Friday September 23, 2016 - 21:02:05 GMT
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Game Changer Central Bank Decisions
John M. Bland, MBA
Momentous Developments
Few market participants were expecting the FOMC to raise on Wednesday. Sentiment was correct as the Federal Reserve kept its key Fed Funds target range steady at 0.25-0.50%. The markets had been running very low odds on a rate hike. What did surprise traders was that FOMC members significantly marked lower their interest rate forecasts for 2017. So even though Chair Yellen specifically mentioned the possibility of a rate hike this year, presumably at the December 13-14 meeting, investors took this possible signal in stride, because sentiment at the FOMC suggested that a December rate hike would be "one and done" for a good while. Markets were never worried about a single rate hike this year, but were always worried about the prospect of a series of rate increases. That fear has been lifted and has seen USD demand start to wane.
Another key source of uncertainty was lifted on Wednesday when the Bank of Japan announced a confusing policy decision. The Central Bank made a fundamental change in in the way in will conduct policy. It no longer will target bank reserves. It now will fix the yield on the 10-yr JGB at 0%. Furthermore it will keep the sort-term deposit rate fixed at -0.20%. Their goal is to steepen the yield curve and therefore improve the profitability of the financial sector and thereby help the economy as a whole. The Bank of Japan did not change rates, nor did it change the volume of its QE. Speculators initially sold the JPY on the news, but subsequently have driven it higher.
Current Market Conditions
Heading into the back end of this year and into 2017, traders and investors now have a clearer idea of what is in store from the Fed and Bank of Japan. They now have have a better sense of where Fed policy is headed, and that Janet Yellen is not even contemplating removing the punch-bowl. Barring unforeseen developments, central bank "policy normalization" is seen advancing at a snail's pace. Higher U.S. interest rates are not seen as a major influence on the value of the USD. As for Japan, the negative interest rate policy (NIRP) is seen locked in for a couple of years as the Bank of Japan tests a new approach to monetary policy. Only time will tell if it will work and how it will affect the JPY.
WEEKLY HIGH IMPACT NEWS:
26-Sep MON
08:00 DE- IFO
14:00 US- New Homes Sales
27-Sep TUE
13:45 US- flash Service PMI
14:00 US- Consumer Confidence
28-Sep WED
12:30 US- Durable Goods
14:30 US- EIA Crude
29-Sep THU
07:55 DE- Employment
12:30 US- GDP
23:30 JP- CPI
30-Sep FRI
06:00 DE- Retail Sales
08:30 GB- GDP
12:30 US- PCE Deflator
14:00 US- final Univ of Mich
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
co-founder
www.global-view.com
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