Forex Update | Central Bank Tsunami

Bring on the Central Bank Tsunami !!!!!!!!!!By David Warner

Hello Top Traders!

March is going to be a HUGE month for currency traders. The economic calendar is jam packed and we can expect a ton of volatility as the markets digest incoming data and make bets on central bank moves. 

This week brings us Central bank risk from Australia, Canada, Japan and the US.

Australia kicks off the week Monday evening (10:30PM EST) with the Reserve Bank of Australia releasing their latest policy statement. 

Markets are overwhelmingly predicting another rate hike as Australia joins the higher rates for a longer central bank club. The question for traders is are they going to hike more and for longer than the Fed going further. 

The odds of a recession are increasing in Australia and the path between containing inflation and recession becomes narrower the longer central banks delay aggressive action against it. 

Taking a look at the chart and we see the Feb 2nd downtrend broken on Friday leaving a pretty nice reward/risk shot for a long trade.Forex trading Australian dollar David Warner

The Bank of Canada updates us on Weds at 1OAM EST to it’s next move. It is widely expected that the BOC will hold rates at its current levels. This increases Canada’s lag behind the Federal Reserve and other global central banks. 

This threatens to further weaken its currency and fuel inflation.  We may see increased volatility out of the statement release as traders up their bets on another BOC hike this year. 

AUD/CAD offers an interesting play on central bank policy divergence as it has also broken out of a month long down trend and looks very similar to the AUD/USD chart above it.

This is one to put on your radar after Canada’s policy statement.  

Japan gives us a policy update on Thursday evening (tentative). The BOJ has a new sheriff in town and is signaling that markets should not expect any big surprises for now as he braces for some monumental challenges facing their central bank. 

He says the BOJ’s ultra loose policy is appropriate……for now. This sets up some interest rate divergence as well and fundamentally we should see JPY weaken against its peers for the time being. 

USD/JPY has hit its 100 and 200 Daily MAs as well as a cluster of daily support. The trendline from early February is one to keep an eye on for a tactical long.

The Fed central bank risk is Jerome Powell’s semiannual Monetary Policy Report to lawmakers on Capital Hill. 

His colleagues have been mostly delivering a pretty hawkish message in response to hot economic data of late and he is expected to echo the message. 

Trading a speech is problematic as we are fighting algos programmed to rapidly react to words- stay off the small time frames here! His testimony is Tues and Weds morning at 10AM. 

Friday promises to bring fireworks as US job numbers become the focus. An ongoing tight labor market is not something that investors want to see. The market wants to see that hiring is cooling, promoting the Fed to keep a smaller rate hike pace.

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