Weekly Outlook: 2017, December 10 - December 17

The US dollar continued enjoying the optimism from the tax cuts and was not hit hard by the data. Can it continue higher? Four rate decisions await us: the SNB, ECB, BOE, and the FED, with Yellen’s last post-rate decision press conference. Can the dollar continue higher? Here are the highlights for the upcoming week.

1. UK inflation: Tuesday, 9:30. Expectations still remain high at 3%.
2. US PPI: Tuesday, 13:30. Another rise of 0.4% in headline PPI is predicted. Core PPI carries expectations for 0.2%.
3. US Inflation: Wednesday, 13:30. A rise of 0.4% is projected for headline CPI and +0.2% for core CPI.
4. US rate decision: Wednesday, 19:00, press conference at 19:30. The Fed is expected to raise rates for the fifth time in the cycle and third time this year. The hike from to a range of 1.25% to 1.50% has been well-telegraphed for a long time. This time, the Fed also releases forecasts for inflation, employment, growth, and interest rates. At the moment, the central bank foresees three additional hikes in 2018. Will they stick to their guns? Markets are skeptical, but they will probably signal continuity before Powell makes his own mark. However, this is an open question as inflation remains low. Outgoing Fed Chair Janet Yellen initially shrugged off lower price rises as “transitory“, then called it “a mystery” and eventually admitted that it might not necessarily be that transitory. What are her views this time? Apart from the forecasts, the tone of the statement and her press conference, her last post-rate decision statement, will be telling. We can expect incoming Chair Jerome Powell to vote with the majority as always and we can expect Neel Kashkari of the Minnesota Fed to dissent, as he previously did earlier in the year. The Fed will try not to rock the boat too much, but markets may cling to any small semantic change in the statement, a shift in the projections, or Yellen’s tone to try and look into 2018.
5. Australian jobs report: Thursday, 00:30. A gain of 19.2K is on the cards and the unemployment rate carries expectations for remaining at 5.4%.
6. Swiss rate decision: Thursday, 8:30. change in policy is unlikely, and will likely lead to a stronger franc. Many traders are still reeling from the January 2015 SNBomb.
7. UK rate decision: Thursday, 12:00. A unanimous “no-change” vote is more likely among the 9-member Monetary Policy Committee ahead of the holidays.
8. Euro-zone rate decision: Thursday, 12:45, press conference at 13:30. As usual, Draghi will continue his balancing act. If he talks about ending QE after September, the euro will jump, but this is unlikely. The ECB can wait until around June to make such future announcements.
9. US retail sales: Thursday, 13:30. A gain of 0.3% is forecast in headline retail sales and +0.7% in core sales.

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EUR/USD failed to hold onto higher ground in a mixed week. The ECB meeting is clearly the big event of the upcoming week, but not the only topics on the agenda. Here is an outlook for the highlights of this week.

1. German ZEW Economic Sentiment: Tuesday, 10:00. A score of 17.9 points is on the cards now. The all euro-zone figures stood at 30.9 points and 30.2 is forecast now.
2. Mario Draghi talks: Tuesday, 19:00. The president of the European Central Bank will speak at an event in Frankfurt less than 48 hours ahead of ECB meeting. He could drop a hint about the tone, but in such proximity to the event, it is more likely that Draghi will be more cautious.
3. German CPI (final): Wednesday, 7:00. The German figure will likely be confirmed now.
4. German WPI: Wednesday, 7:00. Back in October, prices remained flat.
5. Employment Change: Wednesday, 10:00. Another gain of 0.4% is forecast now.
6. Industrial Production: Wednesday, 10:00. A drop of 0.2% is projected.
7. French CPI (final): Thursday, 7:45. This number will probably confirmed now. It all feeds into the all euro-zone number.
8. Flash PMIs: Thursday morning: 8:00 for France, 8:30 for Germany and 9:00 for the whole euro-zone.
9. Rate decision: Thursday, 12:45, press conference at 13:30. The big news was out already at the October meeting. The ECB will halve the volume of its bond-buys in January to 30 billion euros per month and the program will run through September 2018. Draghi left the door open to what happens afterward, andthat was a dovish sign that sent the euro down. Since then, weak inflation reads, especially with core CPI slipping to 0.9%, vindicated his dovishness. This time, no changes are expected, but the ECB will publish new staff forecasts for inflation and growth. A downgrade of inflation forecasts could serve to weaken the euro and Draghi could join in. However, it is hard to ignore the robust growth, especially in Germany(0.8% q/q). As usual, Draghi will continue his balancing act. If he talks about ending QE after September, the euro will jump, but this is unlikely. The ECB can wait until around June to make such future announcements.
10. Trade Balance: Friday, 10:00. The figure for October will likely be similar: 24.6 billion.

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