Forex today witnessed some volatility early in Wednesday’s Asian trading, in the face of increased odds of a hung UK parliament and New Zealand’s (NZ) Mid-Year Economic and Fiscal Update while uncertainty on the Dec 15. US tariffs kept the moves in check.

The pound wilted after the latest YouGov poll showed the Conservatives Party majority narrowed to 28 seats that possibly could lead to a hung parliament. However, the Cable managed to recover to near 1.3140 from the early drop to 1.3108. Meanwhile, the Kiwi rallied hard to 0.6556 highs after the NZ government announced an increase in spending but the upside was short-lived on NZ FY 2019/20 growth cut forecasts.

The Aussie shrugged off downbeat Australian Consumer Sentiment data and looming trade risks, as it held the higher ground on the 0.68 handle. The yen, in contrast, traded on the back foot vs. the US dollar, despite negative S&P 500 futures and mixed Asian equities, as USD/JPY found support near 108.70 on firmer US dollar and Treasury yields. Minor losses in oil prices weighed on the Canadian dollar, as USD/CAD advanced towards 1.3250. Gold bulls took a breather and hovered below $ 1465 levels in the lead up to the key Federal Reserve (Fed) monetary policy decision. 

Main Topics in Asia

Japan FY 2019-20 tax revenue to undershoot govt’s estimate by over JPY 2 tln - Nikkei

Cable trades heavy on hung/tighter YouGov polls

N.Z. Government boosts spending, cuts budget surplus forecasts

WH advisor Navarro: Its up to the Chinese as to whether to get a deal - Fox Business Interview

Moody's: Sovereign credit quality in Australia, New Zealand, Korea, Singapore and Japan to remain strong in 2020

Asian Development Bank cuts growth views for China, Developing Asia as trade war bites – Reuters

S&P: Higher spending won't affect New Zealand's credit rating

RBI’s February rate cut at a coin flip– Reuters poll

GBP/USD: Demand for weekly put options strongest since September 2016

Key Focus Ahead

In terms of the economic data releases, the EUR calendar remains absolutely data dry and hence, the EUR, GBP traders will pay close attention to any fresh developments on the UK political situation ahead of Thursday’s poll.

Trading is expected to remain quiet, as markets brace for the top three key events of this week, the Fed, European Central Bank (ECB) rate decisions and the UK election.

Ahead of the Fed event, the US Consumer Price Index (CPI) due at 1330 GMT will grab some attention. The FOMC is expected to leave rates on-hold later on Wednesday at 1900 GMT, which is widely expected. Therefore, the key focus will remain on the Fed’s dot plot revision, economic projections and Chairman Powell’s speech for fresh insights on US interest rates outlook in the coming year.

Markets will also remain at the mercy of the ‘ping-pong’ headlines on the US-China trade war, with uncertainty over the Dec. 15 US tariffs still lingering.

EUR/USD: Dec. 4 high is key resistance, focus on Fed rate decision

The Dec. 4 high of 1.1116 is the level to beat for the EUR bulls. The Federal Reserve (Fed) is expected to keep rates unchanged. Dollar to take a beating if the Fed cites higher inflation as a prerequisite for a rate hike. 

GBP/USD pares early losses, all eyes on FOMC, UK election

GBP/USD tries to overcome market pessimism spread through the YouGov MRP poll. The recent polls tilt towards a hung parliament, Tories get broad criticism. The US Fed’s dot plot, Powell’s speech will be the key to watch.

US Consumer Price Index November Preview: Inflation nostalgia

The headline index expected to fall for the month and rise on the year. Core index projected to be stable above 2.0% PCE target. Inflation’s impact on Fed rate policy is minimal.

FOMC Dec Rate Decision Preview: Watching for the Projection Materials

No expectation for a change in the fed funds target rate. US economy has strengthened since the October FOMC. Market interest will be on the Fed’s rate and GDP estimates for 2020 and 2021.

Mish's Fearless UK Election Forecast Seat-by-Seat

Any majority of 10 or greater is likely to be very stable and "Get Brexit Done".

GMT
Event
Vol.
Actual
Consensus
Previous
Thursday, Dec 05
24h
 
 
Wednesday, Dec 11
12:00
 
 
-9.2%
13:30
 
 
265.011
13:30
 
0.2%
0.4%
13:30
 
2.3%
2.3%
13:30
 
2.0%
1.8%
13:30
 
0.2%
0.2%
13:30
 
257.221
257.346
13:30
 
82.1%
83.3%
15:30
 
-3.050M
-4.856M
19:00
 
 
19:00
 
$-196.5B
$-134.0B
19:00
 
 
19:00
 
1.75%
1.75%
19:30
 
 
n/a
 
 
1.1%
21:45
 
-0.1%
-0.3%
21:45
 
0.4%
1.4%
23:50
 
 
¥-511.1B
23:50
 
 
¥394B
23:50
 
0.9%
-2.9%
23:50
 
-1.8%
5.1%
Thursday, Dec 12
24h
 
 
24h
 
 
00:00
 
3.5%
4.0%
00:01
 
-5%
-5%

 

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