With the continued progression of improved US economic numbers supporting the early rate hike by Fed, the US Dollar kept strengthening against majority of its counterparts during last week. However, BoE Governor, Mark Carney's signal for a rate change during the Spring 2015 provided across the board strength to the British Pound (GBP). Moreover, the BoJ Governor, Haruhiko Kuroda's readiness to introduce additional stimulus on the drop of 2.0% inflation caused considerable weakness to the Japanese Yen (JPY).
Monetary policy meeting by Federal Reserve, on Wednesday, coupled with the voting on Scottish departure from UK, on Thursday, are likely to take the centre stage in fueling the volatility into the forex market during the current week. Moreover, the ZEW indices from Euro-zone and the voting on Asset Purchase Facility and Official Bank Rate by the Bank of England (BoE) MPC members are likely to provide additional support to the forex market volatility.
Even after witnessing the downtick in recent employment numbers, market players, and some of the FOMC members as well, continued expecting the earlier rate hike by US Federal Reserve as the Retail Sales together with the consumer sentiment index, published during late last week, kept showing improvements into the world's largest economy. Moreover, the recent announcement by the BoE Governor that they can alter their benchmark interest rate by Spring 2015 also fuelled speculations that the Fed will also follow the same path and will discuss the exact timeline for altering the benchmark interest rate in addition to announcing a regular tapering of $10 billion to its monthly asset purchase program in the monetary policy meeting on Wednesday. The importance of the FOMC meeting is further increased by the latest economic projections and the press conference which follows the FOMC announcement.
Should the FOMC provide hints to the earlier rate hike, either directly or indirectly through the press conference, the US Dollar becomes vulnerable to witness heavy upside momentum. Moreover, the market is also awaiting revisions to growth numbers and interest rate forecasts from the MPC members. Should the economic projections signal that more of the FOMC members are being hawkish, the US Dollar will have the reason to extend its advance. However, the recent dip into the employment numbers can help the Fed Chair to avoid speaking about the interest rate hike and continue playing the cautious tune, which in-turn can stall the recent rally of US Dollar.
In addition to the FOMC, the CPI numbers, scheduled to release on Wednesday, coupled with the Building Permits, Philly Fed Manufacturing Index and Unemployment Claims, scheduled for Thursday release, becomes important to determine the intermittent US Dollar moves. The CPI figure bears the forecast of continued being at lowest level since March 2014 near 0.1%; however, the core CPI numbers is likely to test the three month high by being near to 0.2%, which can become a reason for the policy makers to think of early rate hike should it meets or surpasses the expectations. The Building Permits and the Jobless Claims are likely to remain near to the previous readings and aren't expected to cause much of the volatility unless registering any drastic changes. Moreover, the Philly Fed Manufacturing Index, is expected to decline towards the lowest level in three months; however, the Empire State Manufacturing and Industrial Production, additional manufacturing releases from US, remained a bit positive and likely to support chances that the Philly Index will also witness the upside tick and can continue supporting the US Dollar advance.
The Euro region calendar remains a bit silent during the week, except the ZEW Economic Sentiment readings for Germany and the Euro-zone on Tuesday and the final reading of CPI y/y on Wednesday. These numbers aren't expected to restore the damages in Euro that are done via latest ECB meeting unless the actual readings show considerable improvements into the troubled economy.
Having witnessed the recent signal by the BoE Governor, the market players are likely to put more emphasis on the MPC voting on Asset Purchase and Official Bank Rates, scheduled for Wednesday, in order to witness additional support for the change into the current MPC and interest rate. Should the MPC members kept supporting the change into the current stance of BoE, the GBP can become vulnerable to extend its recent advance. Moreover, the CPI figure and the Retail Sales, scheduled to release on Tuesday and Thursday respectively, are additional data points that are likely to fuel volatility into the pairs connected to the GBP. Should the CPI figure advances near the BoE target of 2.0% and the Retail Sales, the highest contributor to the UK GDP, tests the expected up-move to 0.4% rise, the GBP traders can have a reason to celebrate.
After the BoJ Governor, Haruhiko Kuroda's, ability to signal the immediate change into the monetary policy should the inflation outlook deteriorate further, market players are likely to concentrate more on the two speeches by the central bank governor, on Tuesday and Thursday, in order to get further details of additional monetary easing measures. Should the Governor discusses the issue in detail by indicating the weakening inflation into the economy, the JPY can extend its decline.
Hence, in addition to the important data-points, the qualitative readings from UK and Japan are likely to determine the near-term movements of the respective currencies as market players are looking for hints relating to monetary policy changes.
Other than the economic numbers, the Scottish Independence Vote, scheduled for Thursday, becomes the major market mover for the upcoming week. The issue of Scotland departure from UK has been gaining momentum since June 2013 and has been at the center stage of fueling market volatility as the economy, if cuts itself from the UK, can become a severe heart attack to the UK GDP. Moreover, there are many uncertainties relating to the economic formulation should the country departs itself from UK which in-turn likely to fuel the demand of safe haven currencies. Recent surveys supports the Yes vote to be famous and is signaling a setback to the GBP should the economy departs while there are likely chances that the survey can become a place to misguide due to the less numbers of people included. Hence, it becomes important for the market players to wait for the actual results before concluding anything about the Scottish future.
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