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Central Banks Galore & Canada election...

Video Script

Hi everyone, I hope you’re ready for a big week in forex markets that I suspect will be completely dominated by all the central bank meetings we have lined up. Of course, the Fed will be the headline act but there’s also the Bank of England, Bank of Japan, Bank of China, and Swiss National Bank setting monetary policy as well as an election in Canada.


I think it’s worth by starting with the bigger picture that the major forex pairs are mostly directionless. And why is that? I think its for two main reasons. One - we are just waiting for the Fed to get going and start tapering. That would enable us to see how expected changes in US interest rates compare to changes in in other countries. And two - stock markets are very calm and there is no big rush of enthusiasm or a flight to safety.


OK, onto the Fed meeting. Remember we just had Jackson Hole in August and the message from Fed Chair Jerome Powell was that the Fed expects to start tapering this year but that the economy is not quite ready for it. Since then we had the disastrous August non-farm payrolls that backs that opinion up but also stubbornly high inflation that increasingly doesn’t look transitory. Consensus is that the Fed does nothing at this meeting and tapers in either November or December. Goldman Sachs thinks there’s a 70% chance the Fed tapers in November - and expects it to cut bond purchases by 15 billion dollars per month from 120 billion to 105 billion.


What we need to look out for is whether the Fed announces that the tapering will begin in November at this meeting. If they do - that would be a hawkish surprise and likely dollar-bullish. The November decision is on the 3rd of the month, so chances are they announce at that meeting, that the tapering will start sometime later in the month. If there is no clear signal for November this time, then on balance that’s dollar-bearish and we could see some breakouts in EUR/USD and the other major pairs.


Let me also just quickly mention there is the Canada election on Monday September 20. Results should be known by Tuesday. There seems to be a good chance that Prime Minister Justin Trudeau’s decision to call a snap election might backfire and restore power to the Conservatives led by Erin O’Toole. But from an economic perspective, the platforms of the two main parties are quite similar with comparable plans on government spending - so the result will probably be a dud for the forex market with no big moves in the Canadian dollar.


And guys, if you can take a second to click the like button for the YouTube algorithm! It really helps let more people see these videos.


OK let’s round off with the economic calendar. So chronologically, we have the People’s Bank of China setting the LPR. Consensus is they hold rates steady but if things go badly with Evergrande - that could turn into a surprise rate cut. The BOJ won’t move until the Fed if ever. The SNB will wait for the ECB are still mainly focused on currency intervention. And lastly the BOE is facing some pressure to act given the 9-year high inflation and has already announced its slow plan for tapering and intention to eventually hike rates to 0.5%. Outside of the central banks, there are preliminary PMIs for September with those in the US worth a look to compare economic activity with rising covid cases.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.


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