At last global market players are approaching the much awaited December month monetary policy of the US Federal Reserve. The investor's fraternity is almost certain that FOMC will be a pleasant event for them but would like to analyze whether the Fed has enough scope in 2017 to keep entertaining greenback traders. Present article would provide a hint on how Forex market can react to the decision; though, it would be better to go through what happened during last week before we start discussing this week's events/details.
While upbeat US economics kept strengthening Fed rate-hike expectations and helped US Dollar Index (I.USDX) to post fifth weekly advance in previous six, dovish ECB message provided additional strength to the greenback during last week. The GBP also dropped for the week on disappointing Manufacturing Production and uncertainty over Article 50 while Canadian Dollar enjoyed rising Crude prices. Further, the AUD and NZD managed to retain their strength with welcome Chinese PMI numbers but JPY kept being victim of rising equity markets and declining safe-haven demand.
Moving on, Monday's welcome figures from Japan and Saudi Arabia's assent to respect OPEC decision with more efforts helped JPY, Crude and CAD prices while China's property market again flashed worrisome signal for commodity traders.
Further, the second full week of December 2016 has many other things in addition to FOMC which can help making global markets alive. Amongst them, monetary policy meetings of BOE and SNB, together with UK & US CPI and Job repots from Australia and Britain are likely to take the front-line with Fed rate-hike announcement. Moreover, EU ZEW Figures and Flash PMIs, US Retail Sales, PPI and Housing Market numbers are additional data-points that could keep entertaining global traders.
All Eyes on Federal Reserve
After a year-long wait, this week's monetary policy meeting of the US Federal Reserve is likely to please greenback traders with a second in decade interest rate-hike. The monetary policy meeting outcome is also accompanied by press conference of the Fed Chair and quarterly FOMC Economic Projections, which in-turn increases the importance of the event.
While the aforementioned FOMC members' September rate-path indicates more chances of another 0.25% increase into the Fed-rate during Wednesday, traders are more likely to investigate details of 2017 rate-hike chances. Additionally, the economic projection table and the Fed Chair's press conference will also be closely analyzed to predict longer-term USD moves.
Even if US labor market details have been helping the Fed, the central banker did inflate its Unemployment rate forecast while cutting GDP and Inflation projections for the current year during three-month prior release. However, the Federal Reserve wasn't on the welcome-end for Donald Trump but had to digest the surprise as global investors praised businessmen turned politician for his bold approach. The present monetary policy will be first after Trump victory and hence Fed Chair's conference may give justification of what do they feel for policy framework going forward with such business tycoon. It should also be noted that Inflation hasn't been good for the central banker and any signal relating to soft price growth may harm the USD trader's pleasure.
In addition to the Fed's monetary policy meeting, Wednesday's US Retail Sales & PPI, followed by Thursday's CPI, Philly Fed & Empire Manufacturing indices and the Building Permits & Housing Starts, scheduled for Friday, are likely second-tier US releases to help forecast near-term USD moves.
Looking at the forecast, the Retail Sales growth is likely to be 0.3% from 0.8% prior while Core Retail sales is also expected to follow the suit with 0.4% versus 0.8% previous mark. However, the PPI may please USD buyers with 0.1% mark against 0.0% prior with Core PPI consensus showing +0.2% figure versus -0.2% flashed in earlier month. Further, CPI may continue threatening greenback bulls with +0.2% mark from +0.4% prior but the Core CPI could help soothe the pain with +0.2% figure against +0.1% previous. Additionally, Manufacturing indices, namely Philly Fed Manufacturing Index & Empire State Manufacturing Index, are both indicating stronger USD with 3.2 and 9.1 figures from 1.5 & 7.6 respective priors while Housing market indicators, viz. Building Permits & Housing Starts, are signaling soft figures of 1.24M & 1.23M respectively versus their 1.26M & 1.32M prior marks.
