Weekly Market Outlook: FOMC and BOE in focus this week
Central bank news announcements take centre stage this week with the US Federal Reserve’s FOMC meeting minutes release and economic projections due on Wednesday 17 March, followed by a press conference with Fed Chairman Jerome Powell.
Traders will be focused on the Fed’s response to surging bond yields and the signing of Joe Biden’s $1.9 trillion stimulus plan. Will they follow the European Central Bank who announced last week they are stepping up bond purchases in response to rising yields?
The Bank of England also releases its latest Monetary Policy Summary report on Thursday 18 March but no significant changes are expected. The Bank of Japan also releases its Monetary Policy Statement on Friday 19 March.
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Weekly Forex Calendar
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Trader’s Radar - FOMC Press Conference
On Wednesday 17 March, the US Federal Reserve releases its latest FOMC Economic Projections and FOMC Statement. This is followed by a press conference by Fed Chairman Jerome Powell. It’s likely to be a market mover for the US dollar considering this is the first time the market hears from the Fed after the recent surge higher in bond yields.
Investors have been pricing in a much sooner than expected rise in interest rates due to an improving economy. This caused bond investors to sell their positions as they pay a fixed rate and could lose out if interest rates go higher. As bond prices go down, bond yields go up.
This leaked into the Eurozone which caused the ECB to increase their bond purchases to make sure yields do not get too high which increases the cost of borrowing and can dent the economic recovery. Will the Fed follow suit?
Source: Admirals MetaTrader 5, USDX, Monthly - Data range: from Nov 1, 2004, to Mar 12, 2021. Performed on Mar 12, 2021, at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term, monthly chart of the US dollar index above it’s clear to see the range which as developed between long-term support and resistance levels around ~$103.00 and ~$89.00, denoted by the two black horizontal lines.
Recently, the price has bounced from the lower horizontal support level which has helped to lift the US dollar overall. This has caused weakness in currency pairs such as AUDUSD, EURUSD and NZDUSD, as well as Gold.
An improving economy could see buyers continue to push the US dollar higher, especially as some other European countries go into a third lockdown. However, traders may wait for the assessment from the Fed on Wednesday.
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Corporate Trading Updates and Stock Indices
Global stock markets bounced higher last week, mainly led by European indices such as the DAX 30 and CAC 40. The weaker euro certainly helped to lift European stock markets so this week’s news on the US dollar and its impact on the euro is one to watch.
US stock market indices also pushed higher last week. However, the Nasdaq 100 is still trading below its record high with the Dow Jones 30 surging well above its record high. Investors are currently going through a sector rotation out of high-flying technology stocks and into value-based stocks in industrials, banks and energy.
Source: Admiral Markets MetaTrader 5, SP500, Daily - Data range: from Jun 30, 2020, to Mar 12, 2021, performed on Mar 12, 2021, at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
Past five-year performance of the S&P 500: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%, 2015 = -0.82%.
The long-term trend of the S&P 500 stock market index shown above is still intact - even after the sell-off during February. The price has now moved back towards its all-time high but has still not yet traded above it unliked the Dow Jones 30 index.
This means there could still be room to breathe towards the upside, especially if the Fed help to lift markets with their comments on Wednesday.
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