There are some weeks when you look at the upcoming events scheduled and wonder which of them will have the most sway on the markets. But that isn’t the case this week, because the FOMC meeting on December 18-19 stands out like a sore thumb on the calendar, with “sore” perhaps being appropriate given that the futures market is currently pricing in an 80% chance of a rate hike by the Fed when they meet later this week. “Sore” might also be the right word to use considering the sell-off seen in US equities lately, with last Friday’s steep falls putting all the major US indices in correction territory. And while all FOMC meetings are important, this one comes at a particularly crucial time given the nervous state of global markets heading into year-end.
We expect the FOMC will indeed hike at this meeting, which then leaves the accompanying Press Conference by Jerome Powell as being perhaps the biggest talking point of the week with traders awaiting signs of what course the central bank will take on rates with regards to 2019.
The Fed Chairman performed a rather quick change of tone from October (when he said rates were “a long way” from neutral) to November (when he said rates were “just below” the neutral rate), and this has the market guessing as to what signal he we will send at his press conference this week. While US economic numbers do remain healthy, there are some worrying signs abroad and this could leave the FOMC adopting a softer tone, albeit that the overall outlook remains data-dependant.
If a softer tone is taken by the Fed that could see the US Dollar lose some of the steam that it gained throughout last week. The greenback saw a pick-up in safe-haven buying amid the market jitters, and this saw the currency rally 0.62% against the Euro. Ahead of the FOMC, the EURUSD may see some earlier moves when Eurozone CPI and Trade Balance data is released on Monday.
Sterling fell over 1% last week with the Brexit situation seeming to get more complicated, hard as that might be to believe. While PM Theresa May has survived a no-confidence vote, the delay of a Brexit vote in Parliament and an unwillingness by the EU to negotiate sticking points such as the Irish backstop are increasing the odds of a no-deal Brexit, but a second referendum is not entirely impossible either. Overall, the prevailing Brexit uncertainty makes trading Sterling something of a crapshoot with the currency remaining at the whim of whatever the next political headline happens to be.
The combination of weak Chinese data and sinking US equities didn’t do the Aussie Dollar any favours with the currency slipping below the US$0.72 handle on the downturn in sentiment. Ahead this week we have Australian employment numbers on Thursday, with the jobs data often difficult to predict and therefore prone to giving the AUDUSD rate a jolt one way or the other. And of course the AUDUSD will, like the other major pairs, be susceptible with what happens at the FOMC meeting in what is shaping up to be a lively week of trading in the currency market.
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Stocks soar, powered by first-rate earnings and a dazzling run of economic data; Gold plays catch as G10 falls flat while oil basks in the afterglow