- Forex Weekly Outlook December 19-23
Last week, the Federal Open Market Committee raised rates for this first time in a year, and the second time in a decade. The federal funds rate was raised by 25 basis points from 0.50 percent to 0.75 percent as the Federal Reserve was certain the economy is healthy and on the path to full recovery, after data from the labor market showed continued growth and sustained economic expansion at a 3.2 percent rate in the third quarter of the year.
While the slowdown in consumer spending in November has been attributed to the uncertainty surrounding the presidential election, the inflation rate pointed to a steady build-up in price pressures and predicted to support further rate hike in 2017.
Also, the committee projection of inflation rate rising to 2 percent in the first half of 2017 as lower oil prices fade and cost of import goods increases — will further boost the prospect for business investment in the US in 2017 through 2018. Again, most experts believe that the Trump economic plan will speed up economic growth and create more jobs, even though global uncertainty is expected to increase as the euro-area strive to strike a balance amid Brexit and political uncertainty.
In the UK, the Bank of England Governor Mark Carney left interest rates at a record-low of 0.25 percent, citing the persistent increase in prices of gasoline. This increase boosted inflation rate in October to 1.2 percent, the fastest in two years. Also, since the referendum, import prices continue to rise and surged 15 percent in November to its highest in 5 years, and expected by the apex bank to increase even more as the embattled nation seek to trigger article 50 of the Lisbon treaty in March 2017.
Accordingly, businesses are not creating new jobs, but merely sustaining current positions, hence, the reason unemployment rate remains 4.8 percent and employment plunged by 6,000 in the third quarter, suggesting that businesses are wary of socio-political situation in the UK and its region as the nation face its toughest test in years.
However, retail sales surged 0.2 percent in November, following a series of discount offered on Black Friday. This is projected to continue through December when household spending is usually higher.
In Australia, the unemployment rate rose to 5.7 percent in November, even though 39,300 jobs were created over the month. This was after data showed the economy contracted by 0.5 percent in the third quarter for the first time in years, while some experts have said it’s a one-off thing, the overall Australian economic outlook remains shaky ahead of 2017.
Overall, the US economy remains strong and expected to sustain current improvement in the medium term. However, global developments will play a pivotal role in determining the economic direction and how businesses approach it going forward. This week, as we round up the year, NZDUSD and EURGBP top my list.
I first mentioned this pair sell-potential in May, ever since I have written extensively on the New Zealand economy in relation to the US dollar. However, Last week this pair closed for the first time in 5 months below 0.6989 support level that was first established in July. But this is significant because the price closed below the ascending channel drawn since May when the US dollar was weaker.
Economically, the FOMC statement released last week has bolstered the US dollar economic outlook against emerging currencies. This new US dollar attractiveness is likely to continue into 2017 and it is expected to extend current gain against the New Zealand dollar.
So this week, I will be looking to sell NZDUSD below 0.6989 price levels for 0.6771 support as the first target and a sustained break should open up 0.6580.
This pair topped our list three weeks ago, but closed mid-way to our 0.8240 targets last week. Confirming the importance of bearish pin bar of three weeks ago.
While the euro-area is yet to find a permanent solution to its socioeconomic issues, the UK is positive of retaining preferential access to the European Union 500 million consumer market after Brexit.
This coupled with strong consumer spending, low unemployment rate and moderate earnings continue to support the pound sterling over the euro currency for the past 7 weeks. This week, I will be looking to sell this pair below 0.8471 resistance level for 0.8240 targets, a sustained break should open up 0.8117 support as the second target.
Last week, our first target hit at 0.7379, but the pair closed below July low giving a total of 209 pips. This week, I will be looking to capitalize on dollar current attractiveness to sell this pair below 0.7379 for my May 0.7203 projection for Aussie.
Three weeks ago, I first mentioned the sell opportunity of NZDCAD pair and since then this pair has dropped 207 pips to close below our 0.9298 targets. This week, if the 0.9298 break is sustained I will look to sell this pair for 0.9141 support.
This is our last Forex Weekly Outlook for 2016. The 2017 global currency outlook will be out in Two weeks.
We wish you all a Merry Christmas and Happy New Year in Advance.