Elizabeth Belugina
Weekly Outlook

EUR/USD: outlook for December 12-16

EUR/USD had an extremely volatile week driven by increased political uncertainty in Italy and the ECB meeting. The European Central Bank extended, but scaled back its monetary stimulus. The regulator extended its quantitative easing program by 9 months, but starting from April the central bank will reduce the value of securities it buys per month from 80 to 60 billion euros. Monetary policy divergence between the ECB and the Fed has become even more pronounced. The main conclusion the market has made is that the euro zone is in desperate need of the ECB support. At the same time, many analysts wonder whether the ECB had moved towards ending its quantitative easing. However, the ECB president Draghi made sure to stress that ECB had no intention of tapering towards zero and that asset purchases could be increased again if necessary. Next week the market’s attention will switch to the US Federal Reserve. The ability of the pair to get higher should be limited ahead of this event. As for the euro area’s economic calendar, watch German ZEW economic sentiment on Tuesday, the region’s flash manufacturing & services PMIs on Thursday and final inflation on Friday.
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Elizabeth Belugina
Weekly Outlook

US dollar: outlook for December 12-16

US dollar index consolidated in the past week, though in a volatile fashion. The greenback tested 99.50 before recovering to the 101.00 area. The long-awaited Federal Reserve’s monetary policy decision will finally take place on Wednesday. The market is almost 100% sure that the US central bank will raise interest rates. The Fed has already prepared the market for such a move and traders are rather confident about the US economy. The FOMC will also release its economic projections. Traders hope that forecasts of the Fed’s members, as well as Janet Yellen's press conference, will give market players clues about the central bank’s plans for 2017. Knowing the Fed, we may expect that the central bank will be cautious and won’t be willing to commit strongly to further policy tightening. So, unless the regulator sounds surprisingly hawkish, the advance of the greenback shouldn’t be very strong.
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