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FX Markets Monthly Outlook – April 2017

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The month of March passed off uneventfully as the markets weathered the risks from a Fed rate hike that saw U.S. short-term interest rates being hiked by 25 basis points to 0.75% – 1.0%. On the political front as well, the general elections in the Eurozone kicked off with the Dutch elections resulting in the incumbent Mark Rutte winning a majority.

The Dutch elections brought a sense of relief to the Eurozone as investors were bracing for a potential turn towards the far-right and populist parties in the region. Still, despite losing, Greet Wilders’ party made some strong inroads into the parliament, which only highlights the fact that the political threat of the far-right and the anti-establishment parties still exists.

The British government also finally managed to formally invoke Article 50 of the Lisbon treaty this week, sticking to the timeline as was announced previously by the Prime Minister Theresa May.

Despite some political headwinds and setbacks, PM May managed to successfully take the Brexit talks to the next level. EU officials are expected to give a response in a few weeks time.

The month ahead: April 2017

The month of April brings with it a new set of challenges for traders as politics continue to remain at the center stage, while economics and monetary policy will likely take a back seat.

BoC monetary policy meeting – April 12th

The Bank of Canada’s monetary policy meeting due on April 12th is unlikely to see any major changes from the central bank, which had previously signaled that it would not hesitate to cut interest rates further.

The Canadian economy has been showing signs of posting some recovery with a pickup in inflation and also a modest rebound in the retail sales numbers. Although the latest GDP figures are yet to be released, the previously released data shows the potential for an upside surprise.

Still, despite a possible disappointment in the GDP figures, the Bank of Canada is not expected to make any changes to interest rates this month.

French Elections – April 23rd

On Sunday, April 23rd the French presidential elections will be held. This will be the first round of elections where all the candidates will be eligible. The following month and a few weeks later, the final round of French elections are expected to take place.

Marine Le Pen from the National Front and one of the stronger contenders will be facing off against Francois Fillon and Emmanuel Macron. The three candidates are seen to be the strongest with the final round tipped to be a battle between Marine Le Pen and one of the other two candidates.

The prospects of Le Pen making it to the second round of the polls could put the markets on the edge. Given the outcome from the opinion and exit polls from the Brexit referendum and the U.S. presidential elections, market participants are definitely not taking things lightly.

ECB monetary policy meeting – April 27th

The European Central Bank will be meeting during the same week of the first round of the Presidential elections. Giving the timing of the meeting, the ECB is unlikely to make any major announcements as the central bank could maintain the status quo.

However, if recent rumors are to be believed, the ECB president Mario Draghi could potentially take the opportunity to convey a rather dovish tone to the markets. In the March ECB meeting, the central bank chief’s comments were taken as hawkish as Mario Draghi said that the risks to the economy were less pronounced, despite being tilted to the downside.

The markets viewed Draghi’s comments as the ECB losing the “sense of urgency” for expanding QE further. This led to a recovery in the single currency.

Furthermore, the ECB’s QE purchases of €60 trillion go into effect starting April, compared to the previous pace of €80 trillion in purchases. Thus, Draghi is likely to use the April meeting to balance the expectations, which could be weaker for the single currency.

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