Forex trading plan for December 16
The main event on Wednesday will be the Federal Reserve’s meeting at 19:00 GMT. The futures market is pricing in about 80% chance of a rate hike. Although US dollar’s net long positions declined in the recent weeks, the total value is still very high. US central bank will likely do its best to make a rate hike as painless for the American economy as possible. As a result, the risk of “buy the rumor, sell the fact scenario” is rather high. Long USD positions into the Fed are risky on this background. On the other hand, traders are preparing for a dovish statement. US dollar index corrected down from 100.00 in the past 2 weeks, and negative pressure on the greenback should be reduced by this fact.
The main thing is the forecasts of the FOMC members for further dynamics of the interest rates. If these forecasts presume more than 2 rate hikes in 2016, it will be positive for USD. If the Fed is more hawkish than the market is expecting, USD will strengthen, especially versus the Japanese yen, demand for which will suffer because of the higher yields in the US, and Australian dollar, which has fallen behind the decline in iron ore. If the Fed is not hawkish enough, USD will decline, especially versus the euro, British pound and Canadian dollar.
EUR/USD tested higher levels, but the bulls were stopped by the 100-day MA (1.1060). German ZEW economic sentiment rose coming above expectations. Watch European PMIs at 08:00-09:00 GMT. Support is at 1.0950, 1.0915/00, 1.0880 and 1.0800. Above 1.1060 we watch 1.1115.
USD/JPY testing levels above 121.35. A fix here will open the way up to 121.85/122.Support is at 120.60 and 120.00.
GBP/USD rose after US CPI, but is still limited by resistances at 1.5200/40/80. Britain will release labor market data at 09:30 GMT. Pay special attention to average earnings index as it is linked to inflation and inflation, in turn, largely determines the Bank of England’s policy. The forecast is negative. Support is at 1.5100, 1.5050 and 1.4950.
AUD/USD met resistance at 0.7280 and declined. Support at 0.7180/60 is in focus ahead of 0.7090 and 0.7000.