EURUSD risks losing support on a dovish ECB surprise

As widely expected, the Fed doubled the pace of phasing out asset purchases to $30 billion/month. More important, however, was the change in FOMC members' forecasts of rate hikes, from one to three times in 2022. Three more increases are projected in 2023, and two more in 2024. The shift in forecasts once again indicates that the Fed's focus is shifting entirely to inflation: there is no longer a word about its temporary nature. The FOMC, with this trajectory of tightening policy, effectively turns a blind eye to the risks of the new Covid strain. It is hard to expect that with such a monetary setting, the dollar will not be able to strengthen in 2022, especially if the ECB is again cautious today, which will help widen the yield differential between short-term US and EU bonds.The collapse of the dollar and the positive reaction of risk assets despite the seemingly hawkish outcome of the meeting was probably caused by the peculiarities of positioning in the run-up of the FOMC decision: Nomura wrote that the 10-day average ratio of put options to call options on CBOE reached its maximum level in 13 months, i.e. investors heavily hedged equity markets sell-off in the worst-case scenario of the FOMC meeting (even more aggressive policy tightening), but as it was avoided, massive unwinding of hedging positions followed, allowing risk assets to rebound. The same drivers were at the heart of the dollar's collapse - an increase and then a reduction in positions that hedged unfavorable outcomes of the Fed meeting for the markets.The Bank of England, in its typical manner, went against market expectations and raised the rate today from 0.1% to 0.25%, which caused the growth of GBPUSD by 0.8% to 1.335. From a technical point of view, the currency pair bounced off the lower parallel of the bearish channel:

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Lots for markets to absorb

Treasuries are mixed with shorter dated coupons rallying while the longer maturities are selling off as some of the recent flatten trend is unwound. There is a lot for the market to absorb in the wake of the hawkish FOMC yesterday, the BoE hike today and the surge in European rates, and the various data. EURUSD rallied to a more than 2-week highs of 1.1359 from 1.1315 following the ECB announcement, which confirmed the beginning of thee end for asset purchases. Gilt yields popped higher, which helped the euro, as Treasury yields remain steady. Following the Fed taper, and prospects for three rate hikes next year, along with the BoE and Norges Bank rate hikes earlier this morning, the ECB continues to look like it is behind the curve on the removal of accommodation front.

 

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Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribited without our written permission.

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Market Spotlight: Trading The December BOE Meeting

Tough Call For BOEToday’s Bank of England meeting is drawing a great deal of attention and has the potential to cause significant price action swings in GBP-based pairs and UK asset prices. On the back of the BOE surprising the market when it failed to lift rates in November and with the emergence of omicron as a fresh threat in the UK, there is a great deal of uncertainty and speculation around how the bank will act.On the one hand, with inflation hitting 5%, levels not seen for a decade, there is a huge urgency to relieve price pressure on consumers. On the other hand, in light of the fresh restrictions around omicron, the huge blow this will strike to the economy and the risk of further restrictions in the near future, the BOE is no doubt hesitant to tighten liquidity conditions for consumers and businesses alike.If the BOE does push ahead and hike today, this will be a firm boost for GBP near term and will restore some of Bailey’s credibility following his “unreliable boyfriend” behaviour in November. On the other hand, if the BOE holds off, citing uncertainty around omicron, this will no doubt be met with a wave of GBP selling.Technical ViewsGBPUSD – Bullish scenarioWith USD on the backfoot today, a hawkish BOE meeting would no doubt fuel a breakout here. Plenty of bullish divergence in momentum studies recently suggesting reversal risks, along with the retail long position reducing further as GBO points higher. Bulls can look for a break of 1.3349 targeting 1.3461 initially and the channel top/1.3676 thereafter.GBPAUD – Bearish scenarioIf GBP bulls are lift empty handed today, particularly if the BOE sounds the alarm bells over omicron, this will weigh on GBP sharply. Near term, this GBP weakness is likely to create fresh downside opportunities in GBPAUD with a break of the 1.8438 level ( bear channel retest, bull trend line break) opening the way for a test of 1.8316 and 1.8132 thereafter.

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Market Update – 16/12/21 – FOMC – Taper Ends March, 3 x 25bps Rate Hikes 2022

“The economy no longer needs increasing amounts of policy support” – Powell

Inflation “uncomfortably high” – has exceeded 2% target “for some time”

Jobs – “we are making rapid progress toward maximum employment”

Looking at a soft landing for economy, as Virus fades, Inflation dissipates on its own (2.6% 2022 – 2.1% 2024?) & Full employment (Unemployment @3.5%) runs through next 3 years.

