Below is this week’s market forecast from our trade desk here at LTI.
The final significant events of the year, the policy meetings from the Fed, ECB, and BoE on December 14–15, will be set up for markets this week. While three factors, including the Fed’s continued hawkishness, China’s lost hope, and rising energy prices, could lead to a USD re-appreciation.
First, amid evidence of sluggish inflation, markets have speculated about a dovish pivot from the Federal Reserve. However, we suspect that the Fed will stick with its hawkish narrative for longer, either indirectly or explicitly protesting against the recent drop in yields.
Strong employment data on Friday should provide support for this. After all, the Fed’s strategy should be to let markets do the hard work of tightening rather than adopting the market’s dovish narrative, which may be premature
In our opinion, the USD is still highly driven by risk sentiment in the market. We look for DXY to dig its teeth in at around 104, and for the S&P500 we anticipate September’s high at 4120 to be run, into 4160 and we’ll monitor price and adjust our bias going into the new year. We are currently positioned for Dollar retracements into next week.
We wish you all a safe week in and out of the markets.