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Central Bank Activity Dominates Last Week’s Forex Trade

By:
James Hyerczyk
Updated: Nov 5, 2017, 08:30 UTC

Last week’s theme in the Forex markets centered on central bank activity with the Bank of Japan, the U.S. Federal Reserve and the Bank of England all

Forex

Last week’s theme in the Forex markets centered on central bank activity with the Bank of Japan, the U.S. Federal Reserve and the Bank of England all issuing their monetary policy decisions.

Bank of Japan

At the start of the week, the Bank of Japan (BOJ) kept monetary policy steady while roughly maintaining its ambitious price forecasts. It also pointed to signs of growing strength in the economy that board members hope will accelerate inflation towards its elusive 2% target.

USDJPY
Weekly USDJPY

The Japanese central bank voted 8 to 1 to keep its short- and long-term interest rates unchanged as it continues to inject huge amounts of cash into the financial sector.

There was one dissenter in the group. Goushi Kataoka voted against the decision to keep policy on hold at his second meeting, reiterating his argument that the central bank wasn’t doing enough to reach its target.

U.S. Federal Reserve

The U.S. Federal Reserve left interest rates unchanged last week, a move that was widely expected. It also hinted that it’s preparing to resume raising rate as the economy recovers from the impact of recent hurricanes.

In its statement, the Fed left its benchmark rate in the low range of 1 percent to 1.25 percent. In its statement it left clues for a rate hike in December. Its statement also noted the economy has been rising “at a solid rate despite hurricane-related disruptions.”

U.S. Dollar Index
Weekly December U.S. Dollar Index

The Fed also reiterated its belief that inflation will resume moving toward its 2 percent target and said it was proceeding with its program to trim its bond portfolio.

“Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term,” the Federal Open Market Committee said in its policy statement.

GBPUSD
Weekly GBPUSD

Bank of England

The Bank of England (BOE) raised its benchmark interest rate for the first time in more than 10 years last week.

Investors had priced in a 0.25 percent increase, with the BOE reversing the emergency rate cut announced in August last year in the wake of the Brexit vote.

The BOE also said it projected “very gradual” further increases over the next three years.

Other Forex News

The Republicans in the U.S. House of Representatives presented their version of U.S. tax reform. The plan now moves on to Congress where it will little be tweaked a little before becoming law.

President Trump appointed Fed Governor Jerome Powell as the new Fed Chair, replacing current Fed Chair Janet Yellen, who ends her term in February. Powell has been described as a centrist policymaker whose stance on interest rate increases would likely deviate little from Yellen’s cautious approach.

The U.S. Non-Farm Payrolls report was a little disappointing with the headline number coming in below expectations at 261K, traders had priced in a 312K increase. Average Hourly Earnings were flat versus expectations for a 0.2% increase. The Unemployment Rate fell to 4.1%.

AUDUSD
Weekly AUDUSD

The New Zealand Employment Change report showed a 2.2% increase, beating the forecast of 0.8%. The Unemployment Rate also fell to 4.6% from 4.7%.

The Australian Trade balance surprised by coming in at 1.75 billion, higher than the 1.42 billion forecast. However, Retail Sales were flat at 0.0% versus a 0.4% estimate.

 

 

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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