The spotlight is still on monetary policy this week since we’ve got a couple more major central banks announcing their decisions.
Will the RBA and BOC slow down their pace of tightening this time?
And how might China’s latest reports affect market sentiment?
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
RBA monetary policy decision (Dec. 6, 3:30 am GMT) – First up, we’ve got Australia’s central bank scheduled to announce their rate decision early in the week.
After taking it easy with a smaller 0.25% hike in their November meeting, RBA officials are likely to maintain this pace with another rate increase from 2.60% to 2.85% this time.
Economic figures released since their previous decision haven’t exactly been on the up and up, with jobs gains and inflation cooling in the past months. Heck, some are even predicting that the RBA could refrain from hiking at all!
Australia’s Q3 GDP (Dec. 7, 12:30 am GMT) – The action ain’t over for Aussie pairs even after the RBA decision, as the country’s third quarter GDP is up for release the next day.
Number crunchers are estimating a slowdown from 0.9% to 0.6% growth for the period, likely due to higher borrowing costs weighing on spending activity and the housing market.
BOC monetary policy statement (Dec. 7, 3:00 pm GMT) – Canada’s central bank is also expected to announce a 0.25% interest rate hike this week, slowing down from its earlier 0.50% rate increase.
Many believe that Canada’s tightening measures over the past months have already done their job, as inflation has moderated while employment remains steady.
Apart from that, BOC officials are also wary of a housing market bubble that might be exacerbated if they press on with an aggressive pace of tightening.
U.S. leading inflation data – Uncle Sam has a couple of leading indicators on inflation to watch out for, namely the ISM services PMI due early in the week and the PPI report scheduled on Friday.
The former is expected to have dipped from 54.4 to 53.5 in November, reflecting a slower pace of industry growth. Of particular interest to dollar traders is the inflation sub-index, which has been a pretty good gauge for the official CPI reading.
Meanwhile, headline producer prices for November likely saw another 0.2% uptick while core figure probably accelerated from a flat reading to 0.2% growth. Stronger than expected figures could keep dollar bulls that the Fed could carry on with its rate hikes well into the first few months of next year.
Chinese CPI and PPI (Dec. 9, 1:30 am GMT) – Weaker price pressures are eyed for China, as both the CPI and PPI might print subdued readings for November.
Headline inflation could slow from 2.1% to 1.6% year-over-year while producer prices could see a 1.5% year-over-year decline, following the earlier 1.3% drop.
Forex Setup of the Week: EUR/AUD
EUR/AUD 4-hour Forex Chart
This EUR/AUD range just keeps on giving!
The pair just bounced off support around the 1.5270 mark last week and might be setting its sights back on the top again.
Will resistance at 1.5650 still hold?
Technical indicators are suggesting so, as the 100 SMA is below the 200 SMA while Stochastic is hovering around the overbought region.
Turning lower would confirm that sellers are back in action, possibly dragging the pair back down to the bottom of the range.
Price action could take its cues from Australia’s top-tier events, along with China’s trade and inflation figures.
Market sentiment would likely impact direction as well, with risk-on flows likely favoring more gains for the higher-yielding Aussie.
This post first appeared on babypips.com
