Weekly Market Outlook – This week is anticipated to be quite a volatile one due to the high levels of attention on the FOMC, BOE, and SNB meetings. As the US banking system shows signs of weakness, there is speculation among markets that the Fed may not raise rates this week. However, it’s important to note that the Fed has already implemented measures to alleviate financial pressure, and inflation is still a concern. In addition to the Fed, the Bank of England and the Swiss National Bank also have meetings scheduled.
What to watch on the Economic Calendar this week
Monday, Mar 20:
- EUR: German PPI
- EUR: Trade Balance
- NZD: Trade Balance
- AUD: Monetary Policy Meeting Minutes
- NZD: Credit Card Spending
Tuesday, Mar 21:
- CHF: Trade Balance
- EUR: German ZEW Economic Sentiment
- CAD: CPI
- USD: Existing Home Sales
- NZD: Global Dairy Trade Price Index
Wednesday, Mar 22:
- GBP: Core CPI
- GBP: PPI
- AUD: CB Leading Index
- USD: Crude Oil Inventories
- USD: FOMC Statement
Thursday, Mar 23:
- CHF: SNB Monetary Policy Assessment
- GBP: Monetary Policy Summary
- USD: Unemployment Claims
- USD: New Home Sales
- AUD: Flash Services PMI
- JPY: National Core CPI
- GBP: GfK Consumer Confidence
Friday, Mar 24:
- GBP: Retail Sales
- EUR: French Flash Services PMI
- EUR: Flash Manufacturing PMI
- EUR: Flash Services PMI
- GBP: Flash Manufacturing PMI
- GBP: Flash Services PMI
- CAD: Core Retail Sales
- USD: Flash Manufacturing PMI
- USD: Flash Services PMI
The Economic Calendar can improve your understanding of the anticipated market movements by featuring all the important upcoming events, announcements, and data releases that are expected to impact the forex market.
USD: Fed decision sparks volatile market
Fed officials face a challenging meeting on Wednesday as they weigh the decision between prioritizing the stability of the US financial system or combatting inflation, with traders betting that recent banking sector troubles will lead to a halt in the Fed’s tightening cycle.
However, the likelihood of this scenario appears overstated as the larger US banking institutions are well-capitalized, and the stress is mainly concentrated in smaller regional banks, which the Fed has already supported.
Despite this, inflation remains the Fed‘s primary concern, particularly with services inflation, excluding shelter, reaching 6.9% last month, coupled with strong employment indicators, leaving policymakers with limited room to halt the tightening cycle.
The Fed Chairman has warned that rates may exceed December projections, causing potential shockwaves in the market as current pricing sees rates ending the year at 4.2% instead of the previously projected 5.1%. Investors believe that if there is a rate increase next week, it will be the final one in the cycle, but the Fed’s response remains uncertain.
If the Fed holds its stance, US yields may rise, the dollar may strengthen, and the Japanese yen could weaken.
EUR: Eyes on What will the U.S Fed Do?
As expected, the European Central Bank raised its interest rates by 0.50% in the middle of last week, but now all eyes are on the U.S. Federal Reserve, whose decision on March 22 is eagerly awaited.
Although high inflation remains a legitimate concern for global central banks, the unattractive prospect of increasing borrowing costs could exacerbate the challenges faced by the corporate banking sector. This poses a dilemma for the Fed as it weighs the potential benefits of increasing the Federal Funds rate against the risks of further damaging the already struggling banking industry.
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Any increase in borrowing costs, even by 0.25%, may exacerbate the difficulties of lending, making growth hard to achieve and causing vulnerable banks to suffer further equity selling. If the Fed decides to increase interest rates, this could trigger a reaction in the EUR/USD currency pair. However, the Fed’s stance on interest rates remains unclear, and it may wait to see how the Credit Suisse crisis in Europe and the First Republic Bank situation in the US play out before making a decision.
It is not yet known what the Fed will do, but there will certainly be interesting debates within its offices in Washington this week. Forex traders are advised to be prepared for more volatile price action, and day traders participating in the EUR/USD should use the risk management and narrow targets with take-profit orders.
GBP: BoE meeting outcome is uncertain
The UK has recently been overshadowed by concerns about banks in the US and Eurozone, resulting in less investor attention. However, the country has experienced positive news both politically and economically.
Despite earlier warnings of a recession, the latest business surveys have indicated a recovery in new business orders, which bodes well for future growth. Nevertheless, the UK economy still faces challenges, including double-digit inflation due to a surge in electricity prices and Brexit-related worker shortages exacerbating the issue.
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Investors can expect an inflation update on Wednesday, followed by the release of business surveys and retail sales data on Friday. The Bank of England’s decision on Thursday is the most significant event of the week, with markets pricing in a 50-50 chance for a quarter-point rate increase or no action. While recent data suggests a rate hike is likely, the British economy’s overall weakness and the central bank’s hesitancy to raise rates make it a close call.
As for the pound, the outlook is cautiously negative due to the UK’s fragile economy, larger inflation problem than other nations, and the Bank of England near the end of its tightening campaign. Furthermore, the pound’s sensitivity to the global investment mood during turbulent market conditions makes it challenging to be optimistic.
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CHF: Swiss banks experience financial woes
Switzerland has been in the midst of a banking crisis due to concerns about the financial stability of Credit Suisse, resulting in increased demand for derivatives that safeguard against default. However, the Swiss National Bank’s emergency funding of $54bn has eased the situation, although some nervousness persists.
Despite the uncertainty, investors are anticipating a quarter of a percent increase in interest rates by the SNB on Thursday, which is already priced into the market.
The Swiss franc’s prospects look favorable due to the SNB buying francs in the open market, along with ongoing rate hikes and concerns about the global economy. Credit Suisse remains a potential wildcard, but it is likely to be protected given the forceful policy response.
Additionally, upcoming data releases include the latest PMI business surveys from the Eurozone on Friday and Canadian inflation and retail sales figures on Tuesday, along with the minutes of the Bank of Canada’s latest meeting on Wednesday.
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