Weekly Outlook: 2016, December 25 - January 01

Weekly EUR/USD Outlook: 2016, December 25 - January 01

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EUR/USD dipped to new lows but rebounded ahead of the Christmas holiday. The week between Christmas and New Year’s is quite light. Here is an outlook for the highlights of this week.

1. Monetary data: Thursday, 9:00. The European Central Bank monitors the money in circulation and growth in loans. While these have both recovered, October’s numbers were something of a setback. M3 Money Supply decelerated to 4.4% while private loan growth remained stuck at 1.8%. M3 is projected to remain unchanged but loans carry expectations for a tick up to 1.9%.
2. Spanish Flash CPI: Friday, 8:00. Just before New Year’s celebrations, Spain releases preliminary data for inflation. This stood at an annual rate of 0.7% back in November and an acceleration to 0.9% is on the cards. The rise in consumer prices is attributed to the diminishing effect of falling oil prices.

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What can we expect in 2017? Interview with FXStreet

What emerging trends or issues should traders prepare for in 2017?

"The easy answer is growing impact from politics: Trump’s first year in office, as well as elections in France and later Germany, will keep us busy. This makes central bankers somewhat less important than they used to be. They will no longer be “the only game in town” but will not disappear in the shadows either. In Europe, some fiscal stimulus could replace austerity on an election year and in line with other countries. Britain could also join in. This could be the year when we talk about “inflation lifting its ugly head” more often than worries about deflation which have dominated beforehand. Inflation could come from China rather than from the US."

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Which will be the best and worst performing currencies in 2017 and why?

"The US dollar could reverse its gains as the dust settles in after Trump’s inauguration. Like with many politicians, promises are meant to be broken and a Republican Congress is where the buck could stop. The pound could extend its falls as Brexit reality bites in, something that has not happened so far. The winners could be the euro, that may fall early in the year but recover on fiscal stimulus and more mainstream election results. Another winner could be the Australian dollar, which could enjoy Chinese efforts to maintain its growth."

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Which under-the-radar currency pair do you expect to make a big move in 2017?

"USD/CAD could make a big move to the upside due to two reasons. The first is oil prices unable to rise and this could weigh on the loonie. Another reason is a lack of US demand due to less stimulus. Both factors could trigger a rate cut. The BOC has already told us that the lower end for rates is -0.50%, a full percentage point under the current level. The Canadian dollar has scope for falls, something that may eventually help the Canadian economy, but not in 2017."

What will you be focused on next year?

"I will be focused on politics and their impact on markets. Central bankers are still important but have somewhat less influence, and they are less exciting than the impact of politics on currencies. This is not limited to the elections but also to policy, which could certainly be on the move."

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