Don’t let the silent nights (or markets) fool you
We return during “Christmas limbo” – the odd time between Christmas and New Year – with Sterling not too different to how we left it on Christmas Eve. The Dollar remains strong against the Pound as the pair has returned to 1.48 levels, though technical analysts are taking a bearish view on the GBPUSD pair with a possible return to 1.50 over the next week.
The Euro has strengthened versus Sterling throughout December, but looking forward this is likely to reverse substantially next year. A lack of inflation has hindered the Eurozone’s growth process for quite some time now and inflation has remained below the central bank’s target of 2% since 2013. Mario Draghi has admitted persistent low inflation rate reflects sizeable economic slack. The declining core inflation in the bloc required further easing measures and Draghi is desperate to move inflation figures towards the set target as soon as possible. Persistent low inflation until 2017, which is already forecast, means that the Eurozone runs the risk of entering a situation similar to the one faced by Japan at the moment; nothing that Japanese Prime Minister Shinzo Abe has tried has been able to lift the economy out of the doldrums.
EURUSD remains under the 1.10 mark with little direction in a lackluster festive market. With reduced market participation this is likely to continue until the release of the first US Nonfarm payrolls figure of 2016 in early January.
Again the economic calendar is nearly empty, with only US consumer confidence out this afternoon, which at most will muster up small Dollar spike with expectations at a reading of 93.8, up from 90.4