Despite the Christmas holidays and thinner market conditions due to the lower trading volume, the upcoming week is going to be volatile in the scope of last week’s events. Most of the financial instruments will be vulnerable to the ongoing story of the government shutdown in the United States as politicians will be trying to find a compromise on the Federal Budget. The Chinese government’s reaction for Huawei CFO arrest isn’t over yet with more Canadian and US officials under a threat of mirror actions. So trade war fears between US and China aren’t faded yet and high-yield assets might be in danger this week. The economic calendar is also packed with a bunch of crucial reports from all over the globe. This is the last trading week in 2018 and investors will be looking for updates in the fundamental environment in order to make exact predictions for the economic growth and monetary policy in the upcoming year. Inflationary pressure, trade balances, consumer spending and confidence, the manufacturing and industrial sectors - this is just a short list of all of the reports scheduled to be published this week, especially in the Asian region. Commodities sector traders will be following headlines from largest oil producers in their attempts to limit output and lower supply, stabilizing declining prices. Equities markets will follow monetary policymakers in their speeches in order to get a clue of the developing situation with the interest rates globally and in the United States in particular. Fixed-income market players will monitor the price action of yields, especially in the long-term perspective for 10-year securities. Global economic growth updates will influence all of the emerging market's assets.
Monday, December 24.
Although most of the markets are expected to have thin trading conditions and low-volume price action due to the early close for the Christmas holiday, certain volatility is expected as the continuation of the previous week’s turmoil. Asian equity traders did not have a chance to react on Friday’s market crash yet, so we expect Chinese stock indices to post a sharp decline during the Asian trading session. High-yield currencies such as Australian and New Zealand dollars might continue the latest bearish momentum, if not accelerate due to the lack of buyers for AUD/USD and NZD/USD. European economic calendar is empty while the United States will be focused on Chicago Fed National Activity index which is scheduled to release on New York Opening. Despite the early close in the US (01:30 PM EST), US Treasury will host securities auction for short-term 3- and 6-month bills as well as 2-year T-notes, the result of which will be important in the light of recent changes in the Federal Reserve’s outlook for the upcoming year. The fixed-income market might have a postponed reaction on higher expectations for the interest rates next year, and additional demand is expected for short-term Treasuries, which could reinforce international speculative flows, lifting the greenback. So, the single European currency might be vulnerable to further decline, as it happened on Friday last week, while Japanese yen is forecasted to keep strengthening on safe-haven flows and stock indices decline. However, the situation might change in the currency markets if US politicians were able to arrange an agreement on the Federal Budget in the United States. The government shutdown, which kicked off last Friday after US President Donald Trump refused to sign the bill, hurts the international investment environment, increasing selling pressure on the greenback and stock indices. House of Representatives and Senate aimed to find a compromise with White House on border funding issues in order to release payments for budget services, working hard during the weekend. Any positive development of that story should support the US dollar.
Tuesday, December 25.
Ultra-low trading volume and the absence of any significant price action is expected on Tuesday as the vast majority of the financial markets will be closed on Christmas Holiday. The only exception in the economic calendar will be Japanese Corporate Services Price Index and Leading Index reports scheduled for 01:50 AM GMT and 05:00 GMT respectively. USD/JPY is vulnerable to further decline as the market expectations do not add any optimism for the third largest world’s economy, especially in the light of last week’s disappointing macroeconomic data. All of the other assets are expected to stay flat as traders will be out of the market.
Wednesday, December 26.
