It was a slow week as the markets exhibited thin volatility in the absence of major economic events. However, the dollar strengthened against the Euro and Yen on Friday as solid retail store sales in November diminished some concerns about a sharp slowdown in the US economy, supporting the economy. Most of the traders felt hesitant to get in swing trades ahead of the Federal Funds Rate which is due in the coming week.

Technically, it’s the last trading week of December as most of the brokers and financial institutions will be off in the wake of Christmas holidays. However, this current week is fully packed with a few high impact economic events which covers interest rate decisions from the US Federal Reserve and Bank of Japan. Besides that, there are a number of high impact economic events to trade. Let’s take a look at them…

Watchlist – Top Economic Events This Week

Wednesday – Dec 19

GBP – CPI y/y
The UK’s Consumer Price Index grew by 2.7% in August, dispensing growing inflationary pressures and helping justify the Bank of England’s interest rate hike for that month. Ever since, the UK economy hasn’t been able to get a good number. Their inflation figures have fallen from 2.6% to 2.4% in November.

A slower CPI data of 2.3% is on the cards for December. While the Retail Sales are projected to jump by 0.3%, which is opposing the idea of an expected drop in the inflation rate. For newbies, the weaker inflation figure is considered bearish for the Sterling.

CAD – CPI y/y
The Canadian inflation is also suffering lately due to a drop in crude oil prices. In the month of October, the CPI figure came out at -0.4%, down beating August’s gains of 0.5%. It eventually places pressure on the BOC (Bank of Canada) to keep the interest rates on hold.

December figures are expected to show a drop of -0.1% vs. 0.3% gain in November. This may keep the Loonie weaker this week.

USD – FED Monetary Policy Meeting

On Wednesday, the Federal Reserve, the central bank of the United States, takes the spotlight as they are expected to release the interest rate decision. Investors are widely expecting it to result in another rate hike, the fourth time of the year.

Fed Chair Jerome Powell has made it obvious he believes that the Fed should continue steadily increasing borrowing costs, and the futures market seems to buy what he’s selling.

Fed Rate Hike – Is It Priced In?
We all know about the Fed’s plan to hike the interest rates in December. The investors have already taken their positions to secure the maximum returns in the dollar.

So, what to expect on rate hike?
In my opinion, most of the 2.50% rate hike is already factored in. The initial response is likely to be a spike in the dollar and then a sudden reversal. On second thought, we may see a muted response to the 2.50% release.

However, it’s gonna be an amazing trade if the Fed hikes the interest rate by 50 base points to 2.75% or doesn’t hike the rates at all. (Both these scenarios are highly unlikely, but we should have a plan B to tackle any uncertain movement).

Later, the investors will focus on the post-meeting release and Powell ’s press conference which is due at 19:30 (GMT), 30 minutes after the Fed Fund Rate. Traders are expected to be on the edge of their seats waiting to listen to Powell’s opinions on inflation and wage growth.

So, I will also be looking for clues about the next rate hikes, especially what they are planning for 2019.

NZD – Final GDP q/q
The Statistics New Zealand is forecast to release the GDP figure at 21:45 (GMT). The GDP (gross domestic product) is expected to drop from 0.6% to 1%. While their trade deficit is expected to drop from -1295M to -880M.

Thursday- Dec 20

AUD – Employment Change & Unemployment Rate

The Australian Bureau of Statistics will be eyed for the labor market figures at 00:30 (GMT). The Australian economy saw an impressive increase of 32.8K in November, significantly above expectations. The Australian labor market is doing well despite some issues in the housing sector and worries about China.

This month’s forecast is a bit shaky as economists are expecting 20K new jobs. While the unemployment rate is also expected to remain on hold at 5%. So, we can expect a bearish tone in the Aussie until Thursday.

JPY – Monetary Policy Statement
The Bank of Japan has the loosest monetary policy in the developed world with interest rates in the negative territory. That’s due to the fact that the Japanese economy faces a deflation risk and their core inflation is far from BOJ’s 2% target. Therefore, the BOJ was widely expected to keep the Policy Rate rate unchanged at -0.10% and that’s exactly what they did today.

The BOJ is projected to continue targeting the 10-year bond yield. Governor Haruhiko Kuroda will hold a press conference after the decision but it’s tentative. I’m not expecting any major move on its release until and unless Governor Kuroda comes up with fresh remarks about the Japanese economy and their upcoming policy decisions.

Friday – Dec 21

GBP – Current Account
The Office for National Statistics is expected to release the current account at 8:30 (GMT). It’s a difference in value between imported and exported goods, services, income flows, and unilateral transfers during the previous quarter. Figures are expected to show a trade deficit of 22.2 billion vs. 20.3 billion in September 2018.

GBP – Final GDP q/q
The Office for National Statistics is scheduled to release the GDP figure at 8:30 (GMT). The GDP (gross domestic product) is expected to remain unchanged at 0.6% vs. 0.6% in the previous quarter.

However, considering the recent drop in the UK’s inflation figures from 2.7% to 2.4%, the market will be trading the Pound with a weaker sentiment.

On the release of the positive news, Sterling can stay bullish as the BOE (Bank of England) will be expected to keep the hawkish tone in its monetary policy meetings.

CAD – GDP m/m
Likewise, the Statistics Canada is due to release the gross domestic product at 12:30 (GMT). Traders, it will be really interesting to see how recent tariffs from the US has impacted Canadian productivity.
Economists expectation is 0.2% up from -0.1%.

Fellows, that’s it for now, but brace yourself for the exciting week. Stay tuned to FX Leaders and let’s make some profits before Christmas.

Have an awesome weekend.