Review of the main events of the Forex economic calendar for the next trading week (20.09.2021 – 26.09.2021)
The dollar rose last week, while the major US stock indexes traded mostly in the range after declining a week earlier. The strengthening of the dollar is facilitated by the positive macro statistics coming from the United States and the talk that the Fed may begin to wind down its stimulus program by the end of this year.
The focus of investors’ attention next week will be on the Fed meeting, at which the central bank executives are likely to also keep the loose monetary policy in place, but may announce the possibility of starting to roll back the QE program this year, for example, after the November Fed meeting.
The Fed has maintained its key rate at 0.25% since March 2020, purchasing at least $120 billion in government bonds and mortgage bonds every month since June 2020.
Nevertheless, the opinions of market participants regarding the short-term prospects of the dollar after the Fed meeting were divided. Approximately half of them believe that the Fed’s decision and its statement, which may contain a signal that the discussion of the stimulus reduction will begin earlier than expected, will not affect the dynamics of the dollar.
Nevertheless, unexpected and more radical statements on the part of the Fed are possible.
In case signals toward the tough stance follow from the Fed, it will lead to the closure of a significant part of the short positions in the dollar and to its strengthening. The tougher the statements of the Fed leaders at the end of the September meeting, the stronger the dollar will strengthen.
Thus, the focus of the financial market participants next week will be on the Fed meeting, which will end with the publication of the rate decision.
Nevertheless, optimism prevails on global stock exchanges, associated with the expectations of a further recovery in the global economy, both against the background of the unfolding vaccination against coronavirus in Europe and North America, and over the soft policy of the world’s largest central banks.
Next week, financial market participants will also pay attention to the publication of important macro statistics from the UK, US, Germany, Eurozone, Canada and the results of meetings (in addition to the Fed) of the central banks of China, Japan, Switzerland, and the UK.
*during the coming week, new events may be added to the calendar and / or some scheduled events may be canceled
Monday, September 20
No important macro statistics planned to be released.
Tuesday, September 21
01:30 AUD Minutes of the September meeting of the RB of Australia
This document is published two weeks after the meeting and the decision on the interest rate. If the RBA positively assesses the state of the labor market in the country, the rate of GDP growth, and also shows a hawkish attitude towards the inflation forecast in the economy, the markets regard this as a higher probability of a rate hike at the next meeting, which is a positive factor for the AUD. The bank’s soft rhetoric regarding above all inflation puts pressure on the AUD.
During the last (September) meeting, the RBA kept the key interest rate and the target level of yield on three-year government bonds unchanged, at around 0.10%.
At the same time, the leaders of the RBA decided to start reducing weekly purchases of government bonds. The buyback program will now amount to AU$ 4 billion per week (up from AU$ 5 billion previously) until at least mid-February 2022. The RBA head Philip Lowe promised that “the RBA will review the volume of bond purchases in mid-February,” noting a sharp deterioration in economic conditions.
Lowe reaffirmed the central bank’s intentions not to raise interest rates before 2024.
Many economists have already called this decision by the RBA to cut the volume of stimulus a mistake.
Wages continue to rise slowly and household debt has risen to an all-time high, which also puts higher interest rates in the longer term.
According to Philip Lowe, “there is no serious argument in favor of tightening monetary policy in the short term.” In his opinion, “some time will pass before interest rates rise.”
Nevertheless, if the published minutes contain unexpected information concerning the issues of the RBA’s monetary policy, the volatility in the AUD quotes will increase.
Wednesday, September 22
01:30 CNY The People’s Bank of China interest rate decision
Since May 2012, the People’s Bank of China has been steadily cutting interest rates in support of Chinese manufacturers. The bank last lowered the rate in April 2020 (by 0.20% to 3.85% at the moment).
In 2020, in the context of international trade conflicts and a slowdown in the global economy, the world’s largest central banks took the path of easing their monetary policies in order to support national economies and increase the competitiveness of goods exported from these countries.
The People’s Bank of China is also in line with this process. The depreciation of the yuan has become especially relevant in the last 2 years, when the confrontation between the two most powerful economies in the world began. One of the measures to mitigate the negative consequences of increased duties on the import of Chinese goods into the United States was the depreciation of the national currency of China. This measure was intended, among other things, to maintain the same volumes of imports of Chinese products to the United States, which would cost American buyers less due to the difference in the rates of the national currencies of the United States and China.
The coronavirus has become an additional strong negative factor.
Probably, at this meeting, the People’s Bank of China will keep the interest rate at the same level of 3.85%, although a rate cut is also possible.
Nevertheless, if the People’s Bank of China makes unexpected statements or decisions, volatility may increase throughout the financial market. Investors will also be interested in the bank’s assessment of the consequences of the coronavirus for the Chinese economy and its policy in the near future.
03:00 JPY Bank of Japan decision on interest rate. Bank of Japan Press conference and monetary policy comments
The Bank of Japan will decide on the interest rate. At the moment, the main rate in Japan is in negative territory, amounting to -0.1%. Most likely, the rate will remain the same. If it is cut and deepens into negative territory, such a decision will cause a sharp decline in the yen in the foreign exchange market and an increase in the Japanese stock market. In any case, during this period of time, a jump in volatility is expected in trading in the yen and in the Asian financial market.
