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Oct 23, 2017

ECB AND POLITICS HEADLINE AN IMPORTANT WEEK FOR FINANCIAL MARKETS

CENTRAL BANKS AND POLITICS

The main event for investors this week will undoubtedly be the European Central Bank interest rate decision and policy statement on Thursday. ECB President Mario Draghi is expected to announce that the governing council will start to taper back the large-scale assets purchases programme started in 2014. Traders will also look to the Bank of Canada interest rate decision and policy statement on Wednesday.

Politics is also back in focus, as financial markets digest the results of the Japanese general elections this week. Markets will also look to ongoing events unfolding in Catalonia, and the US Senates further approval of the Trump administrations proposed tax reforms.

Monday 23rd October, Japanese Election Results

Traders will react to the results of Japanese general election, which was held over the weekend across Japan. Polls suggest incumbent Prime Minister Shinzo Abe should win a sweeping majority victory, maintaining power for the ruling Liberal Democratic Party.

  • A majority victory for Shinzo Abe should see the USDJPY pair well support above the 112.90 level towards 114.10 and 114.40 levels.

  • While a failure to gain a majority in Japanese parliament should see the USDJPY pair below the 112.90 level, testing support at 112.58 and 111.80.

Tuesday 24th October, Eurozone Manufacturing PMI

The eurozone releases its official Purchasing Managers Index for the month of October, which measures the activity level of purchasing managers in the European manufacturing sector. The October reading is expected in at 57.8, which is slightly down from the September headline reading of 58.1.

A reading above 50 indicates expansion in the sector; below 50 indicates contraction.

Wednesday 25th October, Bank of Canada Interest Rate Decision

The Bank of Canada are expected to maintain interest rates at one percent, after previously increasingly rates in the last two policy meeting. The policy statement may prove key, as it will communicate to investors Canadian policy makers latest thinking on monetary policy.

  • The USDCAD pair is expected to remain well supported by buying interest while trading above the 1.2460 level. A dovish tone from the BOC should see further buying towards 1.2650 and 1.2730.

  • A more hawkish Bank of Canada policy statement, hinting at further rate hikes ahead, should prompt the loss of 1.2460 level, with the pair declining back towards the 1.3360 and 1.2280 technical support levels.

Thursday 26th October, ECB Interest Rate Decision

The European Central Bank is expected to keep interest rates unchanged at record low-levels, while ECB President Mario Draghi is expected to finally announce that the governing council will start to reduce the ECB's large-scale assets purchases programme.

  • If the ECB President announces QE tapering as expected, and strikes a hawkish tone during his policy statement, the EURUSD pair is expected to advance towards the 1.1910 and 1.2039 resistance levels.

  • If the ECB President disappoints investors, and fails to announce a tapering of QE or delays the decision, the EURUSD pair should decline towards the 1.1660 and 1.1589 support levels.

Friday 27th October, U.S THIRD FISCAL QUARTER GDP

The U.S Bureau of Economic Analysis releases third fiscal quarter GDP figures for the American economy. U.S GDP is expected to have expanded 2.6 percent in the third fiscal quarter, which is slightly down from the 3.1 percent increase seen in the second quarter.

Gross Domestic Product measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is the broadest measure of economic activity and the primary indicator of the economy's health.

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