While Dollar Awaits Fed, Italy and ECB Threaten EUR/USD
- NFPs failed to significantly alter the market's certainty of a Fed hike this month, leaving the Dollar undetonated
- While conviction for USD and S&P 500 will look ahead to Dec 14 (FOMC), the Euro may take the global reins this week
- Top event risk ahead includes: the Italian Referendum; ECB, RBA and BoC rate decisions; US 3Q wealth; and more
Neither the US Dollar or the S&P 500 found a clear backing of conviction before liquidity drained for the weekend. The ICE Dollar Index closed at the neckline of head-and-shoulders pattern that has formed at 13-year highs. For the benchmark equity index, this past week's modest retreat has not taken significant pressure off the very-speculative, post-election rally to record highs. That may lead some to believe that the markets are now set to remain on hold until the FOMC rate decision on December the 14th tugs at a critical, structural thread. However, risk trends may not be willing to hold its breath. Even the Dollar may be driven to trend through offshore waves.
While there is plenty of event risk on the docket for the coming week, the true heft rests with the Euro's docket. The weekend Italian Constitutional Referendum carries a similar influence for the global financial system that the UK Referendum and US Presidential election did before it. While this event holds obvious implications for Italian markets, the more profound implication is the risk that a 'No' vote would undermine the Italian government and potentially offer another foothold for the global rise of populist pressure from a group that has championed the country's own EU Referendum call. Later in the week, the ECB rate decision puts the spotlight back on President Mario Draghi and the sticky situation of shaping the end of the central bank's massive stimulus program.
Looking at the docket, the ECB isn't the only central bank meeting on tap. The Reserve Bank of Australia (RBA), Bank of Canada (BoC) and Reserve Bank of India (RBI) are all set to meet. Their size and orthodox policy routes won't hit the same pitch as the European group's deliberation; but the collective bearing for risk trends and focused volatility for local assets are significant. The full economic docket will provide indicators of every measure and cover the global financial system. And, ensuring the focus is not just set on the calendar; there are plenty of technical situations which leverage tension with a clear pressure for resolution - like US Oil price's post OPEC meeting rally holding at 15-month range resistance at 52. We discuss the big picture risks and opportunities for the market over the coming week in this weekend Trading Video.
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