Financial News December 22, 2015
Firmer USD likely to continue through 2016
After almost a decade, the U.S. Fed decided to hike its bank rate in mid of December. The economy is back on track, as growth rate picked up, and labor market has improved.
On the other hand, the economy is expected to face higher inflationary pressure in near future.
The central bank is expected to deliver four more hikes next year, and thereby capital inflows will intensify. This will inturn strengthen the US dollar in the currency market.
"Every Fed tightening cycle is different and how USD trades depends on the path of rates relative to expectations, the path of rates in the rest of the world, and the reasons why the Fed is hiking, amongst other things. In the current cycle, these factors generally argue for USD strength extending into 2016. We think the forward curve significantly understates the extent to which rates will rise through 2016 and this is against a background where most other central banks are on hold or easing", states RBC Capital Markets.
Market Review December 22, 2015
British consumer morale in December edged up from a six-month low in November, while households remain more worried about the economy than they were at the end of last year. Moreover, GfK said that its monthly consumer sentiment indicator rose to +2 in December from +1 in November, marginally stronger than a median forecast of +1. Furthermore, the Royal Institution of Chartered Surveyors (Rics) states that the lack of housing supply will drive prices up faster than household pay rises with an average 6% rise across the country and 8% in East Anglia. The rise in house prices was also supported by low interest rates and stable economic growth.
Released during the early European session, Swiss Trade Balance came in at 3.14bln versus the estimated 3.82bln, German Import Prices declined -0.2% missing the estimated 0.2% rise and GfK German Consumer Climate came in at 9.4 beating the estimated 9.3. The financial markets are generally quiet this week as we approach the holiday season.
The key events for the day are the United States Final GDP and Existing Home Sales, the United Kingdom Public Sector Net Borrowing and New Zealand’s Trade Balance.
Data releases to monitor:
EUR: German Buba Monthly Report, Consumer Confidence.
GBP: CBI Realized Sales.
Trade Idea of the Day
EUR/USD
Currently the pair is trading at 1.0921. Traders must monitor the 1.1059 resistance level and the support level 1.0802 for possible breakouts. A possible scenario would be a movement towards the 1.0960 resistance level, where a break may lead to the 1.1000 area. An alternative scenario could be a movement towards the 1.0862 support level, where a break may lead to the 1.0830 area.
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