Will the dollar follow up its best week of the year, by also rising this week, as the FOMC interest rate rise announcement appears imminent?

Dec 11 • Morning Roll Call • 105 Views • No Comments

The current, dominant, political issues in the USA, were underpinned by encouraging fundamental news, sending the SPX and DJIA indices to record highs on Friday. The tax reform programme looks set to become law and the U.S. government avoided a scheduled shutdown (due to its $20+ trillion debt), as lawmakers agreed to a temporary debt extension. As appears to be the new normal, the monumental USA debt, whether it’s; corporate, consumer, government, or the Federal Reserve, is completely sidelined and hardly discussed in the mainstream financial media, perhaps for fear of upsetting the pursuit of increased asset values.

Continuing the theme of debt, the U.S. consumer and worker must be feeling quite secure, despite wages failing to rise as forecast on Friday (coming in at 2.5% growth YoY), as U.S. citizens have recently pushed their credit card debt to over $1 trillion, representing circa $8,300 debt per household. The NFP numbers published on Friday will have added to the sense of Americans’ optimism, as it beat the Reuters forecast of 195k jobs added in November, by coming in at 221k.

The tax reform progress, the government debt extension, NFP numbers beating forecast, added to the imminent FOMC meeting, at the culmination of which most analysts are convinced the interest rate will rise to 1.50, added to the sense of market optimism and encouraged a risk on mood throughout markets on Friday. The U.S. dollar reacted positively to the NFP reading, by rising on Friday versus its major peers, whilst enjoying its best weekly gains of 2017, versus its basket of its peers. One key question for U.S. dollar traders this week is; will the currency rise if we (as expected) receive an announcement from the FOMC (after their two day meeting ends on Wednesday evening at 19:00 GMT) of a rate rise, or has the interest rate rise already been priced in?

Despite the U.K. appearing to make a breakthrough early Friday morning with regards to Brexit, analysts and investors were quick to realise that the agreement was mainly a fudge and that the various red lines the Tories had drawn up in relation to the negotiations, had been erased before hardliner Brexiters’ eyes. The U.K. completely caved in on all of their initial demands, but have now earned the right to discuss a trade deal, which can’t possibly be in the U.K.’s favour at the expense of the remaining 27, or other international partners, such as; Japan and Canada. The best the U.K. can probably hope for is a Canadian style deal, or a Norway deal, but the Norwegian model would involve a form of free movement.

As we suggested during Friday’s blog post; one of the likely results, in order to move to stage two, would be a fudge; the U.K. government tricking their hard line Brexit voters that they’d stuck to their remit, when in fact they’ve accomplished nothing, other than currently voting to be out of E.U. decision making and paying up to €50b exit fees, for the privilege of being frozen out of the most efficient trading block on planet Earth. Once the news of the U.K. fudged agreement began to become apparent, sterling lost most of its Friday gains, closing down versus its major peers. Naturally traders will be eyeing any further Brexit news this week, in order to take sterling positions, or manage their current medium to long term bets.

Gold suffered an horrendous trading period last week, for investors. Conversely, any traders who were looking to daily trade the XAU/USD security, were offered up some tremendous shorting opportunities. Having started the week at circa 1280, price fell to circa 1243 at one stage during Friday’s New York session, a fall of circa 3% during the week, taking the precious metal’s value back to August levels. Traders will no doubt be monitoring the mood of Wall Street and global markets, to ascertain if the safe haven appeal and value can fall further, in relation to a risk on environment remaining steadfast.

KEY ECONOMIC CALENDAR EVENTS FOR DECEMBER 11th.

• JPY Machine Tool Orders (YoY) (NOV P).

• CHF Total Sight Deposits CHF (DEC 08).

• USD JOLTS Job Openings (OCT).

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