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Lagarde vows to stay on hold forever

Forex Signals US Session Brief, Dec 12 – Markets Still Trading the FED and UK Elections, Since the ECB and the SNB Didn’t Offer Anything New Today

Posted Thursday, December 12, 2019 by
Skerdian Meta • 3 min read

This week markets have been pretty quiet, with a bias towards safe havens, which shows slight uncertainty among traders. That is a result of the deafening silence from US and China on trade, while some traders were expecting the Phase One deal to go live tomorrow, as Bloomberg suggested. There’s still time until tomorrow, but the traders are still cautious. They ware also waiting for major central banks to hold their meeting this mid-week. The FED held interest rates unchanged yesterday, but chairman Powell said that they won’t start hiking rates until  they see consistent inflation. That might take some time, so the USD turned bearish after that and continues to remain bearish today.

Today, the Swiss national bank held their meeting as well, before the European Central Bank. They didn’t offer anything new and they didn’t threaten with intervention in the CHF, which would have induced some volatility, so no price action from them. A similar situation happened in the Euro after the ECB meeting and the press conference. The new president, Christine Lagarde also said that inflation would have to be close to 2% for them to consider ending the QE programme and increasing interest rates. Besides that, markets are also focused on the UK elections, so until the results start to come out, markets will remain pretty quiet.

The European Session

  • Eurozone October Industrial Production – October industrial production came in at -0.5% vs -0.5% expected. Prior stood at +0.1% but was revised lower to -0.1%. Industrial production WDA YoY camre a bit better that expectations at -2.2% vs -2.4% expected. The previous month stood at -1.7% but was revised to -1.8%.
  • SNB’s Jordan Speaking – The SNB chairman Jordan said after the meeting that Swiss inflation would turn negative if we tightened monetary policy. Swiss economic conditions speak for a continuation of current monetary policy, interest rate differential remains a very important factor for exchange rates. That is why we have to take international conditions into account. Negative rates will remain as long as necessary. We have no interest to keep negative rates if they are not necessary and will change policy stance if inflation outlook changes.
  • ECB Rate Decision – The ECB held its interest rates on hold as expected at 0.0% and deposit rates at -0.50%. The statement says that rates are to remain at present or lower levels until inflation outlook robustly converges to a level sufficiently close to, but below 2%. Well, it\’s going to be a looong time until then, which should keep the Euro bearish. Bond buying to continue until shortly before rates are raised. ECB Expects QE to run for as long as necessary to reinforce accommodative impact of rates.

The US Session

  • European Central Bank Press Conference – The new ECB president Lagarde said that some initial signs of stabilization in growth slowdown. Incoming data point to continued muted inflation pressures. Highly accommodative policy still needed. We stand ready to adjust all instruments as needed. Easier borrowing conditions for firms and households will support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, the robust convergence of inflation to our medium-term aim. 
  • The ECB Revises Growth and Inflation Forecasts – The European central Bank released the revisions for GDP growth and inflation for this year and 2020. Growth forecasts from the ECB:
    • 2019 1.2% vs 1.1% prior
    • 2020 1.1% vs 1.2% prior
    • 2021 1.4% vs 1.4% prior
    • 2020 1.4% (first forecast for 2022)
  • US PPPI Report – The producer price index (PPI) report from the US was releaased a while ago, with headline PPI missing expectations of 0.2% and instead falling by 0.2%, after a 0.3% increase last month. Core PPi also missed expectations of 0.2%, falling flat at 0.0%.

Trades in Sight

Bullish AUD/USD

  • The trend has ben bullish for about  2 months
  • The pullback lower is complete
  • The 100 SMA provided solid support on the H4 chart
  • The bullish reversing pattern worked out well

Buyers came in at the 100 SMA today

AUD/USD made a bullish reversal at the beginning of October, which looked just like another retrace higher before sellers pushed further below. The sellers did come back and reversed the price lower, but they couldn’t make new lows in November, which means that the trend is still bullish. This pair retraced lower again earlier this week, but the decline stopped right at the 100 SMA (green) which turned into solid support for this pair. A bullish reversing chart pattern formed above it, with a couple of doji/hammer candlesticks and the reverse happened after that. now buyers are in control again.

In Conclusion

So, markets are all focused on UK elections now, but the price action from FED’s comments yesterday has spilled into today as well, as the USD continues to decline. The SNB and the ECB also said that they won’t think about hiking rates until inflation increases, which will take a long time, but traders were expecting this from them, so the Euro and the CHF haven’t reacted.

 

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