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Market Quiet Ahead of Fed Decision

Published December 13, 2016
  • USD firms up against the yen and euro this morning after its weakest day in a week as investors anticipate comments from Janet Yellen and the Federal Reserve on rate hikes in 2017
  • While December’s rate hike has been fully priced in (a big reason for the 7% increase in the USD Index since September), the near term performance depends on Yellen’s tone in tomorrow’s meeting
  • As seen on the “dot-plot forecast” (Chart 1), most investors do not expect another 25 BPS until June 2017 at the earliest; any dovish comments surrounding future rate hikes may potentially drive the USD down
  • A great deal of speculation also hangs on how much President-Elect Trump can effectively implement the increased fiscal spending and deregulation during his presidency
  • The International Energy Agency reported that global oil inventories could move into a supply deficit in the first half of 2017 if OPEC producers follow through on the recent agreements to cut output
  • The agency also noted that global oil demand rose more strongly than expected this year and increased their estimates for 2017 by 110,000 barrels per day to a total of 1.3 million barrels per day for 2017
  • Sluggish and varied data out of the Eurozone has the euro slightly weaker against USD and CAD this morning, however, most investors are keen to wait for the Fed’s decision on Wednesday
  • Inflation in the UK rose 1.2 percent in November, accelerating to the highest since October 2014, as gasoline and clothing prices jumped
  • With forecasts pointing to a sharp inflation pickup in 2017, BOE officials dropped guidance last month indicating that lower rates were likely before the end of the year
  • The loonie continues to trade in line with oil prices, receiving support from higher oil, while the FX market is fairly quiet today awaiting the Fed's projection of future growth and hikes tomorrow
  • A break-out below 200 DMA at 1.3076 will set up a major support level at 1.3000, which is nearly 5 cents below overall market consensus on forecasts for where USDCAD would be at the end of 2016
  • Lots to consider heading into the end of the year for USDCAD traders so prepare as best you can!

Charts: (1) Dot Plot Chart for Future Rate Hikes (2) Economic Calendar