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Weekly Market Review 30/11 – 6/12/2015

EUR/USD to Dominate Markets’ Focus

In the week ahead, the financial markets’ hottest stars, aka Mario Draghi and Janet Yellen, will take center stage on Thursday. Nearly everything else will just be the opening act until the headliners take the spotlight. It’s clear that both Draghi and Yellen will talk up monetary policy. The question is will either of them (or both) spring a surprise on the markets?

And if you need even more drama on Friday US non-farms payroll data will be released. Markets are anxious to see if last month’s unexpectedly robust figures will be repeated. All of this week’s highlights will greatly impact FX’s favorite pair, the EUR/USD. This week we could see parity underpinned as the near term target. Clearly, that will depend on Draghi and Yellen’s respective message and the NFP outcome.

Will Draghi Beat Down Euro?

At the last European Central Bank policy meeting, it was made clear that more stimulus was on the horizon. The latest data for the Eurozone remains too soft to kick start the economy. By all accounts it appears another round of stimulus will be unleashed in December. On Thursday, the ECB will announce its latest policy decision on Thursday. As is customary, that announcement will be followed by Mario Draghi’s press conference.

Super Mario, whose been known to pull a fast one now and again, could do so again. He is clearly the wild card in this hand of high stakes poker. He could outsmart markets by announcing the immediate implementation of additional QE.  However, that depends on the outcome of the latest inflation data, which comes out on Tuesday. Albeit preliminary data for November, it will factor into the ECB’s decision making process. If the cards play out right, then Draghi could surprise. And if he does, the EUR/USD could be headed toward parity.

Yellen Could Send Dollar Soaring

Also on Thursday, Janet Yellen will be getting ready to provide testimony to the Joint Economic Committee of the US Congress. Given that there was no Fed policy meeting in November that testimony will be carefully scrutinized.  The Fed has indicated that it’s on the verge of raising interest rates, possibly in its December meeting. Thus, what Yellen says during the hearing could have a big impact on the EUR/USD. If the rate hike still seems to be a “done deal” then Yellen will likely continue to drop hints. The Fed Chair would clearly prefer to minimize volatility for the US Dollar and thus will strive to eliminate any potential surprise.

Markets Looking for NFP Beat

The last piece of the EUR/USD puzzle will be Friday’s release of US labor data. The non-farms payroll figures hit 271,000 in October and markets would like an encore. The unemployment rate, which dropped to 5% in October, has been steadily falling all year. Another decline could cement the belief that the Fed has delivered on its full employment promise. Last but not least, investors will want to see if wages continue to rise. A continue acceleration in wages would put more purchasing power into the hands of the US consumer. If the labor data is positive across-the-board, that cold get investors crowded into the Dollar.

Down to Business

The question that markets want answered boils down to this: Is the EUR/USD heading for parity? What we need to watch for are three things? Will Mario Draghi signal more easing, perhaps imminently ahead? Will Janet Yellen continue to sound hawkish? Will the US employment figures be solid? If yes, yes and yes, then the EUR/USD could take another plunge leading to the Dollar trading higher than the Euro. If the EUR/USD hits or falls below $1.00 that will clearly be an historic development.

On the plate

RBA Rate Decision(Tuesday)- If the RBA will turn less dovish amid the latest uptick in Australian employment , the Aussie could gain ground vs its regional peers.

Eurozone CPI(Wednesday)- If Eurozone Core CPI rises above 1.1% YoY it will be seen as Euro positive.

ECB Rate Decision(Thursday)- If the ECB surprises with more stimulus in this month’s meeting , the Euro could plunge.

Janet Yellen Testifies(Thursday)- If the Fed chairman Janet  Yellen will drop further clues on the Feds intention to raise rates, the Dollar could surge.

Eurozone GDP Growth(Friday)- If Eurozone GDP growth accelerates it could be seen as Euro positive, however it will take a secondary important to the ECB  rate decision.

Nonfarm Payrolls(Friday)- If Nonfarm Payrolls and other US employment data including wages continues to be solid the Dollar would be set to gain further ground.

Chart of the week:

EUR/USD weekly

Economic Calendar:

Real Time Economic Calendar provided by Investing.com.

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