Traders Mull ECB and Look Ahead to the Fed

It’s been a quiet start to the final trading day of the week, with the absence of any major economic events giving investors the opportunity to mull over the ECB announcement on Thursday and look ahead to next week’s Fed meeting.

These are the last two big events of the year and Mario Draghi and his colleagues have already given us a festive surprise, delivering a lump of coal wrapped in tinsel. While a reduction in asset purchases had been touted, I don’t think markets were expecting it at a time when inflation is still so far below target and the economic outlook only marginally improved.

GBP/USD – Pound Steady, British Trade Deficit Shrinks

Fortunately for the ECB, it’s all in the delivery and Draghi is the master of dressing up what would ordinarily be bad news. His insistence that this is not a taper, combined with the promise to increase purchases again if needed and the removal of certain barriers to the bond purchases, appears to have helped investors look past the reduction. The fact that we appear to be in a very forgiving market right now may also have helped, with investors appearing insistent that the santa rally will make an appearance this year.

I’m not expecting any surprises from the Fed next week, with markets almost fully pricing in a rate hike and some dovish statements likely to accompany it. The key to the meeting is likely to be how many rate hikes the Fed is forecasting for next year given that markets are currently only pricing in one by November, which I think is too few. Given the Fed’s bullish forecast for four last year and the much improved conditions this time around, it will be interesting to see what approach they take.

APAC Corner: ECB Trims, but Euro looks Flabby

The only notable economic release today is the preliminary UoM consumer sentiment reading, which is expected to show confidence rising to its highest since May.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam