Final Key Week of the Year: Central Bank Policies in Focus

Final Key Week of the Year: Central Bank Policies in Focus

This Week’s Highlights

This week marks a pivotal period as trading for the year essentially concludes. Major central bank monetary policy decisions, including the FOMC, BOJ, and BOE, are scheduled for later this week. These policy updates will be critical in shaping market direction and demand close attention.

Key Central Bank Meetings

FOMC (December 13th)

• Expectation: A 25bps rate cut is the consensus. Updates on the terminal rate and economic outlook will also be closely watched.

BOJ (December 14th)

• Expectation: A pause in rate hikes is widely anticipated. Following leaked reports from insiders last week, the likelihood of a December rate hike is low. However, the possibility of a surprise cannot be entirely ruled out.

BOE (December 14th)

• Expectation: Policy rates are likely to remain unchanged. However, any changes in the accompanying statement or inflation outlook could draw attention.

This Week’s Market Dynamics & Key Events

French Downgrade & Eurozone Impact

• Moody’s downgrade: France’s credit rating has been lowered from “Aa2” to “Aa3,” citing a “very low” probability of reducing its fiscal deficit.
• Impact: French bond yields are expected to rise. Market reaction across the Eurozone will be key, especially any broader implications for the euro.

Important Economic Data Releases

• Manufacturing and Services PMIs (December Preliminary Data):
  Fresh data from the US, Eurozone, and UK is expected. Given the real-time nature of these figures, the market is likely to react strongly.
• Canadian Housing Starts (November):
  An indicator of construction demand and its influence on Canada’s economic outlook.
• NY Fed Manufacturing Index (December):
  Forecast: +10 (Previous: +31.2). A significant decline is anticipated, with implications for the dollar.

Notable Speeches

• ECB Officials: Speeches by President Christine Lagarde and Vice President Luis de Guindos will offer insights into the ECB’s future monetary policy direction.
• Canada: A late-session speech by Bank of Canada Governor Tiff Macklem will focus on Canada’s financial policy outlook.

Strategy & Outlook

Today’s Focus:
The market is paying close attention to the US Manufacturing PMI at 23:45. This indicator serves as a vital gauge of the current state of the US economy. Post-announcement price movements will provide entry opportunities.

With market volatility expected to decline after this week’s major events, it’s crucial to anticipate position adjustments and approach trading with caution.

Key Points for the Coming Week

1. Post-FOMC Dollar Movement:
   Watch for updates on the terminal rate outlook and whether this sustains the ongoing dollar strength.
2. Post-BOJ Yen Volatility:
   Expect sharp yen fluctuations after the BOJ meeting, requiring a flexible trading approach.
3. BOE Rate Hold & Pound Impact:
   Assess the market reaction to the BOE’s decision and its implications for the pound.

Conclusion

As this critical week unfolds, effective risk management and a clear focus on central bank policies will be essential. With several key events expected to set the tone for early 2024, traders should remain cautious and adaptable to secure favorable outcomes.