Hope of a December rate hike by Fed is high. Possibility of “Frexit” and possibility of Italian Prime Minister stepping down plagues Europe. Will the EUR/USD head towards parity?
The US presidential election is over and market is optimistic about the outcome. The rise in US treasury yields and US equity market are the biggest clues. The dollar index has rose more than 4% since early November. Fed Chair Yellen has indicated her confidence in the outlook and highlighted the risk of delaying the rate hike for too long. Market is almost certain a rate hike will happen in December. Hopes are high. If there is any reason for traders or investors to believe otherwise, we are likely to see a significant drop in the US dollar. FOMC will release the minutes of last meeting this week. We expect the minutes to echo Yellen’s comments and do not foresee much deviation from it.
Political woes are surfacing in France and Italy, the second and third largest economies in Eurozone. Italy will hold a referendum on 4th December to vote on the constitutional changes proposed by their Prime Minister Matteo Renzi. Renzi hinted he would quit if the changes were rejected. Donald Trump’s recent victory has given a boost to populist movement around the world. France will hold their election next year and one of the potential candidates is anti-EU leader Le Pen. Le Pen is gathering support from discontent white voters. What puts her in the spotlight is the possibility of her calling a referendum for “Frexit” – France to exit the EU. Brexit followed by Frexit is definitely no good news for the Euro. The French presidential election in April 2017 will be something currency traders should watch for next year. With a high chance of a Fed rate hike in December and political woes in Europe, we see the EUR/USD may continue to head towards parity.
Bets have increased on the WTI Oil, market is hoping OPEC will complete the output deal by 30th November. The indecision of the output deal has caused the WTI to fall from the high of $52 a barrel. Once the deal comes to a positive conclusion, WTI is likely to head towards $52 a barrel again.
Our Picks
EUR/USD – Sell on rally. Upcoming Fed rate hike and on-going Europe political uncertainties could push this pair lower. A possible play would be to consider selling around the resistance of 1.0630.
U30/USD (Dow Jones) – Slightly bearish. With little high impact data releasing this week, we expect the Dow Jones to consolidate. A hawkish FOMC meeting minutes could push the Dow Jones slightly lower.
OIL/USD (WTI) – Slightly bullish. We could adopt the “Buy the rumour, Sell the news” approach. Market is expecting a positive outcome from the OPEC output deal. Consider a breakout play to go Long after price closes above resistance.
Top News This Week (GMT+8 time zone)
US: Unemployment Claims. Wednesday 23rd November, 9.30pm.
We expect figures to come in at 238K (previous figure was 235K).
Europe: German Ifo Business Climate. Thursday 24th November, 5pm.
We expect figures to come in at 109.6 (previous figure was 110.5).
UK: Second Estimate GDP q/q. Friday 25th November, 5.30pm.
We expect figures to come in at 0.5% (previous figure was 0.5%).
Fullerton Markets Research Team
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