Week Ahead: Central Bank Meetings Galore
The week ahead is set to be eventful for global markets thanks to key central bank meetings and an abundance of economic reports from major economies. All eyes will be on the Fed as they decide whether to step up the gear on tapering, while the Omicron developments are likely to influence risk sentiment.
What a way to enter the holiday season right?
Before we cover what to expect over the next few days, let’s talk about the latest US inflation figures released on Friday afternoon. US consumer prices increased at the fastest pace in nearly 40 years! According to the Bureau of Labor Statistics, the consumer price index (CPI) rose 6.8% year-on-year in November, a significant jump from the 6.2% witnessed in October. Stripping away the volatile food and energy component, the core reading was 4.9% - more than double the Fed’s 2% target.
With inflation on a tear, the Federal Reserve is expected to announce a faster pace of tapering at its December meeting. Expectations also remain elevated over the central bank raising interest rates sooner than expected. Infact, traders are currently pricing in a 72% probability of at least one rate hike by early May 2022 and fully pricing a 25 basis-point hike by mid-June 2022.
Interestingly, US equities appreciated amid market relief that US inflation did not dish out an upside surprise. The S&P 500 appreciated over 0.6% while the Nasdaq jumped 0.5%. We saw the Dollar Index (DXY) slightly weaken, offering an opportunity for gold to tick higher within its current range.
Here are the scheduled economic data releases and events that could shake markets in the coming week:
- JPY: Japan October industrial production (final)
- AUD: Australia consumer and business confidence
- EUR: Eurozone October industrial production
- GBP: UK October unemployment, November jobless claims
- USD: US November producer price index
- CNY: China November industrial output and retail sales
- GBP: UK November inflation
- USD: Federal Reserve decision and November retail sales
- US crude: EIA weekly US crude oil inventory report
- CHF: Swiss National Bank decision
- EUR: European Central Bank decision and December PMIs
- GBP: Bank of England decision and December PMIs
- USD: US initial weekly jobless claims, November industrial production, and December PMIs
- JPY: Bank of Japan decision
- EUR: Eurozone November inflation (final), Germany November producer prices, and December IFO business climate
There is much on the plate in the week ahead but the Federal Reserve is likely to steal the spotlight. It’s worth keeping in mind that the Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank are all expected to leave monetary policy unchanged. This leaves the Federal Reserve which is expected to announce a faster pace of tapering in the face of rising inflation. Should this scenario become reality, dollar bulls could be injected with renewed confidence.
Currency spotlight – EURUSD
The policy divergence between the Federal Reserve and European Central Bank remains an ongoing theme.
With the Fed on a path towards monetary tightening and the ECB dominated by doves, this may drag the EURUSD lower this month. Should the Fed sound more hawkish than expected or ECB reinforce expectations around low rates for longer, this could ensure the currency pair continues to trend lower. Taking a look at the technical picture, the EURUSD remains in a range on the daily charts with support at 1.1200 and resistance at 1.1370. With prices trading below the 200, 100 and 50-day Simple Moving Average, bears still remain in a position of power. A breakout could be on the horizon with the central bank meetings acting as the fundamental catalyst for bulls or bears.