Focus on Fed meeting, massive vol in RUB

Market Brief

The most expected event of the day is no doubt the year’s last FOMC verdict. There are increasing bets that the Fed will drop the “considerable time” phrase, yet give itself enough flexibility regarding the timing of the first rate hike. Indeed, there is no particular need to hurry given the moderate inflation dynamics and the significant slide in oil prices. Some even think that lower oil may entirely stop Fed from hiking rates in 2015, which we believe carries low probability at the current stage. All in all, the Fed decision will be important for the FX direction for the second half of the week. The US 10-year yields test 2 percent levels on persisting uncertainties.

Both in the Euro-zone and the US, the inflation figures will be closely monitored. The expectations are soft given the plugging energy prices. EUR/USD advanced to 1.2570 yesterday, offers are still dominant in 1.2532/1.2600 (50-dma / Nov 19th high) region. Marginally positive technicals are favorable to push the EUR/USD in a short-term bullish consolidation zone, should the Fed rhetoric fails to satisfy the Fed hawks. The first round of Greek elections is due today.

In the UK, the BoE minutes and jobs report will give reason, or no, to the Cable to properly break into the short-term bullish consolidation zone (above 1.5800 / 1.5826 Nov 27th high). EUR/GBP remains offered pre-0.80215 (September-December descending topline & 200-dma). We continue seeing solid resistance pre-200-dma, not broken since October 2013.

The WTI crude retreated to $53.60 yesterday. After losing more than 20 figures last session (and that despite 650 bp CBR rate hike), USD/RUB trades at 66.40/73.00 at the time of writing. The 1-month implied volatility hit 53% (!) Given the turmoil on Ruble markets, the CBR is expected to intensify its interventions to taper the volatility at least. USD/CAD topped at 1.1672/74 over the past two sessions (at about Fib 123.6% on July-November hike). A correction at the current levels is healthy should the oil breath.

AUD/USD extends losses to 0.8140. Trend and momentum indicators are comfortably bearish. We expect the continuation of steady slide toward 80 cents. Option barriers trail below 82 cents. NZD/USD trades ranged below 21/50-dma zone (0.7800/33). The 3Q GDP growth (due later today) is expected softer at 3.3% y/y (vs. 3.9% last). A daily close below 0.7730 (MACD pivot) should keep the bias on the downside.

USD/JPY rebounded a stone’s throw higher than the Fibonacci 61.8% level on October-December rally (115.50), traded between 116.30/117.29 as exports slowed faster than expected on year to November (4.9% y/y, vs. 7% exp. & 9.6% last), imports retreated 1.7% on weak Yen. The Economy Minister Amari said emergency measures will be complied by December 27th, as reported by local news agency Jiji.

Today, the Bank of England releases minutes. The economic calendar: Spanish 3Q Labor Costs, UK November Jobless Claims Change and Claimant Count Rate, UK October Average Weekly Earnings 3m/yy, ILO 3-month Unemployment Rate and 3-month Employment Change, Credit Suisse’s ZEW Survey October Expectations for Switzerland, Euro-zone November (Final) CPI m/m & y/y, US December 12th MBA Mortgage Applications, US November CPI m/m & y/y, US 3Q Current Account Balance, Canadian October Wholesale Trade Sales m/m.