US Dollar, EUR/USD, GBP/USD, AUD/USD, USD/CAD Talking Points:
It’s a big week for global markets, and next week brings the Fed, all of which can make a pensive backdrop ahead of the holidays. With that said, stocks are lifting aggressively today in stark contrast to the pain that had shown last week. Those bearish drivers seemed to stack up, with the Omicron variant getting attention around the Thanksgiving holiday. Then last Tuesday Powell moved to take ‘transitory’ out of the Fed’s verbiage in a sign seen as a win for inflation.
The Friday NFP report wasn’t all that positive either, sizably missing the headline expectation of 550k. The one side of the report that was a positive was the unemployment rate sinking down to 4.2%, which is beyond the Fed’s threshold for maximum employment at 4.5%. So, this is a factor that could denote even more hawkishness as the Fed now has inflation well-above target to go along with the maximum employment that they’ve been looking for through the year while dismissing inflation as transitory.
All of this comes home to roost next week with the December FOMC rate decision. This is a quarterly meeting so the bank will also be supplying updated forecasts and guidance. This is where we can see just how much the move away from ‘transitory’ means to the bank.
At this stage, there’s a 97.3% chance of seeing at least one hike out of the Fed next year, per CME Fedwatch. There’s also a current 84% chance of seeing more than one rate hike. The median expectation for next year is three rate hikes, which is considerably divergent from the FOMC’s recent forecast for one hike next year.
The US Dollar
The US Dollar has had a full head of steam so far in Q4. Two weeks ago the USD breakout ran-up to another key zone of resistance in an area with multiple Fibonacci retracement levels taken from longer-term studies. But, rather than elicit a pullback as those resistance levels came into play, prices started to range and that remained through last week.
At this point, the weekly chart of the USD shows two consecutive dojis, highlighting indecision. But, deductively, the fact that a deeper pullback could not show after a week of indecision highlights the continued bullish potential in the currency, especially as the Fed finds itself in the awkward position of looking to play catch-up with inflation.
Whether or not this pulls back this week is likely going to depend on just how weak other major currencies might be, and as we’ll look at in the next four markets, many major currency pairs are sitting on or driving near big long-term support structures.
Near-term, the 96.47 level remains of interest as the USD hasn’t yet been able to generate much drive beyond this price. This was the final target from the Q4 Technical Forecast (link for the full forecast is below). If a pullback does develop this week which,…
Read More: US Dollar Price Action Setups: EUR/USD, GBP/USD, AUD/USD, USD/CAD