Fed rate decision dictates economic calendar


14 December, AtoZForex.com, Lagos – Starting the new week, the number one event in the mind of most traders is the long awaited Federal Reserve meeting on Wednesday. All indications point to the fact that the Fed will finally commence lifting rates from near zero levels where it has been for about the last decade.

Recent data points that bullish bets on the dollar are being reduced. The slowdown may be said to be as a result of the fact that the Fed is likely to commence a slow but steady pace of rate increases after the initial liftoff, potentially constraining support for the U.S. currency.

Last week, many central banks from various regions also had rate decisions, with the Reserve bank of New Zealand cutting rates for the fourth time in the year. While the Bank of England and the Swiss National Bank both opted to keep rates on hold.

Eurozone data

It is going to be a busy week for the Euro. Today, Monday, the European Central Bank President is due to speak at the Prometeia’s conference, in Italy. As usual, clues will be sought from his speech, especially as investors seem disappointed in his latest monetary policy move. On Tuesday, we have the German ZEW Economic Sentiment. Having fallen steadily over the course of the year, the index is forecast to improve further from last month’s 10.4 reading to 15.2 as the indicator improved in the previous month for the first time following seven consecutive declines.

We also have the ZEW Economic Sentiment to be released alongside. On Wednesday, we have the French and German Flash Manufacturing PMI as well as the Flash Services PMI from both countries. On Thursday we have the Flash Services PMI to conclude the week. Currently, the euro is trading mixed against its major counterparts. We expect these data to give a clearer direction, as we expect the Fed rate decision to influence the group currency on diverging central bank policies.

UK inflation and more

Following a recent struggle around deflationary region, the UK consumer price index (CPI) is forecast to come at 0.1 percent after two consecutive months of -0.1 percent reading. However, the data are now expected to turn positive because the consumer prices index (CPI) dipped by 0.3% in November 2014 as a result of the plunging cost of crude oil. Except we get a similar decline this November , which is highly unlikely, the annual inflation rate will mechanically rise.

On Wednesday, we have the average earnings index 3m/y and claimant count change which measure change in the price businesses and the government pay for labor, including bonuses and a change in the number of people claiming unemployment-related benefits during the previous month respectively. As well as retail Sales m/m on Friday. The sterling ended the week up against the dollar, however, this balance might change as the dollar is expected to strengthen after the Fed rate decision, which may spur a bearish resumption of the GBPUSD.

Fed rate decision

The impending Fed rate decision is likely to overshadow other economic data on the calendar. The strong jobs report, along with other recent positive data all point to the likelihood that the US central bank will opt to begin raising rates in their meeting on Wednesday. The China slowdown is seen to have tapered, also alleviating one of the Fed’s fears. On Tuesday, the consumer price index m/m which is a key measure of inflation is expected to come flat. Other data from the US to be released this includes building Permits, Philly Fed Manufacturing Index and unemployment claims. We expect to see dollar strength into the new year if the Fed commences rate hikes, which is highly likely.

Concluding the weekly analysis, with crude oil trading at year lows and metals like gold and silver also sharply down for the year, the dollar strength is not likely to go on much longer as an over extended strength in the USD is already a headache for the Federal Reserve, as it weights on the country’s trade balance.

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