Weekly Market Outlook: FOMC and BOE in focus
Updates from the world's top central banks are set to continue this week with a triple whammy of reports from the US Federal Reserve, Bank of England and Bank of Japan. Last week, the European Central Bank attempted to talk down the euro which has appreciated significantly in recent months. However, all eyes were on the sorry state of Brexit talks which intensified when UK Prime Minister Boris Johnson announced plans to break international law.
This week, however, all eyes will be on Wednesday's FOMC Press Conference and whether or not Fed Chairman Jerome Powell will act with more stimulus or wait until after the US Presidential election in November. But traders will also be sure to keep an eye out on Thursday's Bank of England Monetary Policy Summary and clues on how they could respond to an ever likely no-deal Brexit.
Source: Forex Calendar provided by Admiral Markets UK Ltd.
Global stock markets had a mixed week after the surge in volatility gripped US markets the week before. European stock indices continue to trade in ranges as investors remain concerned about the high euro which could impact the bloc's economic recovery having such high exporting nations within it. US indices saw more volatility but still ended the week in the red.
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Key economic reports and markets to watch
FOMC Press Conference
On Wednesday 16 September at 7.30 pm BST the US Federal Reserve Chairman Jerome Powell will explain the latest decisions made in the Federal Open Market Committee (FOMC). Just thirty minutes beforehand they will also release the latest decision regarding US interest rates which are currently at 0.25%.
While no changes are expected in interest rates, traders will be eager to see how the Fed will be navigating the next few months. The key question on everyone's mind is whether or not the central bank will act to try and increase inflation more towards its target level. Recent comments from different policymakers suggest the Fed could remain on hold for the time being. Some would like to give the economy more time before committing to any course of action, especially because of the upcoming US election.
Source: Admiral Markets MetaTrader 5, #USDX_Z0, Monthly - Data range: from March 1, 2008, to September 12, 2020, performed on September 12, 2020, at 6.00 pm BST. Please note: Past performance is not a reliable indicator of future results.
In the long-term monthly price chart above, the US dollar index rejected significant horizontal resistance at 102.83 and has since sold off becoming the worst-performing currency in recent months. However, over the past few weeks price has stabilised at the long-term ascending trend line (blue line). Traders may well look for a relief bounce from the Fed but if the price does manage to break through the trend line the market may move towards the multi-year low of around 88.40.
Bank of England Monetary Policy Summary
The Bank of England is due to release its Official Bank Rate and the latest Monetary Policy Summary report on Thursday 17 September at 12.00 pm BST. No changes are expected in the central bank's position with improving economic data in recent weeks and no further information regarding negative interest rates.
The driver this week is most likely to be Brexit with Boris Johnson threatening to walk away from negotiations and embarking on a no-deal Brexit if a deal cannot be reached by 15 October. Johnson's government has come under heavy criticism for lawmakers, the European Union, governments around the world and members of his own party for introducing the Internal Market bill which undermines the promises made in the withdrawal agreement signed last year.
Source: Admiral Markets MetaTrader 5, GBPUSD, Weekly - Data range: from August 18, 2013, to September 12, 2020, performed on September 12, 2020, at 7.00 pm BST. Please note: Past performance is not a reliable indicator of future results.
The drop in the British pound last week was significant and happened across all other major currencies. On the long-term weekly price chart of GBPUSD above, the crash lower occurred at historic levels of resistance shown by the upper horizontal line and descending trend line. Now that sellers are firmly in control, traders may well be eyeing the next level of support around the 1.2000 price level. However, it's likely the pound could be volatile while it navigates crunch time talks between the UK and EU.
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Corporate trading updates and stock indices
Global stock indices had a mixed response last week. European stock indices struggled as investors weighed the impact of an appreciating euro on the bloc's biggest exporting nation. While most European stock indices range trade, traders will be looking for the next catalyst that can help the price break through and move to all-time high levels which are still some way off. News of rising coronavirus infections across different European countries has also weighed on sentiment.
In stark contrast, US stock indices have performed much better in recent months. However, over the past few weeks, they too have struggled. Many investors question the lofty valuations of many companies whose stock prices are being driven higher by a boom in retail trading. A shake out was expected and that is what the market received.
The question now for US stock index traders is whether or not the sell-off in the past few weeks is just a correction or the start of something bigger.
Source: Admiral Markets MetaTrader 5, NQ100, Weekly - Data range: from March 5, 2017, to September 12, 2020, performed on September 12 2020, at 7.30 pm BST. Please note: Past performance is not a reliable indicator of future results.
In the long-term monthly price chart above, the recent rally higher in the Nasdaq 100 is clear. Since the trillion-dollar stimulus plan from central banks post the coronavirus pandemic, investors have been piling into technology shares in a big way. Many analysts have called the steep nature of this move to be unsustainable. But with a two week correction, some may start to ask the question when is the best time to get back in or whether there is likely to be more downside yet to come.
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