Since February 2016, the Bank of Japan has kept the deposit rate at -0.1%. The target yield for 10-year bonds is currently around 0%. In one of the recent accompanying statements by the Bank of Japan, it was said that the bank’s management will continue to “increase the monetary base until inflation is stable above 2%.” “We will not hesitate to take additional mitigation measures if necessary,” the bank also traditionally said in a statement.
During the press conference, the head of the Bank of Japan Haruhiko Kuroda will comment on the bank’s monetary policy. The Bank of Japan continues to adhere to its super-soft monetary policy. As Kuroda has stated on several occasions, “it is appropriate for Japan to patiently continue with its current loose monetary policy.” Markets usually react noticeably to Kuroda’s speeches. Surely, he will again touch upon the topic of monetary policy during his speech, which will cause an increase in volatility not only in the yen trade, but also throughout the Asian and world financial markets.
If the bank’s executives decide that the Japanese economy is stable and the momentum of inflation towards the 2% target is not diminishing, they will refrain from changing policy.
06:00 JPY Bank of Japan press conference
During the press conference, the head of the Bank of Japan Haruhiko Kuroda will comment on the bank’s monetary policy. Despite the measures taken earlier by the bank to stimulate the Japanese economy, inflation remains low, production and consumption are falling, which negatively affects export-oriented Japanese manufacturers. Markets usually react noticeably to Kuroda’s speeches. If he touches on the topic of monetary policy during his speech, volatility will increase not only in the yen trade, but throughout the Asian and global financial markets.
18:00 USD The Fed’s decision on the interest rate. The Fed’s comments on monetary policy. Summary of Economic Projections from the Federal Open Market Committee
In March 2020, the Fed sharply lowered the interest rate (to 0.25% from 1.75% in February), and also announced the allocation of $700 billion for the purchase of US government bonds and mortgage-backed securities. Subsequently, the Fed has repeatedly announced additional measures to support the American economy and inject cheap liquidity into the financial system. Usually, with the easing of the monetary policy, the national currency becomes cheaper and its quotations go down.
In 2020, the dollar declined as investors withdrew funds from defensive assets, buying more risky and profitable assets of the stock market, which continued to grow despite the threat of a second wave of the coronavirus epidemic and the associated economic slowdown. The role of the dollar as a defensive asset was also declining. However, in 2021, the dollar is strengthening, which is associated with an increase in the yield of US government bonds, and the Fed has not yet responded to this in any way.
The rate is widely expected to remain at 0.25% at this meeting. Nevertheless, during the period of publication of the decision on the rate, volatility may sharply increase throughout the financial market, primarily in the American stock market and in the dollar quotes, especially if the decision on the rate differs from the forecast or unexpected statements are received from the Fed leaders.
Powell’s comments may affect both short-term and long-term USD trading. A more hawkish stance on the Fed’s monetary policy is seen as positive and strengthens the US dollar, while a more cautious stance is seen as negative for the USD. Investors are eager to hear Powell’s views on the Fed’s future plans for this year.
The FOMC Economic Projections include the Fed’s report on inflation and economic growth over the next 2 years and, just as important, shows the individual views of FOMC members on interest rates.
18:30 USD FOMC press conference
The press conference of the US Federal Open Market Committee lasts about an hour. In the first part, the ruling is read, followed by a series of questions and answers that can increase market volatility. Any hints by Powell about the possibility of a change in the current monetary policy will cause an increase in volatility in the dollar quotes and in the American stock market.
Thursday, September 23
07:30 EUR Germany’s Manufacturing PMI by Markit Economics (preliminary release). Composite PMI by Markit Economics (preliminary release)
Germany’s Manufacturing PMI is an important indicator of the business environment and the overall health of the German economy. This sector of the economy forms a significant part of Germany’s GDP. A result above 50 is seen as positive and strengthens the EUR, one below 50 as negative for the euro. Forecast for September (preliminary release): 65.0.
Previous monthly values: 62.6, 65.9, 65.1, 64.4, 66.2, 66.6, 60.7, 57.1, 58.3, 57.8, indicating that business activity is accelerating in this sector of the German economy after a slowdown in 2020 due to the coronavirus pandemic. The growth of the indicator above the previous values will support the euro (in the short term). The data worse than the forecast will have a negative impact on the euro.
Composite PMI is an important indicator of the business environment and the overall health of the German economy. A result above 50 is seen as positive and strengthens the EUR, one below 50 as negative for the euro. September forecast (pre-release): 62.2 against 60.0, 62.4, 60.1, 56.2, 55.8, 57.3, 51.1, 50.8, 52.0, 51. 7 in previous months. The publication of this indicator with the specified expected value is likely to support the euro in the short term. The data worse than the forecast and below the value of 50.0 will have a negative impact on the euro.
