Euro and Pound to Come Under Pressure Post FOMC and Brexit
By, Jason Schwartzman, Bullish University
Points to consider in this article:
- The post Federal Open Market Committee (FOMC) swell in risk appetite should not find lasting follow through.
- Euro and Pound should fall as Mark Carney and Mario Draghi stoke Brexit jitters.
- Yen retraces gains after the Bank of Japan monetary policy announcement.
- New Zealand Dollar drops thanks to Reserve Bank of New Zealand rate cut bets.
Yesterday, the major central banks, the Reserve Bank of New Zealand, Federal Reserve (Fed) and the Bank of Japan (BOJ) each had their moments in the spotlight. Each central bank held steady on current monetary policy. However, the Bank of Japan announced they were tweaking their monetary base framework. This had an immediate impact in the global Forex markets as well as with Binary options trading strategies.
After these central banks announced their policy decisions we saw a flattening of the projected rate hike path. We also saw risk appetite being buoyed by hawkish rhetoric from the chair of the Federal Reserve, Janet Yellen, who all but guaranteed a rate hike by December. This caused an immediate reaction with global financial markets and traders to adjust their Binary options trading strategies.
Looking ahead to today, European stock markets are higher, with the FTSE 100 in London now up over one percent and the CAC 40 in France also up over one percent, at the time of this report. Futures, currently tracking the US equity benchmarks are flat, for the moment. This is suggesting that an up-shift in the 2016 Federal Reserve Rate hike may constrain optimism with the equity market causing a shift in Binary options trading strategies. Economists are now pricing in a 61 percent chance the Federal Reserve Bank will hike interest rates in December. There is better than a 55 percent chance the Federal Reserve will hike rates in November, next month. This is causing investors and traders to shift their Forex and Binary options strategies.
Also on tap are speeches by the chair of the European Central Bank, Mario Draghi and Bank of England Governor Mark Carney. These speeches will mark key event risks for the European and global financial markets causing traders to adjust their strategies in Forex and binary options.
This morning, the New Zealand Dollar underperformed as the Reserve Bank of New Zealand suggested another rate cut was around the corner. This is sooner than many investors expected, as the probabilities for another rate cut would come after the first of the year. The central bank said that “macro-prudential measures and tighter credit conditions [meant to cool the frothy housing market] are having a moderating influence,” lending credence to a short term rate cut before January. This statement firmly opens the door for more easing and will cause traders to adjust their binary option strategy as well as currency holdings as more volatility will enter that particular Forex market. Namely, the New Zealand Dollar against the US Dollar Forex market. This could also cause other New Zealand financial markets to change rapidly causing a shift in binary option trading.
Reserve Bank of New Zealand officials had previously stated that there was an excessive bout of price inflation in the housing market, and this was growing, making them hesitant to cut rates soon. When the central bank lowers interest rates, this could compound that problem. At the time their priority was reigning in housing prices which was a cornerstone to stimulus expansion concerning their monetary policy.
In other Forex and binary option news, the Japanese yen corrected lower after spiking earlier after the Bank of Japan announced monetary policy. The Bank of Japan unveiled a new and redesigned stimulus effort. This new stimulus plan will be lined to keeping the 10 year yield Japanese Government Bond at zero, to force banks to loan money. After the announcement, the Japanese yen initially rose but swiftly reversed cause, playing havoc on binary option traders, earlier in the day. Traders are now signaling a lack of confidence in the new monetary stimulus regime. Investors have been suffering from eroding confidence with the Bank of Japan, and this is not likely to change anytime soon. Right now, the initial bout of optimism is wearing out and the Japanese yen is floundering a bit. Strength is likely to return to their benchmark currency as skepticism with the Bank of Japan returns. Investors have not been very forgiving with what they perceive as a lack of confidence with the Japanese Central Bank.