All Eyes On The Fed This Week

The news that the Doha oil output freeze meeting had failed hit markets at the Asian open. Commodity currencies fell as another news item was gaining traction in the energy sector — Kuwait oil workers had entered an oil strike, which for all intents and purposes had a bigger impact on oil prices, a reduction in crude output which even Doha participants said was not in the cards.

Efforts from Organization of the Petroleum Exporting Countries (OPEC) and Russia to return to the negotiating table have kept the price of oil stable even though there has been few signs that the black gold glut is set to decrease anytime soon.

If last week was an oil dominated one, traders can expect this week to be central bank dominated. The key event will fall on Wednesday as the U.S. Fed will make its third interest rate decision in 2016. Volatility in the currency markets has toned down from last week, after a major slump in the yen on the heels of renewed expectations that the Bank of Japan will ease more aggressively during its next policy meeting.

  "Has the U.S. dollar found an intermediate bottom? While the technicals say that could very well be the case, the fundamentals however remain much murkier. Conflicting signals from the American economy and an undecided Fed should continue to induce choppiness in the greenback, while trends will probably stem from other currencies such as the Japanese yen and euro.    Wednesday also sees the important April FOMC meeting, interest rate decision, and monetary police statement. There will be no press conference with Janet Yellen this time so the press statement will be highly scrutinized by participants."    Business Of Finance on Facebook, 26 April 2016

"Has the U.S. dollar found an intermediate bottom? While the technicals say that could very well be the case, the fundamentals however remain much murkier. Conflicting signals from the American economy and an undecided Fed should continue to induce choppiness in the greenback, while trends will probably stem from other currencies such as the Japanese yen and euro.

Wednesday also sees the important April FOMC meeting, interest rate decision, and monetary police statement. There will be no press conference with Janet Yellen this time so the press statement will be highly scrutinized by participants."

Business Of Finance on Facebook, 26 April 2016

The European Central Bank (ECB) did not bring any new ideas forward but did manage to avoid contradictions between its statement and the comments from its President Mario Draghi, which had shaken the currency markets in previous monetary policy events. EURUSD traded in a wide range of 1.14 down to almost 1.12 where it remains glued to, awaiting this week's Fed monetary policy statement.

The ECB has made it clear that low rates will continue in Europe for the time being unless growth picks up. While Germany has never agreed on principle to the easing of monetary policy and has protested each time there is to be a new round of QE or stimulus of the like, it makes Mario Draghi’s vague promises of even deeper negative rates a much tougher sell on the market. The greenback has not gained from the dovish ECB tone as the Fed is anticipated to keep rates unchanged in today's decision.

The U.S. Federal Reserve will release its Federal Open Market Committee (FOMC) statement at 2pm EST this coming Wednesday (27 April). Market participants aren't expecting a rate hike at this point and with no press conference following the publication of the statement, the language of the document will be closely scrutinized for clues about what may unravel during the next FOMC meeting on 15 June.

The Fed may now in the spotlight but if any central bank has learned from the lessons of the past, it is likely to have been the Washington based institution. "Patience", a word markets are sanguine about while they skim through today's statement. Participants are hopeful that the Fed will not over promise in today's statement, willing to let the U.S. economy "run a little hot" with inflation before further hiking rates.

Should there be no change in the Fed Funds target rate today, the June FOMC meeting will become the next biggest candidate for a hike before the U.S. presidential elections heat up in earnest. Foregoing June will force the Fed into a tight spot, repeating last year's scenario where it waited till December before finally lifting off.

The Fed has already downgraded its rate hike projections (Fed dot plot) for 2016 citing global headwinds that have limited U.S. growth. So far employment remains the strongest pillar of said recovery but the job gains and the lowest unemployment claims in 42 years won't be enough to sway the opinion of Fed members to vote for a rate hike until other economic gauges show improvements. It's safe to say that markets will be focusing back on the greenback this week.