Slowly but surely we’re heading into the last trading weeks of 2016 and looking back we can say it was a terrific year for the Forex market. Political events dominated the trading agenda if we’re considering only the Brexit and the US Presidential election for example.
The Forex market moved in ranges due to these two events but this is bound to change as the dust starts to settle. For the middle of December, the US equity markets are trading at an all-time high with the DJIA index trading slightly below the 20k mark, and this says all about the dynamics we saw so far in this month. Chances are, these dynamics will continue for the rest of the year.
Until then, though, tomorrow we have the final major event of the year: the FOMC (Federal Open Market Committee) decision and press conference. While a rate hike is clearly priced in, it remains to be seen what the general tone at the press conference will be.
It could be that the Fed will deliver a dovish hike (that is, hiking the rates and keep a sober tone on the press conference) or it could be that it will hike more than 25 basis points. From the two options, the first one is most likely to happen.
The U.S. dollar is trading with a mixed tone ahead of the Fed as no one wants to have a big exposure in the event. However, it seems that after the rate hike will be confirmed, holiday ranges should take place.
Last Thursday the ECB delivered a dovish press conference and extended the stimulus package in Eurozone as inflation is still lagging behind target. The market sold the Euro, but Friday and yesterday most of the moves were reversed, with the EURJPY trading almost at levels prior to this ECB meeting.
This tells much about the volatility in the market and the uncertainty that still dominates. From a technical point of view, it seems like there are only corrective waves in progress, and this translates in fake moves being the norm of the game.
Friday we’ll have the pleasure to know the U.S. inflation and that piece of information might be the last one that matters this year. For the equity markets, statistically December is a positive month, with market trading higher especially in the second half of the month.
That being said, expect any dips in the DJIA to be bought as bulls are not done with this rally. As a matter of fact, this may only be the beginning of it.