• USD (USDIndex 96.21) rallied to 96.85 on FED weakened thereafter.  Stocks rallied (Nasdaq best performer +2.15%) & Yields rallied. Omicron news mixed again with large rise in cases in UK, SA – Pfizer booster not as effective as elsewhere.
• US Yields 10yr traded up to 1.461% & holds gains.
• Equities – USA500 +75 (+1.63%) breaching key 4700 at 4709 – USA500.F trades up at 4727 knocking on the door of ATHs.
• USOil – rallied from under $70.00 to $71.41 on FED & Inventories.
• Gold held in check by higher yields & USD then reversed – sank to $1753 (46 day low) before bouncing to $1785.
• FX markets – EURUSD 1.1310 from 1.1225, USDJPY 114.10 from 114.25, Cable 1.3263 from 1.3170.  

European Open – March 10-yr Bund future slightly higher, as is the Treasury future, Stock markets have taken hawkish Fed pivot in their stride and DAX and FTSE 100 are up 1.5% and 1.1% respectively ahead of European central bank meetings today. Investors welcomed the clarity on the Fed path and will also have seen the move as a sign of confidence in the recovery. In Europe, ECB is set to confirm the end of PEPP, SNB is expected to keep policy settings unchanged, BoE and Norges Bank will discuss a rate hike in the shadow of Omicron. On balance it seems more likely that Norges Bank will go ahead with the planned hike, while BoE will sit out another meeting as the country debates a circuit breaker lockdown amid 78K virus cases (highest ever) yesterday and signs it’s spreading 4x faster than Delta, fears of hospitals being overrun with cases although milder and companies suffering with many workers off sick.

Today – SNB, Norges, CBRT, BoE, ECB, Flash PMIs, US Weekly Claims – & bi-election in UK a further test of Johnson’s authority.

Biggest FX Mover @ (07:30 GMT) GBPJPY (+0.36%) rallied from below 150.00 on Tuesday to 151.70.  MAs aligned higher, MACD signal line & histogram moving higher, RSI 72.30 OB & still rising.   H1 ATR 0.225, Daily 1.20.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribited without our written permission.

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Dollar Looking Lifeless Despite Hawkish FOMC

Fed Fires Up TaperingThe December FOMC last night proved to be less of a market catalyst than many were hoping for. Given the rather stagnant price action over recent weeks many were hoping for a decisive USD move on the back of the meeting. Expectations were geared towards a hawkish outcome from the Fed, in line with the ongoing strength in data and more hawkish commentary from Fed policy members. While the meeting did come in on the hawkish side of the line, it appears that USD bulls were left a little underwhelmed given the soggier tone to USD we’ve seen over the European open today.In terms of actions, as expected, the Fed announced that it would increase the level at which it tapers its asset purchases. In sum, tapering will now be set at $30 billion per month, double the $15 billion per month announced in November. Fed chairman Powell noted robust improvement in labour market conditions as well as rising inflation as the drivers behind this decision.Economic Forecasts LiftedAlong with the announcement on tapering the Fed’s economic forecasts were upgraded with the Fed now projecting GDP and inflation to grow at a faster level over the coming year. The Fed now sees GDP hitting 4% in 2022, up from 3.8% prior with core PCE inflation (the main inflation gauge the Fed uses) seen hitting 2.7% in 2022, up from 2.3% prior. Additionally, the Fed sees the unemployment rate hitting 3.5%, down from 3.8% prior. Finally, the Fed also projects its own Fed funds rate hitting 0.9% in 2022, up from just 0.3% prior.Dot Plot Projections RaisedThe biggest hawkish development was in the Fed’s dot plot forecasts. The Fed now projects three rate hikes in 2022, up from just one forecasted in September. Additionally, the Fed sees a further three rate hikes in 2023 and two more in 2024. With QE now scheduled to end around February, instead of May, the market is looking for a first rate hike somewhere in Q2, most likely June.Optimistic Over RecoveryLooking ahead, the Fed remains broadly optimistic on the US economy and, as yet, is showing no concern over the omicron variant. So, given the broadly hawkish tone to this meeting, how come we are seeing USD under pressure? Well, as ever, part of the reason is likely due to the fact that hawkish expectations were well baked in. However, given the surprise with the dot plots, the USD sell off does seem a little odd and perhaps points to the fact that markets are a little more concerns about Omicron right now. With this in mind, it will be a case of seeing how USD trades over the coming week.Technical ViewsDXYDXY failed once again on approach to the 97.08 level, with price potentially craving out a double top here. Both MACD and RSI are turning lower now and a break of the 95.83 level would be a firmly bearish development, putting the focus on a correction towards 94.63 and the channel low next.

