- Rates: Pressure finally off the Fed
The final FOMC meeting of the year is the first one without pressure on the Fed. Following three consecutive rate cuts, Powell and Co will stay sidelined and plan to do so throughout 2020. The bar to cut rates further in case of unexpected eco data weakness is lower than the one to hike given the Fed’s tendency to allow for some inflation overshooting. - Currencies: EUR/USD again nears 1.11+ area ahead of Fed and other event risks
EUR/USD yesterday continued its gradual rebound of earlier this week. The Fed communication probably won’t change the picture for the dollar in any profound way. Any focus on the symmetrical inflation target might be seen as a tentatively soft for the dollar. Recent sterling rally was blocked as a poll suggested a small Conservative majority at tomorrow’s election
The Sunrise Headlines
- US equities slipped slightly lower as investors grew cautious amid tariff speculation and key central bank meetings later this week. Asian equities are mostly trading in the green. China outperforms (+1%).
- US and Chinese trade officials are laying the groundwork for a delay of a fresh round of tariffs set to kick in on December 15, the WSJ reported. US trade advisor Navarro said he has no indication of a delay so far, though.
- The new USMCA trade pact, replacing NAFTA, gained backing from the House of Democrats after securing revisions and is put up for a vote next week. The trade agreement is likely to be ratified by Congress in 2020.
- A new survey showed a narrowing lead for Boris Johnson’s Conservative Party. A rerun of the YouGov MRP polling procedure, which projected a 68-seat Tory majority two weeks ago, now predicts a majority of just 28 seats.
- New Zealand cut its growth forecast for 2019 and 2020 as global headwinds undermine the country’s economy. The government flagged a capital spending boost to stimulate the economy, resulting in a budget deficit this year.
- The European Commission will today present its Green New Deal to push for more environmentally friendly investments. However, the FT reports that Germany already warned for loosening EU budget rules for “green spending”.
- The final FOMC meeting of the year is key today. Investors will mostly focus on the Fed’s plans to mitigate money market strains, with the 2020 outlook probably stable. US/Swedish CPI data are due. The US sells 30-yr Bonds.
Currencies: EUR/USD Again Nears 1.11+ Area Ahead Of Fed And Other Event Risks
EUR/USD stays resilient ahead of Fed decision
EUR/USD maintained a cautious upward yesterday. The move had only a loose link with price action in core bond and equity markets. A strong ZEW maybe was slightly euro supportive. Later, the EUR/USD rebound accelerated on headlines that the US considers delaying the December 15 deadline to impose additional tariffs on Chinese goods. The pair closed at 1.1092. EUR/JPY and USD/JPY also succeeded an intraday uptick even as (US) equities struggled. USD/JPY finished at 108.72.
This morning, Asian equities opened mostly negative, but gradually improved. A report signalled an overshoot in the Japan budget deficit to be covered by more bond sales. The news is mixed, maybe even a tentative positive for the yen. USD/JPY hovers near 108.75. EUR/USD is running into resistance as the 1.11 resistance is again with reach. The kiwi dollar eases after the recent rebound. The government cut the 2019/20 growth forecast to 2.3% but announced further fiscal stimulus.
Today’s, US CPI is expected at 2.0% (from 1.8%). The core is expected unchanged at 2.3%. The dollar probably needs a big surprise as markets mainly watch the PCE deflators. Later, the Fed will likely confirm a pause after cutting rates three times. Powell will probably repeat that the economy is in a good place. Any focus on the symmetric inflation target might be a tentative USD negative. Even so, the FOMC communication probably won’t be key for the dollar. The focus is on other event risks (ECB, tariffs, UK election). The outcome of the UK election and the trade talks remains binary in nature. We still see as slightly bigger chance for a euro supportive rather than a USD supportive outcome.
EUR/USD eased off the 1.11 after last week’s US payrolls EUR/USD soon found its composure. The EUR/USD 1.0989/81 area looks quite solid support. The jury is still out, but we slightly prefer to sell the USD on upticks, against the euro and the yen.
Sterling held strong yesterday with EUR/GBP again drifting close to the 0.84 barrier. Overnight, a new You Gov poll caused some renewed uncertainty as it predicted a smaller Conservative majority (28 vs 68 two weeks ago). EUR/GBP returned back higher to the mid 0.84 area. Healdlines on the election will continu to guide intraday sterling trading, but we don’t expect a big sterling correction before the publication of the election result
EUR/USD again nears ST resistance near 1.11
