Fundamental analysis for a week of 7th – 11th December

Forex fundamental analysis

Draghi, Draghi and again Draghi! On Thursday markets were impressive, the stock market fell on both sides of the Atlantic after European Central Bank President Mario Draghi made what was planned, but nothing more. While Draghi decided to reduce further the interest paid on overnight deposits commercial banks held at the central bank, the market participants were not sufficient.

Fundamental analysis

Investors had hoped the bond buying content increases, but the ECB did not raise it at all. Instead, the bond buying program extended for another six months. (The program was due to end in September 2016). It appears that the Eurozone economy is not as bad as expected, the EUR / USD and EUR with most other quoted currencies had at least 3% rise. Stock indexes fell mainly due to the strengthening of the euro because strong euro can hurt European companies engaged in exports. Speaking about economic indicators next week we will wait for the Japanese and Eurozone GDP indicators, for decision

New Zealand and the UK base rates and the Australian labor market data.

EUR. As long as market participants think about the last conference of the ECB consequences the single currency may continue to rally, but higher growth should not be expected. Further growth can be nothing more but manipulations before December 15-16d US Federal Reserve meeting. While eurozone economic indicators are improving, but the Americans are expected to raise interest the EUR bulls will not be able to stay strong. As long as we do not have the Fed’s decision, it is just a guess, but in the longer term sentiment of the single currency remains negative. The divergence between the ECB and the Fed’s action should continue to be a major headache for speculators.

USD. Last week’s Commitments Of Traders Report showed that speculators for the first time in six weeks reduced the amount of USD long positions; it is clear if you look at the dollar index movements. At the end of the week, the US dollar fell and even the publication of better than expected (but far worse than the previous month) labor market indicators NFP. It can be assumed that market participants do not like the uncertainty about the future of the Fed’s decision. Next week, the possible further weakening of the USD in anticipation of the decision is possible, but the long-term sentiment remains positive.

NZD. The most important economic event next week will be the New Zealand Reserve Bank’s decision on the key interest rates. At present, the demand for NZD can be explained by the fact that compared with other countries the base interest rate of New Zealand is much higher, even 2.75%. As a result, a large part of investors’ portfolios include New Zealand dollars to diversify the portfolio and to reduce risk. As I mentioned earlier, New Zealand is a major exporter of soft commodities and rising milk prices have had a substantial impact on the continuing rally for a few weeks. Like all exporting countries, New Zealand can again reduce interest rates to pause NZD strengthening. I recommend not to open new positions in the NZD until it is clear about interest rate decision.

GBP. For me, it is uncommon to write about this currency, still the strongest currency on the MAJOR list because of the lack of significant factors, but this week the British Pound will be exceptionally attractive. Yes, because of the BOE conference and the decision on interest rates. The main economic problem in this country is a non-increasing or slow rising inflation. The interest rate change this month is unlikely, but the bank president’s and the other members’ speeches can cause considerable waves in the market. You should be more careful with new trades in pairs including GBP.

Gold. In the case of uncertainty on the upcoming Fed decision, this precious metal has recovered at the end of the week, we expect a correction to the level of 1100-1105, but if American dollar rally continues its steady rise, we will be looking for a right time to open short positions again.

European and American stock indices. This week high-risk assets should not be traded as market participants are uncertain of the state of the eurozone economy. Although these Christmas are probably not excluded, there is an enormous possibility of so-called “Santa rally” in the stock market. In the long term, we expect further stock appreciation, but like most financial instruments, uncertainty about the Fed’s decision can raise a lot of waves in this market.

Manage risk and a good week for you.