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FX News Today

European Outlook: Asian stock markets were trading mixed with all eyes on the Fed and the FOMC announcement today. The Hang Seng managed slight gains helped by gains in China’s two largest energy companies amid reports of a fuel price increase and a pipeline sale. Ther Nikkei 225 close flat at 19,253. U.S. stock futures are also narrowly mixed and the FTSE 100 future is down with investors holding back, which could see European markets give up some of yesterday’s broad gains. Oil prices have fallen back again and the front end WTI future is trading around USD 52.40 per barrel and Gold is up around USD 1162 . The focus on the U.S., where a 25 bp hike is widely expected, will overshadow the European calendar today, which includes U.K. labour market numbers, Eurozone production data as well as final November inflation data from France and Italy.

The U.S. trade price report revealed only modest November price drop-backs in the face of a soaring dollar, with relative price firmness for exports versus imports as seen throughout 2016 that beat estimates and prompted a downward revision in our November trade deficit forecast to $42.0 bln from $42.5 bln. We saw November trade price drops of 0.3% for imports and just 0.1% for exports, with a 4.7% oil import price decline and a 0.6% food export price rise. Import prices have received a big lift since February from the rebound in oil prices, and ex-oil trade prices received a lift through mid-year from a drop in the dollar between January and April. Yet, the dollar has reversed course since the Brexit and U.S. elections, leaving downward pressure on prices beyond oil price gains that accompany ongoing headwinds from the global growth slowdown, petro-sector dislocation, and the inventory overhang that has reversed course in Q3-Q4.

Reuters Report:  Brexit could hit trade relations between Britain and the U.S, with nearly 40 percent of American firms considering moving their British office to the EU and two-thirds saying the vote is impacting investment choices, according to a survey.Food and beverage, life sciences and financial services firms were most likely to consider relocating whilst aerospace firms were the least likely, the survey by law firm Gowling WLG said.Nearly all the 533 companies surveyed said they would require some third-party support to deal with the transition as Britain leaves the European Union, potentially risking part of the close transatlantic relationship between the two nations. “The strong UK-U.S. trade relationship that has been carefully nurtured over the past fifty years is in serious jeopardy,” said Bernardine Adkins, the firm’s Head of EU, Trade and Competition. Cable trades up this morning at 1.2675 forom overnight lows of 1.2640.

FX Update: Narrow ranges have been the order of the day so far in currency markets as markets hunker down into the Fed’s policy announcement and guidance, which will come with updated economic forecasts from the central bank. EUR-USD drifted about 25 pips, back to around 1.0650, but has remained below yesterday’s six-day peak at 1.0667. USD-JPY dipped under 115.0, moderately lower. Japan’s Q4 Tankan business conditions survey saw the large manufacturers headline lift to 10 from 8 in the last quarter, as expected but nonetheless disappointing as improvement was concentrated only in the petroleum and coal sector. The figure for large service companies was unchanged at 18, slightly below the median forecast. AUD-USD managed to recover modest intraday losses seen after the Westpac Australian consumer confidence gauge fell to a nine-month low in the December survey, which has generally been taken as a bad sign ahead of the Christmas holiday period. The Aussie buck lifted back above 0.7500, leaving a low at 0.7481.

 

Main Macro Events Today                

  • FOMC – The  Forecast revisions  along with the FOMC statement, should reveal  boosts in the PCE Chain price forecasts for 2016, downward 2016 jobless rate revisions , and a narrowing in 2016 GDP 1.8%. For the following year’s growth and inflation prospects are likely to be tweaked upwards. Expectations remain for median forecasts that the FOMC will look for two tightening’s per year with a slightly steeper pace.
  • U.S. Retail Sales – November retail sales data is out today and should reveal a 0.4% headline increase with the ex-autos component up 0.5%. This follows respective October figures of 0.8% for both the headlines and ex-autos figure. The balance of risk is firmly to the upside as chain store sales, gasoline prices and construction employment all bode well for November data.

 

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Stuart Cowell

Market Analyst

HotForex

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