07:30 CHF SNB interest rate decision and statement on monetary policy
The current rate on deposits is in the negative territory and amounts to -0.75%. At the previous meeting in June, the rate remained unchanged. The central bank of Switzerland has consistently advocated a soft monetary policy in the country, and traditionally considers the rate of the national currency “overvalued”. Recently, the franc has largely lost its status as a safe-haven currency, and the threat of intervention, of course, is holding back the franc from excessive growth. According to the SNB executives, the franc is “still very overvalued” and intervention in the foreign exchange market remains “an important means of maintaining the low attractiveness of investments in the franc and easing upward pressure on the currency”. Traders will also scrutinize the SNB statement in order to pick up signals regarding further monetary policy plans. Tough rhetoric of the statement will strengthen the franc. The soft tone and propensity to continue the extra soft monetary policy of the SNB will negatively affect the franc. High volatility is expected in the foreign exchange market and, above all, in trading in the franc, if the management of the SNB makes unexpected statements.
08:00 EUR Composite Manufacturing PMI by Markit Economics (preliminary release)
The Eurozone Manufacturing PMI is an important indicator of the health of the entire European economy. A result above 50 is seen as positive and strengthens the EUR, one below 50 as negative for the euro. September forecast (preliminary release): 59.7 against 59.0, 60.2, 59.5, 57.1, 53.8, 53.2, 62.5, 48.8, 47.8, 49. 1, 45.3 in previous months, which is likely to have a positive impact on the euro. If the data turns out to be worse than forecast, the euro may fall sharply in the short term.
08:30 GBP UK Services PMI by Markit Economics (preliminary release)
The UK Services PMI is an important indicator of the health of the UK economy. The services sector employs most of the UK’s working-age population and accounts for approximately 75% of GDP. Financial services continue to be the most important part of the service industry. If the data turns out to be worse than the forecast and the previous value, then the pound is likely to drop sharply in the short term. The data better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is seen as positive and strengthens the GBP, one below 50 – as negative for the GBP.
Previous values of the indicator: 55.0 in August, 59.6 in July, 62.4 in June, 62.9 in May, 61.0 in April, 56.3 in March, 49.5 in February, 39.5 in January 2021 after falling to levels of 29.0 in May, 13.4 in April, 34.5 in March 2020.
11:00 GBP Bank of England interest rate decision. Minutes of the meeting of the Bank of England. Planned volume of asset purchases by the Bank of England. Monetary Policy Statement
In March (11 March and 19 March) 2020, during its extraordinary meetings, the Bank of England cut its interest rate twice, bringing it to the level of 0.1%, and announced its intention to purchase UK government bonds in the amount of 200 billion British pounds, trying to counteract economic damage from the coronavirus pandemic. The central bank announced an increase in its bond portfolio to £ 645bn, then to £ 745bn and to £ 895bn from £ 445bn at the time. “The current situation is completely unprecedented,” said Governor of the Bank of England Andrew Bailey during a press conference after an emergency meeting on March 19. Bailey said he expects a sharp economic contraction due to the coronavirus, and the Bank of England is ready to take further stimulus measures if necessary. “No, we are not done yet,” he said. Based on these statements by Andrew Bailey, it is fair to expect further actions from the Bank of England towards easing its monetary policy. It is possible that at this meeting the Bank of England will again undertake them, increasing the volume of purchases of bonds or lowering the interest rate. Although, the majority of market participants believe that the Bank of England will refrain from these actions, especially since some economists believe that the Bank of England will soon be ready to start curtailing its stimulating policy, while very positive macro data are coming from the UK.
Also at this time, the minutes of the Monetary Policy Committee (MPC) of the Bank of England are published with the distribution of votes “for” and “against” raising / lowering the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country’s economic growth, as well as with a large current account deficit in the UK balance of payments.
The intrigue about the further actions of the Bank of England remains. And in trading the pound and futures on the FTSE100 index, a lot of trading opportunities are provided during the period of publication of the bank’s decision on rates.
Also at the same time, the Bank of England’s monetary policy report will be published, containing an assessment of the economic outlook and inflation. At this time, the volatility in the pound quotes may rise sharply. Apart from GDP, one of the main benchmarks for the Bank of England regarding the prospects for monetary policy in the UK is the inflation rate. If the tone of the report is soft, then the British stock market will receive support and the pound will decline. Conversely, the report’s tough rhetoric on curbing inflation, implying an increase in interest rates in the UK, will strengthen the pound.
12:30 CAD Retail Sales Index
Retail Sales Index is published monthly by Statistics Canada and estimates total retail sales. The index is often considered an indicator of consumer confidence and reflects the health of the retail sector in the near term. A rise in the index is usually positive for the CAD; a decrease in the indicator will negatively affect the CAD. The previous value of the index (for June) was +4.2% after falling in March 2020 by -9.9%, in April – by -25% and growth in May by +18.7%. If the data for July turns out to be weaker than the forecast – +4.4%, the CAD may sharply decline in the short term.
Friday, September 24
No important macro statistics planned to be released.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.