The holiday will continue and financial markets will be closed in most of the countries including New Zealand, Australia, Germany, Italy, Spain, France, Great Britain and Canada. However, Japan, China and the United States will come back to active trading. The Asian trading session will start with another crucial pack of reports in Japan. Monetary Policy Meeting minutes will be published by the Bank of Japan, clearing additional details of the regulator’s statement and economic forecast. More volatility is forecasted for all of the Japanese yen pairs including USD/JPY, EUR/JPY and AUD/JPY as Bank of Japan Governor Kuroda will host a press conference at 04:00 GMT. The key topic will be focused on monetary policy and financial conditions in Japan, and investors will be looking for supportive verbal interventions from BoJ, as local policymakers aren’t interested in the yen strength. Moreover, all of the Kuroda’s efforts are expected to be directed on yen weakening, and we do not exclude any promised on BoJ interventions to the currency exchange markets, as the situation goes out of control. If Kuroda was able to find words to cool the panic, USD/JPY would consolidate some of the previous losses, while Nikkei 225 benchmark would pick up some bullish momentum. Otherwise, further turbulence would be on the table in Asian financial markets. The only European report will be Spanish CPI on Wednesday, so EUR/USD traders will be monitoring the ongoing situation with the greenback demand across the board. New York trading session will open with several important reports. MBA will publish 30-year mortgage rate and Mortgage applications at 01:30 PM GMT. Both reports are important for US financial and housing sectors as investors will be trying to get a clue on real estate reaction on the latest updates in the monetary policy perspective. US Redbook survey will be released 30 minutes later with the latest reviews of the financial conditions in November. The previous change was noticed negative (-0.3% month-on-month and 7.0% year-on-year). If things worsened, we might see the greenback reversing its uptrend versus Euro at least. Standard and Poor’s will publish its Harmonized Price Index and equities investors will be expecting more confirmation about the inflationary pressures eased in the United States, which is completely diverging with the FOMC predictions. So, the pressure on Jerome Powell might be reinforced in order to change his view on the monetary policy tightening next year. Some of the preliminary rumours already started to circulate throughout the weekend about possible firing of the Federal Reserve Chairman. Richmond Fed will also report local Manufacturing and Services surveys with a potential weakness on cards, as most of the analysts agree on a further slowdown of the economic growth in the United States. Wednesday is also a huge day for oil traders as API agency will publish its crude oil stock. Previous figures were noticed at 3.5 million barrels. If that number increase, then oil would keep plunging.
Thursday, December 27.
Thursday will start two-days volatile trading session as traders will be back from holidays with the full capacity and larger trading volume. It all will start with Japanese Construction Orders and Housing Starts which are expected to decline further in November. Spanish Retail Sales (1.8% y/y expected) and Swiss ZEW Expectations Index (-42.3 in November) are set to clarify the economic uncertainty in the European Union. More volatility will influence the price action for EUR/USD as EU publishes a monthly economic bulletin. French Labour Market figures will be also in focus during the European trading session. EUR/USD might be supported by those fundamental updates. US Initial Jobless claims and CB Consumer Confidence - those are headline report for all of the trading week. Economists predict both figures to come in with negative readings: 210K versus 214K and 133.7 versus 135.7 respectively. If that confirmed, major US stock indices might continue falling into the bearish territory, expanding the negative yearly result in 2018. The recession fears might keep dominating among fixed-income market investors, which would lead to US Treasury yield further slide and gold prices appreciating. New Home Sales report and the 7-year bond auction would continue the selling pressure on the US dollar, especially versus the safe-haven Japanese Yen.
Friday, December 28.
Another day of turbulence is expected in the Asian equities market as its hard to expect Japanese macroeconomic data changing the recent disappointing trend. Jobs/Application ratio and Tokyo Core CPI is scheduled for 01:30 AM GMT with both reports are expected to decline. USD/JPY, and especially AUD/JPY and NZD/JPY cross-rates are vulnerable to weaker-than-expected figures. Japanese Industrial Production and Retail Sales are expected to be published a bit later with the same scenario for the price action forecasted. The only Australian data this week will be Private Sector Credit. British Nationwide Harmonized Price Index is tentative, and it could cause some temporary support for the British Pound as recent Inflation figures were unexpectedly positive for the economic outlook in the United Kingdom. European Union will report crucial data on Friday as well. Spanish GDP and CPI, German CPI and HICP, Italian Employment - these are just the most important headlines for the busy trading session, so EUR/USD volatility might surge. The United States will report the Goods Trade Balance (-USD75.5B expected compared to -79.8B previously), Pending Home Sales (0.5% m/m) and Crude Oil inventories (market consensus to be updated, -0.497 million barrels previously). All of that data will influence the financial markets during the last trading day in 2018.