Market Outlook

Market Outlook

Last week of central bank meetings

The week got off to a slow start as markets awaited the big 3 central banks.

Fed kicked off things on Wednesday as Yellen raised rates as expected but sounded more dovish than expected. Markets were poised for a more hawkish tone as they expected Yellen to sound more optimistic in her last fed press briefings, but she stuck to her guns.

Gold sighed relief as $1240/oz. was defended by the bulls and on the back of a dovish tone from the Fed managed to challenge the resistance at $1261/oz. Fed did raise GDP growth forecasts for next year but stuck to forecasting just 3 cuts next year against an expected 4.

Next in line was Bank of England which decided to hold rates unanimously and but cut Q4 GDP growth forecast. BoE went on to express confidence in Brexit negotiations and commented that the worst is behind and didn’t forget to give thumps up to Chancellor’s budget presented last week.

GBPUSD was under pressure for the whole week as attempt to break above 1.3450 was beaten back as GBPUSD settled the week at 1.3317, down 70 pips for the week.

European Central Bank was the third central banker that had its monetary policy meeting last week. But as was widely expected ECB kept rates unchanged while hinting at the necessity of keeping QE on board to sustain growth. ECB however raised inflation expectation for next year to 1.40% from previous 1.20. It also raised GDP growth rate for 2017 and 2018 painting a rather solid picture of the economic conditions in EU.

EURUSD was however weak on QE comments as it lost nearly 100 pips to end the week at 1.1749.

Bank of Canada’s Poloz did a volte-face as he ruled out rate hikes and expressed concerns on trade agreements read NAFTA and weak exports. USDCAD that was close to testing support at 1.2670 rebounded to end the week at 1.2858.

Next week too has 2 central bank monetary policy announcements and a host of other crucial economic data’s that should keep the markets busy.

Gold that got a boost after last week’s Fed meeting had however failed to trade above $1261. Technical charts point to a danger of Gold testing the lows of $1240/oz. seen off late as the rally seems to be running out of steam. Agenda for Gold will be set by progress made in tax reforms as its passing would see a lot of dollars flying back into US mainland mainly by US MNC’s bringing back their offshore earnings.

EURUSD would start the week as they see EU CPI data getting released on Monday, followed by data’s from Germany, France and Italy as the week progresses. On charts EURUSD looks stuck between 1.1700 support and resistance at 1.1850.

GBPUSD has support at 1.3300 and even stronger support at 1.3210 where the rising trend line and 100dma sits. Next week GBPUSD doesn’t have any crucial economic data until Friday when UK GDP and other related data gets released. And of course GBPUSD will be high beta to any news on Brexit.

Bank of Japan (BoJ) meets on Thursday as it ponders the fruitfulness of its easy money monetary policy. In the beginning of December Kuroda had highlighted the pitfalls of low interest rate hikes raising expectations that BoJ would start tightening pretty soon. However it would be rather premature to expect BoJ to act this week as Yen’s positons vis-à-vis Dollar is key to Japanese economic health especially when you consider it as a very export dependent economy.

USDJPY has support at 112.00 that was defended last week and resistance comes in at 113.50.

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