We welcome you to the last big week of the year as the economic calendar is full of market moving events. The release of Friday’s U.S. labor market statistics did not hurt the dollar even though the November NFP report was not enough to impress dollar bulls ahead of Wednesday’s FOMC meeting. Payrolls slightly exceeded estimates while wage growth fell short of expectations. The U.S. dollar traded higher against the pound and the euro but the technical picture has not fundamentally changed – at least until now.
The first big risk event this week will be the FOMC Rate Decision Wednesday. The Federal Reserve is widely expected to raise interest rates but market-moving catalysts will come from the press conference with Fed Chair Janet Yellen and the revision of official forecasts. The current outlook suggests that the Fed could go for three rate hikes in 2018 but the near-term outlook also depends on the tax reform and progress toward passing tax cut legislation before year-end. Generally speaking, anything that bolsters fiscal stimulus prospects should help the dollar rising.
The British pound ended last week slightly lower against the dollar even though the EU announced Friday that Brexit negotiations can move to the second phase of talks. However, given the fact that talks will be long and complex, investors remain risk-averse and generally refrain from buying pounds ahead of that rocky road.
The Bank of England will announce its monetary policy decision Thursday but UK monetary policy will remain unchanged. If BoE Governor Carney suggests that inflation is still too high, it could lead to speculation that another rate hike might be around the corner. We will keep an eye on the latest U.K. inflation data on Tuesday.
And since all of this is not enough this week, we also have the ECB meeting on Thursday which could give the euro a lift. The ECB will release new staff economic projections (SEP) and the risk is for a positive surprise. Any upwards revision to the SEP could lead to speculation that the central bank may taper its QE program faster than currently expected. On Thursday we will know more.
EUR/USD
The euro formatted an interesting chart formation suggesting that a potential drop below 1.1730/10 may reinvigorate fresh bearish momentum towards 1.16. However, if the euro holds well above 1.17 we expect the currency pair to test the 1.1870/80-region. A sustained break above that resistance area could encourage euro bulls for a run for 1.2050.
GBP/USD
While the risk is currently slightly tilted to the downside, we focus on a near-term trading range between 1.3490 and 1.3290. An upside break above 1.35 could push the pound towards 1.36 whereas a downside break below 1.3290 could lead to further losses with a lower target at 1.32.
Here are our daily signal alerts:
EUR/USD
Long at 1.1815 SL 25 TP 15, 30
Short at 1.1759 SL 25 TP 20, 40
GBP/USD
Long at 1.3425 SL 25 TP 20, 50
Short at 1.3384 SL 25 TP 20, 60
We wish you good trades and many pips!
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