Hence, while the rate-hike is almost certain, Fed's forward guidance, via projection table, Janet Yellen's conference and the US CPI, become much more important for the USD traders. Given the central bank chooses to remain hawkish, coupled with upbeat Inflation and Retail Sales figures, chances of successive rate-hikes in 2017 are more likely, which can provide further strength to the greenback while going forward.
However, any disappointments, either from no rate-hike, soft inflation and/or weaker Retail Sales may have larger repercussions than generally witnessed.
BoE, UK Jobs & CPI Figures To Help GBP Traders
After US, the British economic calendar is the second most important thing to observe as it contains monthly releases of UK job numbers, CPI, Retail Sales and monetary policy meeting of the Bank of England.
UK CPI, up for Tuesday, is likely printing 1.1% figure against 0.9% and can please GBP traders while labor market figures, up for Wednesday, are also indicating another push to the British currency with a reduction in Claimant Count Change by 6.2K from 9.8K prior. However, the Average Earnings and Unemployment Rate are likely to remain stagnant with 2.3% and 4.8% mark respectively. Further, Thursday's Retail Sales may disappoint Pound traders with 0.2% versus 1.9% prior. Moving forward, Wednesday's monetary policy meeting by the BoE is almost a non-event as there isn't any changes expected to rollout; though, dovish comments from the rate-statement is more likely, which in-turn could drag the GBP further towards south.
While economics are less likely to hurt the GBP and may signal another U-turn by the British currency towards 1.2780, disappointing BoE comments, coupled with weaker Retail Sales, crucial to the UK GDP, may keep hurting the GBPUSD and flash 1.2300 on the chart.
EUR Traders Should Observe EU ZEW & Flash PMI Figures
At European front Tuesday's EU & German ZEW Economic Sentiment, followed by Thursday's Flash Manufacturing & Services PMI figures, are something that can help determine near-term moves of the regional currency. While ZEW Economic Sentiments for EU & Germany both are expected to please EUR traders with 14.2 & 16.5 marks against 13.8 & 15.8 respective priors, the EU Flash Manufacturing & Services PMIs may add regional optimism with 53.9 number versus 53.7 & 53.8 respective previous marks. The same goes for German Manufacturing PMI which is likely posting 54.6 figure compared to 54.3 prior but the Services PMI could hurt the upbeat sentiment with 55.00 mark against upwardly revised 55.1 prior.
Being second-tier releases, coupled with presence of FOMC, chances of traders giving less importance to EU readings are higher, which in-turn reduces expectations of EURUSD up-move based on these readings. However, FOMC disappointment can quickly fuel the pair to 1.0850 resistances but an otherwise drag to 1.0460 and the 1.0210 is more likely.
SNB, Chinese Industrial Production & AU Jobs Report Are The Rest
Alike Federal Reserve and Bank of England, the Swiss National Bank (SNB) is also scheduled for holding its monetary policy meeting during the week. Although, the Swiss central banker isn't expected to alter its present monetary policy during Thursday's quarterly meeting, the Chairman's press conference become important for CHF traders. With recent Swiss data-points have been quite welcome, coupled with its safe-haven acceptance, a hawkish statement from SNB Chairman could help USDCHF to revisit sub-1.000 region; though, strong USD, which is more likely, can keep signaling the pair's north-run beyond 1.0300 mark.
Tuesday's Chinese Industrial Production and Thursday's Australian Job figures are at the last stand of priority to keep traders busy. While Chinese Industrial Production is expected to remain unchanged at 6.1%, recent surge in official PMIs indicate a strong print and push to commodity prices. At the Australian front, the Unemployment rate isn't likely to change of 5.6% but increase in Employment Change, from 9.8K to 17.6K, may help AUDUSD to extend its upside towards 0.7570-80 region. However, weaker job prints or Chinese figures, together with US fed rate-hike, can keep signaling AUDUSD's downturn to 0.7270-65 support-zone.
Cheers and Safe Trading,