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    We are waiting for what the Fed will say


    The topic of risk-anti-risk was the main last week. In the first half avoiding risks provoked growth of euro and yen and fall of trade currencies. Still, during last two days roles were reversed. After Draghi’s words about readiness to revise characteristics of stimulation policy, it caused interest in purchase of risky assets and changes of roles in the exchange market – sales of euro and yen and purchase of trade currencies.

    This week can be very active – there are many events, to any taste. Herewith, for main pair of the exchange market, EURUSD, forecasts are so contradictory that there are doubts as to market’s ability to leave current range. Traditionally, the most significant event is regular session of FOMC on monetary policy. This time changes aren’t expected. The main intrigue is how “dovish” the accompanying communiqué will be. If hints of worsening of economic situation and slower and longer period of monetary policy tightening appear, then it will be a severe blow to dollar. Herewith there will be a lot of economic statistics in the U.S.A. this week. Actually, positive can be expected only in housing market – forecasts on houses sales in the primary market and incomplete deals promise growth, but this positive is no longer new. Still, the rest makes investors nervous. For last months durable goods orders, excluding volatile transport component have started to give negative signals, deceiving expectations again. This time forecasts promise decline too. On the last day of the week the first evaluation of GDP for the 4th quarter in annual terms will be published. And there everything is bad – forecasts point at sharp decline of growth rates to annual 0.8 %. In fact, it means that the 4th quarter was very weak. Under these conditions the Fed will have grounds not to hurry with further tightening of monetary policy this year, though the market is laid at least at one more increase of interest rates. Although delay of further increase in rates is favorable for the market, still, signals of economic weakness are able to provoke a new wave of fall in trade markets, what will influence the stock one.

    The main rival of dollar in the exchange market – euro, – isn’t far better. This week European statistics aren’t optimistic either. Main events are preliminary data on inflation in Germany and IFO report on moods in business environment. Forecasts on inflation cause especial concerns, where fall in prices for January by 0.8 % is expected. In this case risks of verbal interventions by the ECB representatives concerning readiness to take new measures of stimulation and not wait for March, promised by Draghi. In addition, there are political risks, which are able to split Europe – the issue of refugees is becoming more and more acute. Under such conditions it will be difficult for players to decide to what direction they should move, what can leave EURUSD pair in limited range.

    In such a case the market is likely to retain fragmentary trade with exaggerated reaction of currencies to local data. This week the Reserve Bank of New Zealand session on monetary policy, preliminary GDP of the U.K. for the 4th quarter, Japanese inflation, Canadian GDP for November can be considered as such events. 

    On the first day of the week IFO report on moods in business environment will become the main event. Forecasts are moderately negative, what can send euro further down to the range 1.0700 - 1.0730. For most other currencies movement dynamics in trade and stock markets will be significant. Last week resource prices bounced from minimums considerably, still, it is too early to talk about a reversal.

     

    Trade tactics:

    On Friday we took a long position in USDCAD pair for 1.4175, stop at .14050. At this moment the pair fully depends on energy prices. Our technical indicators point at some oversold of Loonie in short-term periods. The support is forming in the range 1.4100 – 1.4120. Now we are inclined to keep the position. In case of growth above 1.4200, rearrange stop at the entry point.

     

    Any opinions, advice, news, research, analyses, prices or any other information presented on this webpage is provided as general market commentary and does not constitute investment advice. "Vector Securities" shall not be liable for any loss, including loss of profit, which may arise directly or indirectly from the use of this information.


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