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NFP, BOE & ECB meetings

Video Script

Hi everyone, financial markets are on the move and we have another jam-packed week of economic events and earnings coming up. This week I’ll discuss the 10% correction in the S&P 500 and a 5-week high in the US dollar as well as rate decisions from the Bank of England and the ECB and of course non-farm payrolls. So stay tuned!


Right so euro-dollar is back near its yearly lows around 1.12, pound-dollar is down 300 pips from its peak 2-weeks ago and dollar-yen and dollar-cad are both breaking higher. Clearly the reason is the Federal Reserve. Let’s just remind ourselves what the Fed said at its meeting last week. The important sentence was that


"With inflation well above 2 percent and a strong labour market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate."


Quantitative easing is set to end at the Fed’s next meeting so markets are taking the above statement to mean that rates lift-off as soon as QE ends. That’s all fine but it perhaps doesn’t explain why the dollar gained even further on what was already expected. The explanation seems to be that markets are pricing in a possible future scenario and not what is known at the present. Ie markets expect a more aggressive Fed than the Fed itself is currently acknowledging. That expectation makes sense because of high inflation but does leave room for the Fed to under-deliver.


Why does all that matter? Well I think to summarise, the dollar is trending higher because the Fed is now actively tightening policy, but if markets get a whiff that the Fed isn’t as hawkish as expected, the dollar trend could turn downwards.


Outside of forex, the big trend that continues to dominate is the price of oil. Brent crude struck $90 per barrel for the first time in 7 years last week. Coming up this week we have another OPEC+ meeting. OPEC and its allied nations have committed to raising production but did not meet their own quotas last month, and quotas themselves are probably too low given the high demand. If OPEC continues the status quo, that should underpin oil markets but any agreement to rise output faster could put a crimp in oil’s rise.


Before I turn to the economic calendar – corporate earnings from the world’s top companies are still rolling in thick and fast. Alphabet the parent of Google reports on Monday January 31st, Facebook and Alibaba report on Tuesday February 1st, while Amazon reports on Wednesday the second.


And a kind reminder to give this video a quick THUMBS UP for the YouTube algorithm… I’ll wait just a moment for you to finish clicking or tapping. OK thanks very much!


So let’s round things off with the economic calendar. The OPEC meeting I just discussed is on Wednesday. Before that we have the Reserve Bank of Australia deciding interest rates on Tuesday but consensus is that there is no change in policy this time around. The big one could be the Bank of England on Thursday since another rate hike to 0.5% is expected. No change in rates or the guidance on rates is expected from the ECB but we could hear a bit more about how quickly asset purchases will end after the PEPP program, which is the special program of bond-buying created during the pandemic, which is scheduled to end in March. For the moment Fed policy is diverging from Europe, so watch out for anything from the ECB that closes that gap – because that is what’s needed to support the euro.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.

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