Week Ahead: EURUSD to react to Fed and ECB decisions

The world’s most popular currency pair has been in the doldrums this month after peaking above 1.10 at the end of November.

The huge dovish repricing of ECB rate cut bets has seen markets give a 75% chance of a 25bp cut in March and 135bps next year. Will the ECB (and Fed) push back on this?

Technically, the major found some support around the 100-day simple moving average at 1.0765 and the 38.2% retracement (1.0764) of the summer decline. Lose this and the 50-day simple moving average sits below around 1.07.

Events Watchlist

• Wednesday, December 13: FOMC Meeting

The Fed will keep rates unchanged at 5.25% - 5.50% and publish their new dot plots and summary of economic projections. New CPI data the day before is likely to show ongoing disinflation. This process has seen markets price in multiple rate cuts next year and a big easing in financial conditions, not something the Fed wish for.
 

• Thursday, December 14: Bank of England Meeting

It’s a similar picture for the other central bank meetings this week. Expectations are for the BoE to push back against rate cuts next year, even though there is less policy easing priced in than the Fed and ECB. Fresh wage growth data out on Tuesday should still be too high for some members on the MPC so GBP could benefit.
 

• Thursday, December 15: ECB Meeting

The ECB will also almost certainly keep rates on hold. The key question is how much it will endorse the market’s aggressive pricing for policy easing next year. The Governing Council may be more cautious about signing off on the death of inflation with still relatively solid labour market and wage growth. This could help support the euro.

Here’s comprehensive list of other key economic data and events due this week:

Monday, December 11

• JPY: Japan M2 money stock
• NZD: New Zealand home sales
• GBP: CBI publishes latest economic forecast

Tuesday, December 12

• AUD: Australia consumer confidence
• EUR: Germany ZEW survey expectations
• JPY: Japan PPI
• GBP: UK jobless claims, unemployment
• USD: US CPI report

Wednesday, December 13

• NZD: New Zealand food prices
• EUR: Eurozone industrial production
• GBP: UK industrial production
• USD: Fed rate decision, US PPI

Thursday, December 14

• JPY: Japan machinery orders, industrial production
• CHF: SNB rate decision
• EUR: ECB rate decision
• GBP: BOE rate decision
• USD: US initial jobless claims, retail sales, business inventories

Friday, December 15

• CNH: China retail sales, industrial production, jobless rate
• EUR: Eurozone/Germany S&P Global PMI’s
• GBP: UK S&P Global/CIPS Manufacturing PMI
• USD: US industrial production, Empire manufacturing
• SPX500: “Triple witching day” for US markets