FOMC jitters, UK CPI on the docket

After starting the week well bid, the greenback has eased overnight against its major counterparts. Nevertheless, would it not be more than reasonable to see a period of consolidation in light the much anticipated FOMC this week? I would think so. Over the last month we’ve seen over 2% come out of the dollar index as investors put some coin on the table and as a consequence the ECB shocked earlier this month. Whatever the case, markets are in a bind – torn between the allure of jumping into what could be another solid year for the greenback and fear of the contrary.

There is a case to suggest that extended weakness in commodity and energy markets, namely oil, could very well keep the Fed committing to a series of rate hikes – a factor that could see the greenback lose its sheen, at least in the short-term.

While we’re on the greenback/crude oil thematic, it may be worth visiting our archives with resident technical analyst, Adam Taylor who has been following the USD/CAD pair closely in recent months.

Domestically, today’s RBA minutes contained nothing new for market participants and the local unit was barely changed in the ensuing period, if at all a fraction higher. In short, the RBA will cut rates if need, but there is nothing to suggest rate cuts are required at this stage.

From the minutes:

“Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand”.

Still, the minutes made mentioned better economic data which is believed to be helped by the lower currency helping domestic production.

“Members noted that recent domestic data had generally been positive. There continued to be evidence that very low interest rates were supporting growth in household consumption and dwelling investment, and the exchange rate was adjusting to the significant declines in key commodity prices and boosting demand for domestic production. This had translated into stronger employment growth and was consistent with surveys suggesting that business conditions were above average.”

From here it’s all about UK consumer price data (NOV) which is due for release this evening. The headline rate is expected to rise a meagre 0.1% on year. The core inflation rate is expected to rise to 1.2% on year against 1.1% in October.

A quick scan across sterling pairs and the GBPJPY pair is showing further signs of weakness. The 11 and 22 EMA’s (Exponential Moving Averages) are turning bearish, suggesting potential downside to the 182 region before we see support kick in. A contrary view of a recovery would suggest the upside will be capped around the 186 region.

GBP daily chart – Bearish signals