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Investment Bank Outlook 16-12-2021

WestpacUSD In FocusAn assertive FOMC cemented their hawkish pivot toward mitigating persistent inflation risks with a more aggressive policy normalisation profile. The lift in the median dot for end-2023 to 1.625% compared to 1.00% in the September update is unquestionably substantial - the FOMC dots are now signalling six 25bp hikes over the next two years, compared to 3 ½ hikes projected in September. There have been just two FOMC dot plot updates going back to 2012 where the median shifted at least as aggressively over a two-year horizon; March 2014 (+75bp) and Dec 2016 (+75bp). • But any potential plot twists were given away ahead of time and markets have taken the prospect of a more aggressive policy normalisation cycle in stride. Chair Powell’s press conference optimism over the outlook would have added to the sense of relief. The dot plot projections for 2024 provide some reassurance too, the FOMC now projecting two hikes in 2024 compared to three in September, meaning there is an element of bringing forward rate hikes - the peak in end-2024 is only modestly higher at 2.125% versus 1.75% projected in September. Q4 US GDP expectations have been trimmed lately, following slightly weaker payrolls and retail sales. The Omicron strain adds to the near-term risks, but the underpinnings for ongoing strong consumer spending are intact – elevated saving, wealth gains and strong incomes growth. Senate passage of President Biden’s $1.75trn Build Back Better plan has been pushed into 2022 and as a result enhanced income support in the form of child tax credits will lapse Dec 2021. DXY likely to encounter some turbulence into year’s end - the hawkish FOMC was largely priced in, positioning is heavily lopsided into year’s end and Q4 GDP expectations under pressure. But the underlying uptrend remains soundly intact. DXY has yet to fully reflect the lift in yield support (see over). The Fed is streets ahead of the ECB too, the latter at pains to push back against market expectations for lift off in 2022 and finding ways to glacially wean the economy off QE support. DXY slippage unlikely to extend much past 95.5, the uptrend likely to resume in the new year, new highs on the cards beyond 97 in Q1 2022.Idiosyncratic FX stories came to the fore in 2021, RUB, CNH, USD and TWD rounding out the year as the best performers among the G30, a motley crew of currencies if there ever was one.2021 recap • CNH outperformance was underpinned by China’s strong external accounts. TWD outperformed despite cross-strait tensions, thanks to booming demand for Taiwan’s semiconductor componentry, while USD gains were fuelled by the Fed’s hawkish pivot. These themes are likely to extend into 2022 - supply bottlenecks show no signs of abating; the Omicron strain will keep Covid at the forefront; markets are likely to keep a close eye on the pace of booster shot uptake, while central banks will continue to withdraw support. The USD looks well placed to extend its broad bull trend in this environment, the DXY likely to see fresh highs beyond 97.0 in Q1 2022. • Base effects are likely to drag US annual inflation rates notably lower from Q2 2022, potentially providing some relief for the Fed, but in the interim, inflation is likely to accelerate further still. Owner’s equivalent rent has yet to fully reflect the Covid-related surge in home values and the latest surge in energy prices has yet to fully feed downstream. Rates markets are roughly in line with the Fed over the next year (3 hikes) but beyond that pricing remains conservative. OIS markets price in a Fed Funds rate of 1.36% by end-2024 versus a median Fed dot closer to 2.125%, a historically large undershoot. Rates markets are even more aggressively priced elsewhere, with 80bp in hikes discounted from both the RBA and the BoE in 2022. But neither AUD nor GBP seem well placed to capitalise on that. RBA Governor Lowe continues to stress patience and insists that hikes won’t be delivered in 2022, while the BoE is unlikely to follow though with hikes while the Omicron strain continues to spread aggressively across the UK. • EUR and JPY were among 2021’s weaker currencies, their negative yields proving a major headwind in a year of ongoing risk positive conditions. That is unlikely to change in 2022. The ECB remains committed to containing rate hike expectations while the Eurozone labours under a major Omicron outbreak and surging energy prices are cutting real incomes.• NZD will not resist a strong USD in Q1 2022, but the RBNZ is one of the few central banks that looks set to match market pricing (150bp in rate hikes over 2022), leaving NZD better insulated than most.

