Risk Sentiment & Policy Biases to Drive Forex Price Action

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Risk-Off Sentiment Dictates the Weekly Close

There are several events set to rock the forex trading market this week, including several central bank events and the Crimea vote. Medium-tier economic data might take the backseat when it comes to sparking large market moves, as risk sentiment and monetary policy biases are set to take center stage.

For the US dollar, the outcome of the Crimea referendum could dictate whether it can benefit from safe-haven flows or not. A decision to secede from Ukraine will be met with sanctions on Russia, which might pave the way for months of conflict. This could keep the lower-yielding US dollar supported, along with gold, and be bearish for riskier and higher-yielding assets.

Another factor set to push the dollar around this week is the FOMC statement. Fed Chairperson Janet Yellen is set to announce the central bank’s monetary policy bias based on the recent data from the US. The latest NFP report has been promising, as it has reflected a rebound in hiring for February, capping of two consecutive months of weaker than expected jobs growth. Hawkish comments could keep the dollar supported throughout the week and even in the longer run.

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Fundamental Outlook

As for the euro, the shared currency might also take its cue from risk appetite for the week. A bit of weakness was seen in the previous week though, as the Troika was already abolished. For the pound, the BOE meeting minutes could be a big mover, as it would indicate whether or not policymakers are still unanimous in deciding to keep interest rates and asset purchases unchanged.

The Australian dollar could also see more movement when the RBA releases the minutes of its latest monetary policy meeting. Recall that the central bank decided to keep rates unchanged, despite signs of a slowdown in the economy and in China. Meanwhile, the New Zealand dollar could continue to draw support from the RBNZ’s decision to hike rates last week.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.