It’s a BUSY week ahead for forex players with not one, not two, but THREE central bank decisions.
We’ll also see snapshots of manufacturing and services trends from the major economies so don’t even think of missing important headlines!
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
FOMC decision (Mar 22, 6:00 pm GMT) – Aside from the banking sector, all eyes will be on the Fed this week as they try to balance reigning in high inflation and being proactive about the tightening effect of U.S. banks being more cautious about who they’re lending money to.
A few weeks ago, markets had priced in a 50bps rate hike from the Fed. A few days later and a few banks down, investors now expect the Fed to raise its rates by 25 bps to 5%. And that’s only because the central bank wouldn’t want to communicate a pause in its commitment to bring inflation lower.
Keep in mind that the Fed will also print new economic and dot plot projections with its interest rate decision. New inflation, economic growth, and terminal rate expectations should give us clues on how much Powell and his team have turned cautious compared to their last meeting.
If the Fed raises by 25 bps but signals they are pausing, this will be seen as a “dovish hike” which is bearish for USD. But if they raise 25 bps and do not signal they are done hiking rates, then this will be seen as a “hawkish hike” which is bullish for USD.
SNB’s policy announcement (Mar 23, 8:30 am GMT) – Unlike their peers, Swiss National Bank (SNB) members only meet once every quarter and have raised their rates fewer times in their tightening cycle. This is why markets are expecting the central bank can raise its rates by 50bps to 1.50% this week.
But that was before Credit Suisse, one of Switzerland’s largest banks, found itself and the banking sector in hot water. Analysts still see the central bank raising its rates by 50bps, but we could start to see cautiousness and some dovish rate hike vibes in this week’s statement.
BOE’s decision (Mar 23, 12:00 pm GMT) – Back in February, the Bank of England (BOE) said that it would look for signs of “persistent inflationary pressures” after raising its rates by 50 bps to 4%. Since then, CPI had edged slightly lower, wage growth looked to be peaking, and monthly GDP figures missed estimates.
BOE will have another CPI report to consider before it publishes its decision but for now, analysts expect Gov. Bailey and his team to raise their rates by another 25bps to 4.25%. That would take U.K.’s borrowing costs to its highest levels since November 2008!
PMI reports from major economies – It’s that time of the month when we get snapshots of the major economies’ manufacturing and services sector trends!
Australia (Mar 23, 10:00 pm GMT) will start the party on Thursday. The manufacturing PMI showed further expansion in February as it rose from 50.0 to 50.5, while the services PMI also improved for a second consecutive month.
Japan (Mar 24, 12:30 am GMT) is next with expectations of its manufacturing sector rising from 47.7 to 48.2. The actual results have disappointed in 4 out of the last 5 months though, so don’t discount another miss!
Eurozone’s activities will be in focus on Friday (Mar 24, 8:15 to 9:00 am GMT) with French, German, and the Eurozone’s manufacturing AND services PMIs expected to show further progress for a third month in a row. Will the numbers hint at economic expansion in the region for the first quarter of 2023?
The U.K.’s numbers will be out at 9:30 am GMT, and markets see (very) slight improvements in private sector business activity. Last but not least, the U.S. will print its business PMIs on Friday at 1:45 pm GMT. Manufacturing activity is expected to maintain its current 47.3 reading while services might edge lower from the 50.6 figure in March.
Forex Setup of the Week: GBP/CHF
With both the BOE and SNB under the spotlight this week, I’m looking at GBP/CHF for opportunities!
Did you know that the pair has been trading in a descending triangle pattern since November?
What makes the pair interesting this week is that it’s nearing the 1.1350 area where the trend line resistance AND daily chart’s 200 SMA are.
If the BOE shows even more signs of willingness to pause its tightening, or if this week’s banking sector headlines weigh on “risky” assets like GBP and boost safe-havens like CHF higher, then GBP/CHF could turn lower from the resistance area.
The pair could bounce from the trend line and head for the 1.0200 or 1.0950 previous areas of interest.
But if central banks easing the tightening pedal from the metal turns encourages a risk-taking trading environment, then GBP/CHF could bust above its triangle pattern.
GBP/CHF could trade above the SMAs and head for previous resistance levels near 1.1400 or 1.1500.
