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Central Banks Drive Market Momentum

Last week saw three major Central bank monetary policy decisions, all holding ground and refraining from making any policy changes, highlighting the fact that December could prove to be a very important month for the markets at large.

Weekly Review

The Federal Reserve met last week to keep its policy unchanged with a vote of 9 - 1, but offset the same by coming out with a hawkish tone and keeping the December rate decision in play. The markets were caught on the back foot and the FOMC's statement saw the US Dollar quickly gain ground with December's looming decision likely to be a key player going forward into the year ahead. The RBNZ also met last week and kept policy unchanged. A broad pickup in Global dairy prices was some encouragement for the RBNZ which kept rates at 2.75%. The central bank however signaled its willingness to cut rates at the future meetings with the next RBNZ monetary policy decision due in December. The Kiwi was trading flat, caught between a hawkish Fed and a neutral RBNZ. Early Friday, the Bank of Japan announced that it would not be expanding its monetary stimulus program and stuck to its narrative that inflation could meet the 2% target range. The markets were divided on the BoJ's decision with some expecting to see an expansion at today's meeting. The Yen was trading volatile for the week and still remains range bound clearly waiting for a larger catalyst, which is increasingly pointing to the month of December where major decisions could be taken.

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The Week Ahead

The week ahead marks the start of a new month and lot of economic data is due. The RBA is the first to set the ball rolling. Expectations are finely divided in light of the recent drop in Australia's quarterly inflation report. However, the decline in the last quarter's inflation was made up by a strong pick up in producer prices, combined with the housing market showing signs of stabilizing. The RBA could follow suit and stand pat on policy as the Fed's December rate hike speculation starts to build. ECB President Draghi is due to speak next week and the markets will be looking to the tone of the speech to pick up any clues for the December's QE expansion decision. The monthly jobs report from the US is due on 6th November for the month of October. The markets need to see a strong NFP print to keep the rate hike speculation going. Expectations are for the US unemployment rate to remain unchanged at 5.1% and the US economy is expected to have added 179k new jobs in the month of October. The EURUSD closed with a doji candlestick pattern last week after strong declines the week before, indicating a potential move to the upside if we get to see a bullish close this week.

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