The Forex Week Ahead

The Forex Week Ahead: December 12th – 16th

Tue: GBP –  CPI, CNY – Industrial Production, EUR – German ZEW Surveys,

Wed: GBP – Average Weekly Earnings, Unemployment Rate, USD – Retail Sales, FOMC Rate Decision

Thu: AUD – Unemployment Rate, CHF – SNB 3-th Libor, EUR – EuroZone PMIs, GBP – Retail Sales, BOE – Rate Decision, USD – CPI, Manufacturing PMI, EUR – EuroZone CPI

USD The US Dollar received a significant boost mid week in response to the ECB;s announcement that it will extend its asset purchase programme beyond March 2017 to December 2017 at the earliest. Traders now look ahead to the December FOMC meeting which is widely expected to see the Fed raise rates. With so much priced in, key to the markets reaction will be how the Fed signal the rate path over the next few months and indeed over 2017.

EUR  ECB news flow dominated the headlines last week; the central bank kept interest rate and asset purchase target unchanged, but extended the duration of asset purchase up until Dec 2017 with reduction in purchases to €60bn starting April 2017. ECB President Draghi insisted that purchase reduction is not tapering, and that tapering means “cutting purchases down to zero”, likely implying that there is currently no plans to reduce asset purchases to zero any time soon. USD was boosted by outflow from European majors to beat 80% of its G10 FX peers as ECB pulled a dovish surprise.

GBP Sterling was led lower last week as a parliamentary vote approved the Government’s plan to trigger Article 50 by end-March 2017. German Vice Chancellor Sigmar Gabriel said Brexit is taking “far too long” and maintaining the UK’s ties to the European Union won’t be easy. Gabriel signalled concern that extended uncertainty implied by UK Prime Minister Theresa May’s timeline for starting Britain’s exit from the EU by the end of March might cause economic damage

JPY The Japanese Yen remains under pressure as the BOJ’s yield curve control policy continues to keep JGB yields capped amidst an environment of rising global yields which sees investors turning away from the country.  Buoyant risk appetite has also exerted downward pressure from the Yen which typically benefits from periods of risk off trading due to its status as a safe haven

AUD The RBA held rates unchanged at their December meeting pointing to two previous rate cuts earlier in the year. The bank noted that labour market indicators continue to be somewhat mixed.  Australia’s GDP contracted in 3Q, falling 0.5% QOQ after growing 0.6% previously. This was worse than market estimates of a soft 0.1% decline, and could worse further in 4Q, reigniting market outlook of an interest rate cut going forward. Contraction in Australia’s construction sector slowed in Nov as the AiG index rose to 46.6 from 45.9 in October

CAD The BOC kept rates unchanged at their December meeting noting firmer yet uncertain global economy. CAD was leant support over the week from Oil prices which gained in response to confirmation by OPEC that members have agreed a production cut deal. Further support for the Canadian Dollar comes as Traders believe that US economic stimulus will boost Canada’s exports, which offset the threat of protectionism suggested by Donald Trump.