8 level. This is a key level for the pair and a break below here will focus on a continuation down towards the 149.3 level next. 

Economic Calendar

Plenty to keep an eye on this week data-wise, with US consumer confidence and core PCE among other key events and releases. See the calendar below for the full schedule. 

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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