Today’s Central Banks Decision will Effect More than the Local Currencies

Points to consider:

• There is key event risk over the next 24 hours as the US Federal Reserve (Fed), Bank of Japan (BOJ) and Reserve Bank of New Zealand are releasing rate decisions.
• The BOJ decision represents the very extreme of monetary easing and risk dependency.
• The Fed decision will be an insight into the overall health of the US economy.

We are now entering a critical period of risk and volatility for Forex traders. Today we will see a number of fundamental risks develop as the US Federal Reserve, Bank of Japan and even the central bank in New Zealand are releasing their monetary policy decisions. These central banks are on the polar opposite of the monetary policy spectrum. The Fed is considering tightening again and the Bank of Japan is overhauled its easing monetary policy even further.

The market jolt we got on September 9^th put traders on alert after a couple months of low volatility which saw the global equity markets drifting higher. There are renewed doubts over the global benchmark, the S&P 500, and its stability. There is a new reach for higher yields and a drastic shift in monetary policy will make these fears grow.

Forex Markets to Watch Today

From a Forex trading point of view, there are a number of scenarios that can happen with these key central bank decisions. After a rise in the yen across its Forex partners, thanks to tepid BOJ policy, we could see a trend rise over the credibility, or lack of with the Bank of Japan. This could hurt their ability to devalue the yen and keep it weak. The USD/JPY is the biggest market to watch today, with the yen, but other crosses like the EUR/JPY, GBP/JPY and even the Swiss franc will be affected as the day moves on. We could see a bullish trend in each of these currency pairings. The USD/JPY is currently trading up 0.21% at 101.75 after reach 102.70 post BoJ announcement.

As far as the monetary policy decision from the US Federal Reserve is concerned, a stronger US Dollar would be appealing in the USD/CAD and the EUR/USD. The Australian Dollar would lose ground, which is good for the Reserve Bank of Australia. Range trade is likely to continue with the GBP/USD market.

In other news, effecting the Forex markets, as well as global stock indices, is the Brexit data crossing the wires. This is putting the United Kingdom’s looming exit from the Eurozone back in the headlines.

Today’s central bank rate decisions will offer a spark in volatility today.