USDX and USDPLN | Technical & Fundamental Outlook

Thursday December 03 2015

– ECB Interest Rate Decision 14.45

– ECB Monetary Policy Statement and Press Conference 15.30

Friday December 04 2015

– European Gross Domestic Product (Q3 and YoY)

– US Average Hourly Earnings

– US Unemployment Rate

– US Non-Farm Payrolls

Wednesday December 16 2015

– FOMC

ECB Monetary Policy Statement and Press Conference due to December the 3rd is most likely to repeat past Statements that is ECB can and will take additional Quantitative Easing measures if that is needed. The reason for such a call, comes from the fact that ECB Members still have not decided on how to proceed with additional QE while inflation still below the 2%. That comes in line with the fact that it is expected ECB will frontload purchases between November the 27th and December the 21st as QE will temporarily stop on December the 22nd until January the 1st 2016.

Some of the recent exposed scenarios for additional QE from ECB are:

  1. Introduce a negative interest rate for Banks having parked money with ECB
  2. Start buying non-performing loans
  3. Extend the QE program past September 2016
  4. Increase the 60bln asset purchase program monthly limit

Since time until Statement is running out and ECB Members most likely will not be able to extensively evaluate the above mentioned scenarios, odds tend for no action on December meeting with some minors odds for going with a negative interest rate for Banks parking Money with ECB since any other action would additionally devaluate the Euro Currency against all others currencies and thus create additional problems with SNB and FED’s potential Rate Hike.

When it comes to USA, Non-Farm Payrolls due to next Friday the 04th and indeed should be a major figure to watch when it comes to FOMC Rate Hike decision scheduled for the 16th of December. Market Odds are now at 70% in favor of a Rate Hike on December.

Yet as it has been seen lately, the importance of NFP number has been overshadowed by the hourly earning numbers (wages) which comes out the same time with NFP. Even if NFP come again strong for November as it came out for October at 271K and wages fail to extend higher FED should most probably expect headwinds on proceeding with a Rate Hike on December while that should indicate that inflation is not picking up as it should.

Getting away from the events and while examining the current situation in US economy , it is already known that inflation has not reached FED’s 2% target, and even worst, inflation still extending slower to what was anticipated towards the target. One major drawback is coming from low energy prices, and more specifically from Oil which has been seen trading as low as 39.00 past week due to Global Risks and due to Dollar’s additional strength. Another drawback that should show up later is coming directly from Dollar’s Strength against all other currencies which should already and continue to slow US exports. Worth to note that US is one of the biggest countries in exporting goods worldwide and thus any slowdown in that sector should dramatically affect the US Economy negatively.

Coming back to the energy area, it has been mentioned repeatedly that low energy prices are slowing down the inflation momentum towards reaching FED’s 2% target. As has been mentioned by Janet Yellen, Chair of the Board of Governors of the Federal Reserve System during previous FOMC events, one different way to boost inflation would be to have unemployment rate decline towards the 4.7% – 4.6% level, below the 4.9% – 4.8% optimal or normal unemployment rate so to help wages pick up quicker and thus help inflation pick up further towards the target but that case would require additional time as we are not there yet.

To round up things, FOMC has to take some difficult calls while Rate Hike Decision is due for mid-December. A potential Rate hike should appreciate Dollar and lower energy prices even more with eventually unwanted effects on the US inflation and on the US exports and thus instead of helping the US economy, make it worst. While adding the odds ECB should be set to procced with additional QE during the next coming months which will eventually devaluate Euro currency more, plus the latest Geopolitics Developments causing Global uncertainty with Syria, Turkey and Russia, logic tends towards the fact that FOMC will not proceed with a Rate Hike in December and if they will, they should only raise just by 0.05 – 0.10 basis points max, if they intend to keep the US Economy away from unwanted Risks.

With all above aspects on the table and translating the possibilities and probabilities into the Financial Markets, current Technical analysis calling USDX in extremes should be valid as a potential FED Rate Hike should most probably back fire at the US Economy. Thus before ECB proceeds with additional QE, USDX currencies should correct recent rallies for at least until FED has more clear view of the Global Risks coming from the economical and geopolitical developments or at least before ECB extends with more QE

 

Trade Safe & Good Luck!

Eric Morera & Spiridon C. Dalietos

 

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