Weekly trading forecast December 17 - 21.

U.S. monetary policy perspective will influence the financial markets this trading week, as the Federal Open Market Committee is going to meet for the interest rates decision, the last time this year. Although the fourth rate hike this year is widely expected and the markets already priced in 95% of chances for that scenario, the further regulator’s steps, as well as the dollar’s fate, are uncertain. The latest economic data raised a lot of questions about the sustainability of the economic growth pace next year, so a more dovish FOMC statement would not be a huge surprise for currency traders. The global economy also concerns investors with several negative scenarios on the table, so the Fed officials might use that story as a justification to put the tightening cycle on pause, easing the pressure in the financial conditions. Two major gaps - external trade and budget balances - are widening the negative surplus and it's getting harder to fund these troubles as the borrowing costs increased for U.S. Treasury. In contrast to the currency market, equities might have a positive reaction on a dovish FOMC statement as investors would comprehend a potential halt in rate hikes as a supportive factor for major stock indices.

The economic calendar is full of other crucial events across the globe with most of the regions reporting local gross domestic product, retail sales and inflation figures. Besides the Federal Reserve, two more giant central banks - Bank of Japan and Bank of England - will meet this week, announcing their monetary policy and economic outlooks for the foreseeable future. Both countries were struggling recently due to several fundamental factors, and investors will listen to regulator’s officials in order to understand when should they expect an improvement. Geopolitical issues are expected to weigh on traders’ sentiment with an ongoing story of the U.S.-China trade war truce. Brexit saga is not promising to bring something positive for the British pound as the latest events brought more uncertainty. Commodities were suffering from a threat of new import tariffs to be imposed in early 2019, so any headlines related to that topic would influence the price action. Oil traders will keep hoping for OPEC and other giant oil producers to cut the output volume as the global demand concerns keep weighing on the black gold.

Monday, December 17.

The trading week kicks off with European data, as the Asian economic calendar is empty and the price action will be influenced by weekend’s headlines. Eurozone reports CPI at 10:00 AM GMT. ECB President Mario Draghi used the recent slowdown in the inflationary pressure as the justification to keep the ultra-soft monetary policy at the same level, lowering the economic predictions for 2019. The market does not expect inflation to pick up the growing momentum as well, forecasting CPI at -0.2% m/m and 2.0% y/y in November. The Core CPI prediction is even lower: -0.2% m/m and 1.0% y/y. If that confirmed, EUR/USD would keep declining towards 1.1300 support and beyond. Otherwise, if inflation figures surprised traders, we would see the single European currency testing 1.1400 resistance. European Trade balance is also due to release at the same time. New York trading session will open with NY Empire State Manufacturing index for December. Given the weak readings of the national Manufacturing PMI published last week, it’s hard to expect any improvement from the local report. The market consensus is at 20.60 compared to 23.30 previously. Canada will report foreign securities purchase volume in October. Low volatility is expected for U.S. and Canadian dollars on Monday.

Tuesday, December 18.

Australia and New Zealand will appear in currency traders’ focus early Tuesday as both countries will release important data. So, AUD/USD will be vulnerable to Reserve Bank of Australia’s meeting minutes and Mid-Year Economic and Fiscal Outlook to be published at 12:30 AM GMT. In case if the dovish rhetoric by RBA officials confirmed, we would expect the Aussie to slide further down versus the greenback with the nearest technical support at the range of 0.7070/7100 to be tested. Otherwise, a surprisingly strong data would lift the pair towards 0.7250 resistance. New Zealand will report the ANZ Business Confidence survey with a similar scenario on the table for NZD/USD. The leading European economy - Germany - will publish IFO institute business activity survey which is expected to decline further in a more pessimistic outlook for local producers and exporters. That’s a risk-factor for EUR/USD. Tuesday’s U.S. data includes the housing sector reports with Building Permits and Housing Starts in focus. A slightly positive change is anticipated with a downside risk to persist. Canadian Manufacturing Sales report is due to release at the same time - 01:30 PM GMT - during New York opening with an expectation of -0.2% decline in October versus 0.2% growth in September. Such a weak report would lift USD/CAD to further gains.