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Daily Market Outlook, December 16, 2021

Daily Market Outlook, December 16, 2021 Overnight Headlines Fed Doubles Taper, Signals Three 22 Hikes In Inflation Pivot Democrats At Odd Over Biden $1.75Tln Social Spending Bill Democrats Block Uyghur Forced-Labour Bill Over Tax Credit China Said Likely Make 5% Growth Its Bottom Line For 2022 RBA’s Lowe Signals Could End Quantitative Easing February Australia Jobs Soar As Lockdown Easings Set Wave Of Hiring ECB Set To Stay Course, Dial Back Stimulus One More Notch BoE To Hold Rates Despite Inflation Worries, Say Economists UK Facing Inevitable Surges In Hospital Cases From Omicron Germany Ration Covid Shot Doses Amid BioNTech Shortage Turkey Erdogan Reshuffles Officials Ahead Of Rate Decision CDC Advisers Weigh J&J Vaccine Limit Over Rare Blood ClotThe Day Ahead US equities halted two straight days of selloffs, as the expected hawkish shift by the Fed encompassing the doubling in asset tapering to $30bn a month ($15bn currently) and guidance for three interest rate hikes each in 2022 and 2023 (prior one and three hikes) spurred risk rally. The three major stock benchmark indices increased 1.1-2.2% d/d. Earlier, stocks ended mixed in European and Asian trading amid cautiousness ahead of the FOMC announcement. Investors continued to dump safer government bonds albeit at a more moderate pace. Yields of 10Y UST rose 2bps to 1.46%, UK gilts also added 1bps to 0.73%, while German bunds inched up less than 1bp to -0.37%.The dollar was hammered down for the first time in three days, weakening against all G10s except for the JPY and CHF amid paring of haven demand. The Dollar Index fell 0.25% to 96.33 as at Wednesday’s close. The NOK and AUD led the pack with close to 1.0% gain while the sterling went through some volatility following some knee-jerk gains triggered by a quicker than expected jump in inflation readings and Omicron fear. Major Asian currencies were mixed against the greenback. Other than the Fed decision, PBoC maintained its 1-year medium term lending rate unchanged at 2.95%. BOE and ECB policy announcement will be up next. As we have highlighted in our weekly publication earlier, the ECB will likely announce plans to unwind its PEPP program while the BOE will likely stay the course and maintain a cautious guidance in the wake of Omicron uncertainties even as quicker than expected acceleration in inflation could pose greater policy challenges.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )USDJPY - 116.00/10 1.17bn (C). 115.50/60 598m. 115.00 652m. 114.40/50 1.57bn (1.44bn C). 114.20/30 3.49bn (2.94bn C). 114.00/10 974m. 113.50/60 534m. 112.90/113.00 816m. 112.00 485m.EURUSD - 1.1500 887m. 1.1470/80 547m. 1.1450/60 1.30bn 1.13bn (C). 1.1390/1.1400 2.23bn (1.72bn C). 1.1360/70 608m. 1.1340/50 1.69bn (1.10bn C). 1.1320/30 1.53bn (916m C). 1.1300/10 1.74bn (951m C). 1.1270/80 717m. 1.1250 695m. 1.1190/1.1200 1.56bn (P). 1.1170/80 751m. 1.1150/60 713m. 1.1100/10 516m.AUDUSD - 0.7160/70 1.14bn (984m P). 0.7140/50 679m.USDCAD - 1.2810/20 818m.EURGBP - 0.8600 612m.AUDNZD - 1.0500 686m. 1.0250 660m.EURSEK - 10.20 862m.USDCNH - 6.40 690m. 6.38 522m. 6.35 885m.Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above Consolidates post – Fed gains ahead of ECB EUR/USD opened 0.34% higher at 1.1295 after late rally after FOMC Move higher was a 'sell the rumour-buy the fact' for EUR/USD EUR/USD consolidated between 1.1282/99 in a quiet Asian morning Sellers tipped around 1.1325 and capping for now EUR/USD clinging to 10-day MA at 1.1294 and 21-day MA at 1.1288 More consolidation likely ahead of ECB decision later today EUR/USD may be choppy around ECB due to potential for wide range of outcomesGBPUSD Bias: Bearish below 1.36 Bullish above. Tight range – BoE to weigh inflation against Omicron -0.05%, near the base of a 1.3250-1.3269 range with solid interest early Inflation risk or Omicron slowdown? BoE rate decision balanced UK pay settlements rise to 2.2% as wage pressure starts to show Charts; 5, 10 & 21 day moving averages conflict, 21 day Bolli bands contract Neutral setup suggests the recent period of consolidation can extend Well tested 1.3166, 38.2% of the 2020-2021 rise is pivotal support Close above 1.3298 falling 21 day moving average needed would be positive BoE, COVID and political uncertainty to cap sterlingUSDJPY Bias: Bullish above 112.50 Bearish below USD/JPY holds on 114 post – FOMC, crosses buoyant with risk USD/JPY on 114 handle post-FOMC, Asia 114.04-25, high o/n 114.28 EBS USD/JPY up after bounce in US yields, despite USD pull-backs elsewhere Massive nearby option expiries today, tomorrow help contain action for now Today $5.9 bln+ between 114.00-50 strikes, large 113.75-115.00 tom too US yields well off recent lows but well below recent highs, Tsy 10s @1.459% Tokyo very risk-on, Nikkei +1.8% @28,960, E-Minis near par on day @4705 JPY crosses buoyant with USD/JPY, risk on, also shifting CB expectations? GBP/JPY 151.07-47, AUD/JPY 81.49-82.01, CAD/JPY 88.67-89.00, better bid EUR/JPY better bid too with risk mood up, despite dovish ECB, 128.72-93AUDUSD Bias: Bearish below 0.7250 Bullish above Eases in Asia as sellers emerge ahead of resistance AUD/USD opened 0.93% higher at 0.7172 after risk markets rallied after FOMC There was a muted reaction to RBA Lowe's comment that rates unlikely to rise in ‘22 Pair traded as high as 0.7182 after stronger than expected Aus jobs data Sellers ahead of Dec 12 high at 0.7187 capped and longs pared back AUD/USD slid to 0.7146 at one stage before steadying around 0.7150/55 Support is at the 10-day MA at 0.7123 and week's lows at 0.7090/95 AUD/USD has topped out between 0.7175/90 six of last eight trading days A break above 0.7190 targets the 38.2 of the 0.7555/0.6994 move at 0.7208

