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US Dollar Vulnerable as Focus Turns to Pace of Rate Hike Cycle

US Dollar Vulnerable as Focus Turns to Pace of Rate Hike Cycle

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar Vulnerable as Focus Turns to Pace of Fed Interest Rate Hike Cycle
  • Strong Euro Reaction to Flash CPI Data Unlikely Before Pivotal ECB Meeting
  • See Economic Releases Directly on Your Charts with the DailyFX News App

November’s preliminary set of Eurozone CPI figures headlines an otherwise quiet economic calendar in European trading hours. The core year-on-year inflation rate is expected to register at 1.1 percent, unchanged from the prior month.

On balance, the release seems unlikely to generate a significant response from the Euro. Whatever the outcome, a single data point probably won’t alter the ECB’s trajectory ahead of this week’s policy announcement. With that in mind, traders may opt to wait to hear from Mario Draghi and company before committing to a firm directional bias.

The spotlight then turns to a busy Fed-speak docket. Chair Janet Yellen as well as Dennis Lockhart and John Williams – Presidents of the Atlanta and San Francisco Fed branches, respectively – are scheduled to speak. The latest edition of the central bank’s Beige Book survey of regional economic conditions is likewise on tap.

The markets seem increasingly convinced that the post-QE rate “liftoff” will materialize this month. Indeed, the priced-in probability of a 25 basis point increase in the target range for the Fed Funds rate has been hovering near year-to-date highs in the 70-80 percent range for over a week. This appears to have put the pace of the subsequent tightening cycle into focus.

The Fed’s has consistently flattened its projected rate hike path since the beginning of the year. Commentary from FOMC officials since the last forecast update in September has stressed the likelihood of slow tightening following liftoff, fueling bets on a “dovish hike” in December. More of the same in on-coming commentary may encourage profit-taking on long US Dollar positioning, pushing the currency downward.

Losing Money Trading Forex? This Might Be Why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Monetary Base (YoY) (NOV)

32.5%

-

32.5%

23:50

JPY

Monetary Base - End of Period (NOV)

¥343.7T

-

¥344.4T

00:01

GBP

BRC Shop Price Index (YoY) (NOV)

-2.1%

-

-1.8%

00:10

AUD

RBA Governor Stevens Speaks in Perth

-

-

-

00:30

AUD

GDP SA (QoQ) (3Q)

0.9%

0.8%

0.3%

00:30

AUD

GDP (YoY) (3Q)

2.5%

2.4%

1.9%

01:00

USD

Fed's Brainard Speaks on Lower Neutral Rates

-

-

-

01:30

JPY

BOJ’s Iwata Speaks in Okayama

-

-

-

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

09:30

GBP

Markit/CIPS UK Construction PMI (NOV)

58.5

58.8

Medium

10:00

EUR

Eurozone PPI (MoM) (OCT)

-0.4%

-0.3%

Medium

10:00

EUR

Eurozone PPI (YoY) (OCT)

-3.2%

-3.1%

Medium

10:00

EUR

Eurozone CPI Estimate (YoY) (NOV)

0.2%

0.1%

High

10:00

EUR

Eurozone CPI Core (YoY) (NOV A)

1.1%

1.1%

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0463

1.0537

1.0585

1.0611

1.0659

1.0685

1.0759

GBPUSD

1.4936

1.5011

1.5047

1.5086

1.5122

1.5161

1.5236

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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