Analyse AUDUSD

Wednesday, December 19.

The Asian trading session will be focused on macroeconomic data from Japan, the last pack of reports before the Bank of Japan meeting. Adjusted Trade balance, exports and imports figures will be released at 12:50 AM GMT. Taking in count the recent GDP report which was much weaker-than-expected, it’s hard to hope for an improvement in trade balance for the export-oriented economy. Therefore, we would not be surprised to see an even worse picture than most of the analysts predict. USD/JPY is vulnerable to decline in such a scenario. German Producer Price index is due to release at 07:00 GMT with a less impact on EUR/USD though. British inflation is much more crucial for the pound as the Bank of England will be watching CPI and PPI reports as the last decision-making information for the interest rates decision meeting later this week. Although the marker predicts modest gains for inflation in the UK, we doubt about Sterling’s ability to reverse the current downtrend with more likelihood of Northwards price action this week. Bullish whipsaws are possible in case if the reports will be strong, however, they might be a short-lived and sell-highs trading strategy would be more attractive rather than other approaches for all of the Sterling pairs including GBP/USD. CPI and Core CPI reports will be also released in Canada with some of the upside revisions for the previous periods. However, USD/CAD is still in the uptrend and it’s hard to imagine something that could have a reversal impact on the pair. Crude Oil inventories will be published in the United States which is a crucial report on the price of oil. A positive figure is expected for WTI Crude with inventories forecast declining last week for 2.9M barrels. Any change in the real figure would weigh on the price of oil though. The most volatility is expected during the Federal Reserve meeting with an unpredictable outcome, so small traders should stay out of the markets during that event as whipsaws and spikes are likely in both directions for the greenback and U.S. equities. It’s also unclear how the currency market players would react on a more dovish statement by FOMC, so wait-and-see approach would be the best trading strategy for Wednesday night.

Thursday, December 20.

The New Zealand dollar will be the most volatile currency during the early Asian trading session after the Fed’s rate decision announcement as crucial macroeconomic data will be also released in the country. GDP is expected to slow down the growth pace, while trade balance is predicted to widen the negative gap. Both events have a downside risk for NZD/USD, especially in the scope of the greenback’s safe-haven role. AUD/USD is also expected to have a volatile trading session as Australian data will have a significant impact: Employment change is about to answer the question regarding the local labour market. Modest gains are forecasted by the economists though. But the key event is the Bank of Japan to announce its monetary policy. Given the latest weak economic reports in Japan, it would be hard to imagine BoJ hiking the interest rates, so a more dovish rhetoric is widely anticipated. The fact that BoJ meets right after the Fed signals about an intention to verbally influence the currency market, telling the scary story about how bad things are in Japan. Therefore, BoJ will be definitely supportive of USD/JPY. The busy trading session will continue with Retail Sales report which will be published in Britain 90 minutes before the Bank of England meets for the interest rates decision. BoE Monetary Policy Committee will traditionally publish the result of the vote which might change the scope for the pound if some of the MPC members will vote for a rate hike. Such a scenario is less likely as the market players expect all 9 members to vote for the ‘unchanged’ verdict. Latest economic reports weren’t supportive for a rate-hike scenario while Brexit uncertainty is catastrophic for investor’s sentiment in the UK. Philly Fed Survey in the U.S. and Wholesale Sales in Canada - these are the only events for the North American trading session, however, the Fed’s statement might have a long impact on the currency markets.

Friday, December 21.

The last day of the crazy trading week is expected to be comparatively quiet, however, the economic calendar is packed with many reports, so the volatility might keep influencing the price action. Nationwide Core CPI in Japan, French GDP and Consumer spending, British GDP, U.S. Core Durable Goods Orders, GDP (!) and Core PCE price index (!!), Canadian Retail Sales and GDP (!) - those reports are more than enough to change any trend, whatever happened previously. Add here profit-taking speculative flows before the thin trading week in Christmas time - and you will get a bunch of reasons for a roller-coaster price action on Friday. An additional analysis and updates are needed to make a more accurate prediction for Friday, so stay tuned to get more trading forecasts from our company.

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