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Dollar Edges Lower After Fed Move; Lira Slumps Again

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Mid Wynd International investment trust update: boosted by healthcare and IT stocks

The Mid Wynd International investment trust beat its benchmark index last month, mainly down to strength from its investments in healthcare and IT companies. Saloni Sardana looks at the trust's latest performance. 

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Pre-FOMC Live Analysis – What to expect later today

It is a big week for central bank meetings, including the FOMC, BoE, ECB, BoJ & SNB. And while all will go their separate ways following slightly differing agendas, the acceleration in inflation will be the key factor in their decisions, with mixed views on the impact of the Omicron variant. – Join Andria for some live market analysis ahead of today’s announcement from the FOMC and Chair Powell’s press conference!

 

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Investment Bank Outlook 15-12-2021

Credit AgricoleUSD: Don’t count your hawks before they hatch Today’s Fed meeting is easily the most important event of the week, overshadowing the latest pandemic developments as well as a total of 20 central bank meetings (six of which in G10). Recent conversations with clients have suggested that the FOMC is widely expected to switch to a more hawkish policy stance in December by speeding up QE taper and signalling (via the updated ‘dot plot) rate hikes in 2022. That being said, we further note that the bar for a hawkish surprise today maybe too high with the US rates markets already pricing in around five rate hikes by the end of 2023.Should the Fed dot plot signal two rate hikes in 2022, followed by another two (or even three) in 2023 (as we would expect), this could still point at less aggressive and frontloaded tightening than expected by the markets at present. In addition, the long-term inflation and employment projections can further reflect the Fed’s long-held belief that growing labour force participation should limit any potential overheating of the economy as cost-push inflation starts abating in 2022.Last but not least, there will be a lot of focus on the FOMC’s view on the pandemic and its impact on the near-term economic outlook. We think that a less hawkish Fed today could be a boon for risk sentiment and can weigh on the USD vs risk-correlated currencies. At the same time, the USD could remain supported vs low-yielding safe havens like the JPY and CHF if the UST yield curve bear steepens (using UST 2s10s) in the wake of the meeting.CitiEuropean OpenA typical pre-FOMC session in Asia, with thin liquidity and little movements to note. USD held steady while UST yields ticked slightly lower. NZ bonds rallied as the government cut the issuance plan over 4 years. Bond yields were down -3.6bps on the day, while NZD traded flat. China saw no change to its MLF and a mixed retail sales and IP release, following the Securities Times report today, citing analysts, that a reduction in the MLF rate could trigger a cut in Loan Prime Rate ahead of the holiday season. Oil ticked lower while equities traded flat.The limelight today is on the FOMC at 19:00 GMT, followed by Fed Chair Powell’s presser at 19:30 GMT. This will follow Retail Sales data 13:30 GMT for the US. CPI prints will be seen in GBP at 07:00 GMT and CAD at 13:30 GMT, while SEK sees Prospera's Big Swedish Inflation Expectations Survey at 07:00 GMT. Over in the EM space, we see ZAR CPI & PPI at 08:00 GMT, BRL Economic activity at 12:00 GMT, RUB GDP at 16:00 GMT and ARS CPI at 19:00 GMT.Join us today for FedLive: Citi Reacts to the Latest FOMC Decision at 20:30 GMT. Citi offers an exclusive live reaction to the December 2021 FOMC decision and Federal Reserve Bank Chair Jerome Powell's subsequent press conference.FOMC Preview – Speeding up taper, bringing rate hikes earlier. Citi Economics believes the outcome of this week’s FOMC will likely to feature a doubling of the pace of tapering of asset purchases to USD30bn per month. “Dots” will drift higher with a median most likely for two but possibly for three hikes in 2022. “Transitory” will be “retired” from the post-meeting statement as a descriptor for inflation as projections for core inflation in 2021 and 2022 are likely revised up.

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Dollar Edges Lower but Keeps Underlying Strength Ahead of Fed Decisions

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Daily Market Outlook, December 15, 2021

