After the shocking NFP numbers last Friday, traders are in for another important week ahead – the Federal Reserve of the United States (Fed), is set to release the FOMC Statement and projections for inflation and economic growth.
The ECB stole the thunder last week by over-delivering on its promises, and now it is the Fed’s turn to reveal its plans for the federal funds rate and economic growth in the period ahead.
Main Events During the Trading Week
The week starts with the ECB’s Lagarde testifying at a virtual hearing before the European Parliament Economic and Monetary Affairs Committee. Traders will tune in due to the recent EUR rally and the way the ECB surprised the markets last week. Any hint that the ECB stands ready to do even more may create heightened volatility on the Euro pairs at the start of the trading week.
However, any Euro volatility will likely be ignored by investors as on Wednesday, as the Fed is scheduled to release its view about the economic developments in the United States. As always, when the Fed’s economic projections are due, the market’s volatility rises significantly.
Just a few hours before the Fed’s statement, we will have the Consumer Price Index (CPI) data. Both the regular and core CPI data is expected to come out flat (0% change), after dropping recently. Any negative surprise there should hurt the USD going into the Fed’s press conference.
With the US stock market at the highs and a way better than expected NFP data last Friday, it will be interesting to see the Fed’s view about the recent developments. Non-existing money velocity and subdued consumer expectations make a case for the Fed to go even further in supporting financial markets. The massive liquidity injections from the major central banks help the risk assets (i.e., stock market) rise, and the only question that remains is – for how long?
Beyond the Fed’s event on Wednesday, there is little left in terms of economic data to impact the markets from a fundamental point of view. The Swiss National Bank (SNB) Financial Stability Report on Thursday is closely watched by CHF traders, although the USDCHF hovered around parity for quite a while now.
The trading week ends with the University of Michigan Consumer Sentiment release, expected to improve to 75 from 72.3 last month.
Last week, the Euro dominated the headlines. This time, the USD will be responsible for most of the market’s volatility.