Dollar trades mildly softer today as markets await FOMC minutes. Besides the discussion over the 25 bps rate hike decision made on the month, we are closely watching for the discussion of potential monetary policy changes as Trump takes office. The president-elect has been proposing pro-growth fiscal policy. We would also look for the rationale behind the more hawkish shift in the dot plot which signals 3 rate hikes in 2017. Currently, fed fund futures are pricing in around 70% chance of another rate hike by June this year.
Eurozone CPI rose to 1.1% yoy in December, up from 0.6% yoy and beat expectation of 1.0% yoy. CPI core rose to 0.9% yoy, also above expectation of being unchanged at 0.8% yoy. The headline number was also the highest since 2013 even though it’s still around just half of ECB’s target of 2%. Also, the number justified the central bank’s decision December to lower the size of asset purchase from EUR 80b to EUR 60b a month while extending it. ECB executive board member said in an interview published last Friday that policy makers "are still waiting for signs that core inflation is on the rise and will clearly exceed 1%. That said, our assessment of the balance of risks, including for inflation, is shifting." Today’s number should be welcomed by the central bank. Also from Eurozone, services PMI was revised up to 53.7 in December. Italy services PMI dropped to 52.3 in December.
UK PMI construction rose to 54.2 in December, up from 52.8 and well above expectation of 52.6. That’s also the highest number in nine months. Markit noted that "UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials." Also from UK, mortgage approvals was unchanged at 67.5 k in November, below expectation of 68.7k. M4 money supply rose 0.4% mom in November, below expectation of 1.4% mom.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.0333; (P) 1.0412 (R1) 1.0484; More…..
Intraday bias in EUR/USD stays cautiously on the downside for the moment. Prior breach of 1.0351 support suggests down trend resumption and EUR/USD should target parity next. Meanwhile, above 1.0489 minor resistance will turn bias neutral again. In that case, outlook will stay bearish as long as 1.0562 resistance holds. However, break of 1.0652 will now confirm short term bottoming and turn near term outlook bullish for stronger rebound.
In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 8:45 | EUR | Italy Services PMI Dec | 52.3 | 52.6 | 53.3 | |
| 8:50 | EUR | France Services PMI Dec F | 52.9 | 52.6 | 52.6 | |
| 8:55 | EUR | Germany Services PMI Dec F | 54.3 | 53.8 | 53.8 | |
| 9:00 | EUR | Eurozone Services PMI Dec F | 53.7 | 53.1 | 53.1 | |
| 9:30 | GBP | Construction PMI Dec | 54.2 | 52.6 | 52.8 | |
| 9:30 | GBP | Mortgage Approvals Nov | 67.5k | 68.7k | 67.5k | |
| 9:30 | GBP | M4 Money Supply M/M Nov | 0.40% | 1.40% | 1.10% | |
| 10:00 | EUR | Eurozone CPI Estimate Y/Y Dec | 1.10% | 1.00% | 0.60% | |
| 10:00 | EUR | Eurozone CPI – Core Y/Y Dec A | 0.90% | 0.80% | 0.80% | |
| 19:00 | USD | FOMC Minutes |
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