All eyes on US CPI & December FOMC – BOE & ECB on Watch Too

Weekly Recap

Another week comes to a close and as we edge ever close to the all-important December FOMC it’s been a somewhat tricky week for traders. The upside surprise in US labour data over the prior week led to heightened uncertainty around the expected US rate path. While traders are still looking for a slower pace of tightening from December, the risk of inflation having remained high in November increases the chances that the Fed will look to keep going with rate hikes deeper into next year instead of pausing. The implication for markets has been an uptick in recessionary fears with concern for the US growth outlook into next year. 

Away from the US, the big focus has also been on the China reopening story. On the back of the protests and scenes of anger over the prior week, traders were met this week by the Chinese government easing a swathe of covid restrictions. With the biggest easing of restrictions since covid began, traders are increasingly hopeful that the Chinese government is moving towards abandoning its zero covid policy and a full reopening of the Chinese economy. However, with infection still soaring higher, the outlook is not yet certain. 

Crude prices were seen turning sharply lower this week with crude futures breaking down to new lows on the year. Fears of a growing global recession are weighing sharply on the demand outlook for oil, leading to a downturn in prices. The sell-off comes despite the start of the European embargo and G7 price cap on Russian oil, with Russia threatening to cut off supply to any countries which cooperate with the measures. 

Stock markets saw plenty of two-way action this week, oscillating around movements in the US Dollar. Fears of a fresh wave of central bank tightening next week are keeping stock valuation skewed lower. However, the focus will be on forward guidance with next week’s US inflation data set to dictate the Fed’s outlook on rates. 

Coming Up This Week

  • US CPI & December FOMC 

Just ahead of the keenly anticipated December FOMC next week we’ll receive the latest US CPI reading and the timing couldn’t be more exciting. On the back of the upside surprise we saw in US labour data for last month, there are fresh upside risks into the release. While the Fed is widely expecting to push ahead with a smaller 50bps hike any upside surprise in CPI will likely see the Fed stressing the need to continue with rate hikes beyond current expectations which will weigh on US growth forecasts into next year. However, a downside surprise will likely open room for the Fed to signal a coming pause on rates if inflation continues to trend lower. 

  • December BOE Meeting

After the Fed, focus will then shift to the BOE. With inflation having remained at record highs last month, the expectation is widely in favour of a further 50bps hike with greater risk that the BOE opts for a larger hike over a smaller one. Focus will then be on the BOE’s latest guidance following the doom and gloom issued last time around. Expectations are that further hikes will be signalled with more caution noted around recessionary risks. 

  • December ECB Meeting

Finally then, focus shifts to the ECB which meets after the BOE on Thursday. Potentially a very busy day for EURGBP! The market is widely expecting the ECB to push ahead with a further hike of at least 50bps with greater risks of a larger hike. The ECB is likely to be the most hawkish of the three central banks and traders will be keenly scrutinising the bank’s forward guidance with a view to gauging likely actions in Q1 next year. 

Forex Heat Map 

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Technical Analysis

Our favourite technical chart of the week – GBPUSD

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The move back above the 1.2011 level is a major technical breakthrough for bulls. While price holds above here, the focus is firmly fixed on higher prices. The next hurdle for bulls will be the 1.2693 level. While we might see some initial stalling, again the bullish bias remains intact towards the channel top and 1.4144 level while support at 1.2011 holds. 

Economic Calendar

Plenty to keep an eye on this week data-wise, with the FOMC, BOE and ECB meetings among other key events and releases. See the calendar below for the full schedule.  

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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