Daily Market Outlook, December 15, 2021 Overnight Headlines Fed To Pivot On Inflation Fears In Face Of Uncertain Year US House Boosts Debt Ceiling By $2.5Tln, Sends To Biden Biden, Manchin Deadlocked On Lengths Of BBB Programs Biden Considers Clampdown On China Largest Chipmaker House Approves Bill Targeting China Over Uyghur Labour US To Blacklist More Chinese Firm Including Dronemaker Chinese Economy Slows Further, Property Slump Deepen China Partially Rolls Over Policy Loans Following Ratio Cut Japan Confirm Overstated Construction Data Used In GDP UK PM Johnson Hit By Big Rebellion On Covid Restrictions Two Thirds Households Expect BoE Rate Rise By June 2022 Iran Accuses West Powers Of Blame Game Over 2015 DealThe Day Ahead Asian equity markets are mixed this morning ahead of tonight’s announcement from the US Federal Reserve. November economic data for China were mixed as retail sales posted a less than expected 3.9% annual rise but industrial production growth accelerated to 3.8%y/y (from 3.5% in October). Meanwhile, in the US, the Senate voted to the raise the debt ceiling, lowering the risk of a default on interest payments on Treasury debt. Just released data showed another sharp rise in annual UK CPI inflation to 5.1% in November (from 4.2% in October). That is the highest outturn for over a decade and more than double the Bank of England’s inflation target. Higher energy prices again helped drive the move, but another key contributor was a larger-than-expected rise in the ‘core’ rate (excluding food and energy) prices to 4.0% (from 3.4%). The move will reignite speculation that the Bank of England will raise its policy interest rate tomorrow. However, BoE policymakers will also need to take into account the greater uncertainty generated by the new Covid variant, which is still expected to tip the balance in the direction of delaying a move for now. Today’s key event for markets will be the monetary policy update from the US Fed. It is expected to announce an acceleration of the pace at which it is ‘tapering’ its asset purchase programme. It seems set to double the pace from the current rate of reduction of $15bn. That would end the programme by March and potentially pave the way for subsequent increases in interest rates. The Fed’s assessment of economic developments is also likely to reflect growing concerns about the ongoing rise in inflation. It is expected to drop its description of the rise as ‘transitory’. While it will probably still forecast an eventual fall in inflation next year, the message is likely to be that interest rates may need to rise earlier and by more than previously expected. That is despite the added uncertainty provided by the Omicron Covid variant. That assessment will be reflected in Fed policymakers latest interest rate projections. The previous ones, made in September, showed an even split on whether the first hike will be in 2022 or later. The updates will likely now show most favouring a rate rise next year, with a significant chance that a majority will now forecast two or even three rises in 2022 with more to come in 2023. Ahead of the Fed announcement, November retail sales are expected to confirm a second successive sizeable monthly rise. As the data is not adjusted for inflation, part of that reflects higher prices. But it seems that spending is rising in price-adjusted terms after a soft patch during the summer. Longer-dated government bond yields edged up yesterday in both the US and the UK. However, trading