Weekly Market Outlook: ECB, BOE & FOMC take centre stage

December 13, 2021 12:12

It’s a big week ahead with news announcements from four major central banks this week which include the Federal Reserve, European Central Bank, Bank of England and the Swiss National Bank. G7 finance ministers are also meeting virtually this week to discuss soaring inflation around the world.  

There is likely to be a large amount of volatility in the currency market this week due to these announcements. The US dollar has been the strongest currency in recent weeks as the US economy is doing well, resulting in the Fed moving away from its policies enacted during the pandemic.  

However, there is more uncertainty surrounding the UK and European economy and what the respective central banks are currently thinking. The European economy is struggling while inflation is soaring – a tricky combination for the central bank to work in.  

Traders were pricing in the Bank of England to be the first central bank to increase interest rates before its Governor made a huge U-turn resulting in a sharp sell-off in the pound. However, if some central bank members change their tune this week there could be another U-turn on the cards.  

You can learn more about some of the global themes affecting the markets in this selection of new education articles.  

Weekly Forex Calendar 

Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.  

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Trader’s Radar – US FOMC Press Conference

On Wednesday 15 December at 7.30 pm GMT, the Federal Reserve FOMC press conference will take place – thirty minutes after the release of its latest interest rate decision. While no changes are expected in the interest rate, a shift in the Fed’s dot plot could be interesting.  

The US economy is doing fairly well overall in recent months leading to Fed Chairman Jerome Powell to announce a reduction in asset purchases (an emergency policy measure used to provide confidence to the market during the pandemic). Some central banks want this reduction to be completed at a much faster pace.  

Traders will be looking closely at the votes of the bank’s different members. Currently, the market is pricing in a more than 70% probability of an interest rate hike in May. While the US dollar has been soaring in recent weeks – a theme we have highlighted many times over in the past year – how much of the positive is already priced in? 

Source: Admirals MetaTrader 5USDX, Monthly - Data range: from 6 Apr 2014 to 11 Dec 2021, performed on 11 Dec 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.  

The weekly chart of the US dollar index shown above shows the recent move higher from the lower horizontal support line, the bottom of a long-term trading range, has run out of steam at previous support turned resistance level (the middle black line on the chart).  

If the price can stay above this price level over this week’s news announcements it could lead to more upside. However, if the price rejects this level we may see some profit-taking of the move higher which is quite overstretched.  

It comes at an interesting time as both EURUSD and GBPUSD are at long-term support levels and also have high impact news this week.  

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Corporate Trading Updates and Stock Indices 

After the recent sell-off in global stock market indices from the reaction of the Omicron variant, investors have once again bought the dip.  

December is also an interesting month from a seasonal perspective due to the Santa Claus rally – the tendency for the stock market to rise in the last five trading days of the year.  

US indices, in particular, seem very interesting as the S&P 500, Nasdaq 100 and Dow Jones 30 are all trading very close to the record highs.  

Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 9 Mar 2021 to 11 Dec 2021, performed on 11 Dec 2021 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80 

Investors bought the last dip in between the 50-day and 100-day exponential moving averages (red and green lines on the chart above). Now the market has moved higher, we currently sit much further in the impulse cycles of the uptrend.  

Traders may look towards the lower timeframes to find market cycles to trade from to the record high. Everyone will be watching if there is enough momentum to break to new all-time highs and keep the trend going so it’s one to watch! 

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Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.