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Forecast - It's Central Bank Season from ECB to RBA to Fed

Forecast - It's Central Bank Season from ECB to RBA to Fed

2016-12-05 22:00:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Rate decisions dot the horizon over the next two weeks, but Italian Referendum interest starts the new week
  • An ECB rate decision later in the week will deal with a Euro that seems to defy conventional fundamental lines
  • The FOMC rate decision will hang over the Dollar while the RBA decision will charge the AUD alongside 3Q GDP

See the schedule for the weekly fundamental webinar in the DailyFX calendar of events.

Scheduled event risk for the first full two weeks of December will be heavily tangled in important monetary policy decisions. However, the current week starts off with a fundamental charge in the form of the Italian Constitutional Referendum and an unexpected reaction from the Euro. Italy produced a resounding 'no' on a vote intended to make the passage of law less convoluted but was also seen by many as a retreat from the country's aggressive democracy - crafted to prevent a future Mussolini from ever coming to power. Prime Minister Renzi hitched his position to the vote and so tendered his resignation. The implications were clearly bearish for the Euro...yet that sentiment didn't stick.

Euro traders have grown used to some lingering uncertainty to the shared currency or another for more than six years now. While Italy's future is now far more uncertain and the vote can further translate into ground gained for anti-EU and anti-Euro parties in the country and broader region; that doesn't seem to be the concern for now. The focus now turns to the central banks on tap. The ECB decision on Thursday now carries with it greater assumption. Given the uncertainty for Europe, it is a natural assumption that the President Draghi and crew will have to keep their exceptional pace of stimulus growth through the indefinite future. But, the erosion of monetary policy influence the world over may motivate something different from a clearly-fatigued Draghi.

The other top central bank influence this week is from a group that is not even expected to meet until next week: the FOMC. While the US policy group is scheduled to rule on whether to hike or not on December 14th, anticipation will certainly have a profound influence over the Dollar and broader risk trends. Given the remarkable swings and speculative discount anticipation of the central bank's next rate hike has rendered from the financial system, investors will be apprehensive about placing a large position when an unexpected outcome can prove a shock for the system. In addition to a BoC and RBI meeting this week, the key central bank announcement comes with the RBA's ruling which will be backed up by the 3Q GDP release. We discuss the top themes in the recording of this weekly webinar.

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