Economic calendar: Fed in the corner

Summary:

• European CPI inflation expected to slow to 2% in November

• USD eagerly waits for the final FOMC meeting of the year

• Riksbank and Bank of England to make their decision this week as well

The Federal Reserve will meet this week for the last time this year and it is broadly expected to raise rates for the fourth time in 2018. Fourth time, just as other central banks are seating on historically low rates and some even hint at possible easing. Has the Fed cornered itself? How will it avoid overdoing and how will this impact currencies and indices? We will find out in the final full trading week of the year!

Readings scheduled for Monday:

• 10:00 am GMT - Euro area, CPI inflation for November. Final reading. Expected: 2% YoY, previous: 2.2% YoY

What to watch for the remainder of the week?

FOMC decision (Wednesday, 7pm BST), conference (7:30pm BST)

Admittedly the US economy was looking good in 2018, especially contrasted with a slowing Europe and Asia. Surging oil prices for much of the year made the case for monetary tightening even more compelling. However, this solid macroeconomic situation is at least partly a result of a strong fiscal expansion decided in late 2017 that will fade into 2019 just as the global economy is slowing. That should understandably concern the Fed. The problem is that the FOMC dot chart pointed at 3 more hikes as recently as September and at present markets question even a single hike. Will the Fed’s turn be dovish enough? Affected markets: EURUSD, US500.

Riksbank decision (Thursday, 8:30am BST)  

Another “hot” meeting will take place in Sweden. Riksbank has maintained the second lowest depo rate in Europe for a long time, higher only than the SNB and lower than the ECB (0.5% vs 0,4%). For much of the year the hike looked as a “no brainer” but now - with growth in Europe clearly fading, the markets have backed off from this call. The concern is that unless Riksbank raises now or in February it may not manage to raise again ahead of the next slowdown. Affected markets: EURSEK, USDSEK.

UK: Bank of England decision (Thursday, 12:00pm BST), data (Wednesday and Thursday), Brexit uncertainty

It is now clear that Brexit uncertainty will be carried over to the next year. This does not make a task for Bank of England particularly easy. Without Brexit, UK will be the place in Europe to see the most decisive rate increases. Even with the uncertainty the data looks fairly solid but until there’s some path towards escape from political chaos the pound may pay little attention to macroeconomic background. Affected markets: GBPUSD, UK100.

EURUSD once again visited the 1.13 handle and once again managed to resist downward pressure there. Having said that the pair upheld its trading range limited by the support zone ranging 1.1300-1.1330 and the 50-session moving average (green line). Source: xStation5