Forex Trading Library

Weekly Market Outlook 2018-11-26

Eurozone inflation estimates and Fed minutes

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The week ahead is expected to be somewhat quiet. The U.S. markets will be coming out from the Thanksgiving holiday from last week. On the economic front, data this week is slightly busy for the U.S. Dollar.

The Fed meeting minutes, core PCE price index and second revised GDP estimates will all keep the U.S. Dollar busy as investors tune into the December rate hike.

Elsewhere, the Bank of Japan will be releasing its core CPI data this week. Inflation is expected to remain subdued if not weaken. Data from the Eurozone will see the release of the flash inflation estimates for November.

Here’s a quick recap of the main economic events due this week.

Eurozone flash inflation estimates

This week will see the release of the Eurozone’s inflation estimates for November. The data comes amid warnings from ECB President Mario Draghi who cautioned that inflation could ease. The comments come amid a broad slowdown in the Eurozone’s economy, for the most part, this year. The deterioration in growth was more noticeable in the third quarter estimates.

The data comes as the European Central Bank aims to end its quantitative easing in December. The ECB is currently purchasing bonds at the size of 15 billion euro per month. There have been many vocal opponents to the ECB’s bond-buying plan.

Inflation in the Eurozone is currently hovering near the 2.0% inflation target set by the ECB. However, core inflation is still far from this target rate. At the most recent inflation data, core inflation which strips the volatile food and energy prices were seen just around 1.0% which is still a far way away from the 2.0% inflation target rate.

The weaker fuel prices are also expected to weigh on inflation amid a slowdown in demand.

FOMC Meeting minutes

The U.S. Federal Reserve will be releasing the meeting minutes from its monetary policy held a few weeks ago. Interest rates were left unchanged, but the Fed maintained its intention to hike rates in December. The meeting minutes will be interesting to watch as investors will pour through the minutes for any signs of lower optimism for interest rates.

Last week, two key officials including the Fed vice chair, Clarida spoke somewhat dovish on the interest rate hike path. While a rate hike for December is all but cemented, expectations on the number of rate hikes for the year ahead are starting to diminish.

While the Fed has penciled in three rate hikes next year, the markets are assigning a probability of just two rate hikes next year. The decline in the expectation for interest rate comes amid slowing economic growth in the U.S. and rising trade tensions that could potentially hit global economic growth.

The Fed officials will of course only have the third quarter GDP numbers and other key metrics when deciding interest rates in December. Therefore, the January Fed meeting will be rather interesting to watch.

Ahead of the December rate hike, however, investors will only have the Fed meeting minutes due this week to assess the next step from the Fed.

Besides the Fed meeting, other economic details from the U.S. will include the core PCE price index and pending home sales report. The core PCE price index will be a closely watched report as the Fed’s preferred gauge of inflation.

The third quarter GDP estimates will also be coming out this week. This would mark the second revised estimates for the United States for the three months ending September 2018. The first estimates showed that the U.S. economy grew at a pace of 3.5% which was rather slow compared to the second quarter data.

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