We welcome you to the last full trading week of the year, which at the same time is one of the most exciting weeks this year. The final countdown to the likely Federal Reserve interest rate increase has begun but the optimism toward the U.S. dollar has dimmed somewhat. Confidence in the dollar rally faded as investors expect the Fed to maintain a very slow and gradual monetary policy path after a first liftoff. Market participants see a 72 percent probability the Fed will increase its benchmark from 0.25 to 0.5 percent on Wednesday, but this move has been factored into currency prices. It will therefore depend upon the Fed speak and Fed Chair Janet Yellen whether the dollar will resume its rally or experience further weakness. There are still a lot of questions about the future of monetary policy and the only persons who can shed light on this will be Fed's Yellen and ECB President Draghi.
All eyes will be on Yellen at the FOMC Press Conference. If she maintains a cautious stance, the dollar could experience an aggressive sell-off. In the other case, if Fed speak is unambiguously hawkish, the greenback will be king again and head for higher targets.
The Federal Reserve Rate Decision on Wednesday will not be the only event to pay attention to. Consumer Price Reports from the U.S. and U.K., due for release on Tuesday, will be key components for the monetary policy outlook. Any surprises to the upside should strengthen the respective currency. Furthermore, the U.K. Employment report (Wednesday) and the Eurozone ZEW Survey (Tuesday) will be important to watch.
We expect volatility to increase going into Wednesday's main risk event and wish traders good profits on the last metres of 2015.
Important data/speeches for today (timezone GMT):
10:00 EUR Industrial Production
10:00 EUR ECB's Nowotny speaks
11:00 EUR ECB President Draghi speaks
In the near-term, we expect the euro to trade between 1.1030 and 1.0830. If the pair breaks above 1.1060, gains may be limited until 1.1085/90. On the bottom side, we will wait for a break below 1.0925 in order to sell the pair towards 1.0830. The area at 1.0830-1.08 could act as a current support for the EUR/USD.
GBP/USD
Is the currency pair formatting a head-shoulders pattern? As along as prices remain below 1.52, chances are that GBP favors a bearish bias, predicting further losses after a break of 1.5120/10. Above 1.52 we will turn our focus to higher targets at 1.5250. Once the 1.51-levels is breached to the downside, we expect GBP to decline towards 1.5070 and 1.5035.
Here are our daily signal alerts:
EUR/USD
Long at 1.1010 SL 25 TP 20, 60
Short at 1.0925 SL 25 TP 20, 40
GBP/USD
Long at 1.5210 SL 25 TP 30-35
Short at 1.5170 SL 25 TP 30, 50
We wish you good trades and many pips!
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