The Forex market might become volatile due to some important events, including Bank of England Monetary Policy Meeting Minutes, FOMC Rate Decision and Testimony from Janet Yellen, Swiss National Bank Rate Decision, ECB TLTRO operation, and the referendum in Scotland.
TLTRO refers to the European Central Bank's targeted long-term refinancing operation. The interest rate cuts came earlier this month and were a clear indicator for banks and traders around the globe that the ECB will do whatever it takes to keep low inflation from doing further damage to the eurozone’s already fragile economy. The European Central Bank surprised the world and without any hints, cut interest rates and introduced new stimulus plans. However, they are still waiting for its effects to show during October.
A weak euro will put upward pressure on inflation, reflecting directly in higher prices of imported products and commodities such as oil.
The ECB's interest rate cut immediately affected other European countries, for example Denmark which is a non eurozone member of the (ESCB). The Board of Governors of the Danish central bank which holds full responsibility for the monetary policy for their own currency – the Krone – didn’t follow the European Central bank in levying negative interest rates and did not change their interest rate to strengthen the Krone.
So basically we are looking at Euro vs. USD and Euro vs. CHF and this week both central banks will be involved in determining its currency exchange rate until the end of this year.
Without a doubt, the main focus is the Scottish referendum but the Bank of England minutes, inflation, employment and spending reports will also contribute to the expected volatility in the pair.
The referendum is scheduled on the 18th September 2014. Remember this date very well as it might be a historical one, with polls open from 7am to 10pm local time.
Today and tomorrow, the market will be “dizzy”, where it can be volatile despite the lack of news, or it might be quiet due to low volatility as many traders will avoid the Forex market this week. GBP could be neutral since it’s over-sold. However, this is not certain as there are major news and some major financial and economic figures to be released early this week.
As soon as we receive any leaks from the election results, we might see enormous volatility and movement in the GBP.
The Swiss National Bank Rate Decision is supposed to determine the path of their currency. As far as we know, the bank will not interfere unless their currency goes below 1.20 against the euro. Keep in mind that the last time the SNB intervened, we witnessed a dramatic movement of the Swiss franc against the USD.
The Research Department at ICM Capital always recommends the use of stop loss orders and risk management tools especially during news releases and times of high volatility.