Markets are consolidating between the Christmas holiday and New Year and there are little or no economic events to watch. Chances are we will see some more of the same for the rest of the week, but there are still some reasons the overall market may move.
However, the reasons are not related to the economic calendar as there is only second tier data out of the United States this week. Given the fact that most of the market participants are in holiday, the reaction is most likely to be muted.
By second tier data, I’m referring to pending home sales, unemployment claims and oil inventories. Even in normal market conditions, these economic events are unlikely to bring an increase in volatility, unless the actual data is too different than the forecasted one.
Coming back to the start of this article, there are two potential reasons why the Forex market may move this week after all: the Monte dei Paschi situation in Italy and the U.S. equities.
It turned out that the ECB (European Central Bank) asked for the Monte dei Paschi (the world’s oldest bank) to recapitalize the bank with more than eight billion Euro. While the fact that Monte dei Paschi is in need for a recapitalization is no secret, the amount is a surprising one.
So far it was believed that around five billion Euro will be enough for the bank to survive, but this new amount is more than fifty percent bigger. It may cause some risk adverse moves, with the JPY and Euro being dragged. However, again, it is unlikely due to the thin conditions out there.
The second thing that may bring sudden moves this week is related to the way the U.S. equities are behaving. Dow Jones and the SP500 are in a bullish trend, holding in record territory and waiting for President Trump to start serving its mandate.
The big unknown to Mr. Trump’s presidency is related to the fiscal stimulus everyone is expecting. If the new administration will deliver (and chances are it will deliver), then the stock market will love this.
It may be that the market will move in anticipation of the fiscal stimulus. While many market participants are warning about the elevated levels the stock market reached, from a technical point of view the break higher seems to be a bullish one.
All in all, it should be a consolidation week, but traders will keep an eye on anything that might spoil the well-deserved holiday break.