Week Ahead in FX – December to Start With Major Releases

Central Bank Action and NFP to Start the Last Month of the Year

The month of December will bring plenty of economic data and monetary policy statements for a currency market that is trading with high levels of uncertainty as geopolitical situations escalate.

Next week alone will have the central banks of Australia, Canada and Europe issue rate statements and if that was not enough the week will be capped by the U.S. non farm payrolls report and the Organization of the Petroleum Exporting Countries (OPEC) press conference on Friday.

The European Central Bank (ECB) announcement will be published on Thursday, December 3 at 7:45 am EST. The non-farm payrolls (NFP) will be released on Friday, December 4 at 8:30 am EST. The OPEC press conference starts at 10:00 am EST. The U.S. Thanksgiving holiday brought lower liquidity and limited data releases which resulted in currencies trading in a tight but volatile range. Investors will need to be aware of next week’s events and adjust their trading strategies accordingly.

All Eyes on ECB Anticipated Stimulus

The single currency fell against 13 of the 16 majors this week. Versus the USD the EUR depreciated 0.449 percent in a week that saw the pair flirt with the 1.07 price level at the highs, only to finish near the lows of the week of 1.0567. European bonds fell to record lows as dealers are expecting the ECB to follow through with bold action next week.

The euro has been under pressure from easing expectations with one of the major market trends being the monetary policy divergence between the Fed and the ECB. ECB President Mario Draghi famously said in 2012 that he would do “whatever it takes” and investors are now getting ready for another round of stimulus to be announced on December 3. A failure to convince the market on the commitment of the central bank could result in a reversal of market expectation and punish the EUR the appreciation of the single currency.

Monday, November 30
8:00 pm CNY Manufacturing PMI
8:45 pm CNY Caixin Manufacturing PMI
10:30 pm AUD Cash Rate
10:30 pm AUD RBA Rate Statement
Tuesday, December 1
2:00 am GBP Bank Stress Test Results
4:00 am GBP BOE Gov Carney Speaks
4:30 am GBP Manufacturing PMI
8:30 am CAD GDP m/m
Tentative NZD GDT Price Index
10:00 am USD ISM Manufacturing PMI
6:30 pm AUD RBA Gov Stevens Speaks
7:30 pm AUD GDP q/q
Wednesday, December 2
4:30 am GBP Construction PMI
8:15 am USD ADP Non-Farm Employment Change
8:30 am USD Fed Chair Yellen Speaks
10:00 am CAD BOC Rate Statement
12:25 pm USD Fed Chair Yellen Speaks
7:30 pm AUD Trade Balance
Thursday, December 3
4:30 am GBP Services PMI
7:45 am EUR Minimum Bid Rate
8:30 am EUR ECB Press Conference
8:30 am USD Unemployment Claims
10:00 am USD Fed Chair Yellen Testifies
10:00 am USD ISM Non-Manufacturing PMI
7:30 pm AUD Retail Sales m/m
Friday, December 4
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am USD Non-Farm Employment Change
8:30 am USD Trade Balance
10:00 am OIL OPEC Press Conference

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Strong Employment Expected on Path to December Hike

The U.S. Thanksgiving holiday and the sales event Black Friday have kept liquidity constrained. News outlets have reported lower than expected crowds as more retail activity moves from brick and mortar stores to online shopping. This means Cyber Monday could be a better gauge of retail sales going forward. The American employment data next week will have limited impact on the Federal Reserve’s decision on December 16 as the market is widely expecting the first rate hike in a decade to the U.S. benchmark interest rate.

The NFP report last month crushed expectations by posting a 271,000 new jobs increase when the forecast called for 181,000. The forecast this time around is 200,000 although there have been calls by various economists that the slack in the U.S. economy might be getting tighter as more people find work capping the upside of the employment report next year.

IMF to Announce Decision on Yuan

The IMF will announce on Monday its decision on the inclusion of the Chinese Yuan as a reserve currency. The currency fell ahead of the announcement as its lack of convertibility could affect the final weighting it has on the SDR.

Chinese stocks fell percent on Friday but unlike the last time the Shanghai index saw a similar fall, the reaction was contained and did not affect major exchanges. The Thanksgiving holiday in the U.S. could have played a factor and investors are awaiting the market open on Monday to truly gauge the impact as market participants return to their trading desks.

OPEC Members to Ask Saudi Arabia for Production Cuts

Oil continued to pile losses ahead of next week’s OPEC meeting. Crude tumbled more than 3 percent on Friday as Chinese worries about the economy and the oversupply of energy stocks around the world battered the price of the commodity.

OPEC members who depend on oil revenues to balance their budget have been hit hard by the drop in oil prices and have at different times request Saudi Arabia cut production goals for the organization with the intent to boost prices. The tactic has proven unsuccessful as Saudi Arabia continues to pump at record pace. The lower growth forecasts in China and the rest of the world have cut demand and with Iran about the come back online a more coordinated strategy to stabilize prices is needed.

Saudi Arabia has been content to grab as much market share as possible offering deep discounts to compete. It managed to pry Sweden away from Russia as a client based on this strategy, but even with the vast reserves of the middle east nation, it is questionable how long will this low price strategy will work before it ends up breaking the OPEC apart. For the time being energy importers are seeking storage as it seems a more scarce resource than the commodity itself.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza