Market Overview

11 December 2015

WEEKLY REVIEW: This year’s final showdown ahead

Market participants expect the Fed's monetary policy meeting next week. It is likely that the Fed will start raising its interest rate this month. Fed officials already hinted the possible interest rate hike. The U.S. labour market continued to strengthen, but the manufacturing sector remained weak and inflation remains low.

Today's U.S. economic data is likely to convince the Fed to start raising its interest rates. The producer price index decreased 1.1% year-on-year in November, beating forecasts of a 1.4% decline, after a 1.6% fall in October. The producer price index excluding food and energy climbed 0.5% year-on-year in November, beating forecasts of a 0.2% increase, after a 0.1% rise in October.

The U.S. retail sales climbed 0.2% in November, missing expectations for a 0.3% increase, after a 0.1% gain in October. Retail sales excluding automobiles increased 0.4% in November, beating forecasts of a 0.3% gain, after a 0.1% rise in October.

The U.S. consumer price index (CPI) data for November will be released next Tuesday, ahead of the release of the Fed's meeting results on Wednesday. But the CPI is not the Fed's preferable inflation measure.

It is likely that markets participants will be cautious ahead the release of the Fed's meeting results. Markets are likely to trade sideways.

The impact of the Fed's interest rate hike could be moderate or even negative for the U.S. dollar. The U.S. dollar rose against other currencies in the last months on speculation that the Fed will start raising its interest rate this year. It might apply the following motto: trade the rumour, buy the fact.

The Fed should convince market participants that it is ready to continue to raise its interest rate once it starts hiking its interest rate. If the tone of the Fed's statement is dovish, the U.S. dollar will be likely under pressure.

It is likely that the currency pair EURUSD will rise toward the resistance level at $1.1200 or at $1.1300, if the Fed will not hike its interest rate or it will hike its interest rate but the Fed's statement is dovish, and there will be no negative news from the Eurozone.

If the Fed hike its interest rate but the Fed's statement is hawkish (strong signals for further interest rate hikes), and in case of the negative news from the Eurozone, the currency pair EURUSD may test the level at 1.0800 or the level at $1.0700.

Konstantin Meinhardt
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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