was relatively quiet as markets wait for this week’s updates from the Fed and BoE. In currency markets, today’s inflation data has provided a near-term lift to sterling particularly against a generally weaker US dollar. G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )EUR/USD: 1.1200 (1BLN), 1.1240-50 (718M), 1.1300 (761M), 1.1350 (594M)1.1375 (313M), 1.1400 (2.1BLN)GBP/USD: 1.3150 (227M), 1.32100-05 (493M), 1.3225 (468M), 1.3240-50 (909M)EUR/GBP: 0.8550-65 (698M)AUD/USD: 0.7100 (400M), 0.7275 (543M)USD/JPY: 112.00 (1.4BLN), 1.1295-1.1305 (1.2BLN), 113.50 (544M)113.75 (1.5BLN), 113.95-114.05 (1.1BLN), 114.20 (1.1BLN), 114.50 (381M)115.00-10 (1.8BLN).Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above Steady in Asia as market awaits Fed decision EUR/USD opened -0.26% at 1.1257 after completing bearish outside day After trading at 1.1254, it edged up to 1.1270 at one stage in quiet trading Heading into the afternoon it is trading around 1.1260/65 Resistance is around 1.1290 where the 10 & 21-day MAs converge Support at last week's 1.1228 low and break will increase downward pressure Market likely to consolidate ahead of FOMC later today Markets are pricing in hawkish Fed after run of hot inflation dataGBPUSD Bias: Bearish below 1.36 Bullish above. GBP/USD scales two – day peak on above forecast UK CPI Cable jumped to 1.3261 on higher than expected UK Nov CPI, +5.1% vs 4.7% f/c 1.3261 = two-day high (1.3268 was Monday's high) On Tuesday, IMF warned BoE not to be too slow to raise rates BoE is expected to keep Bank Rate unchanged on Thursday, due to Omicron Hawkish Fed news expected at 1900 GMT Almost 100 Tory MPs voted against COVID restrictions TuesdayUSDJPY Bias: Bullish above 112.50 Bearish below USD/JPY steady sub – 114 into FOMC tonight, most crosses too USD/JPY does little in pre-FOMC Asia trade, 113.68-80 EBS Some buys into Tokyo fix but gains quickly erased post-fix Standing Japanese exporters from 114.00, importers on dips towards 113.50 Massive option expiries into this weekend Today 113.50-114.00 $3.5 bln, 114.20 $1.1 bln, tom 114.00-30 $4.1 bln US yields steady after 1.419-1.472% range yesterday, Treasury 10s @1.435% Asia risk mood mixed, Nikkei -0.1% @28,409, E-Minis +0.1% @4633 EUR/JPY 128.04-20, GBP/JPY 150.33-64, AUD/JPY 80.69-92, CAD/JPY 88.33-55AUDUSD Bias: Bearish below 0.7250 Bullish above Muted reaction to mixed China data China retail sales worse than expected while IP a bit better AUD/USD unchanged after the data and is trading around 0.7110 Option expiries at 0.7100 continues to hem in the price action in Asia Risk assets relatively steady in Asia ahead of FOMC decision later today AUD/USD resistance at 21-day MA @ 0.7153 and close above would ease pressure

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/daily-market-outlook-december-15-2021"
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USDJPY, H4 | Bullish Bounce

Type: Bullish BounceKey Levels:Resistance: 113.967Pivot: 113.619Support: 113.435Preferred Case:Prices are on bullish momentum and abiding to our ascending trendline. We see potential for a bounce from our Pivot at 113.619 in line with 50% Fibonacci retracement towards our 1st resistance at 113.967 in line with 127.2% Fibonacci extension and 61.8% Fibonacci extension.Alternative Scenario:Alternatively, prices may dip towards our 1st support at 113.435 in line with 61.8% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdjpy-h4-or-bullish-bounce"
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