Spain shows QE is making a difference
As we go into Christmas week, the calendar has few data releases across the board and any price action and market participation is likely to be reduced, although the low volumes could cause some volatility. We’ll see if some sort of Christmas rally can be mustered following what has so far been a very disappointing December for indices.
This morning, the results of yesterday’s Spanish election are filtering through. Despite the ruling Partido Popular losing its overall majority and the likelihood of a coalition government, the reaction from the markets has been muted with the Euro drifting sideways. Spain has come a long way since the height of the Eurozone crisis with unemployment declining from around 27% to 21%. It is now the fastest growing economy in the single currency bloc, but it has unquestionably benefited from the European Central Bank’s (ECB) quantitative easing [https://www.currencyuk.co.uk/help/jargon-buster/#QE] program as it is one of the main beneficiaries of the €60 billion a month bond-buying program. In order to maintain its economic recovery it will need a government that is willing to continue much of the hard work that was undertaken in reducing the deficit and boosting competitiveness.
Today does see Eurozone consumer confidence released this afternoon and we have a busier economic calendar tomorrow and Wednesday.
The wider market consensus is the renewed Dollar strength against its counterparts after Janet Yellen’s decision to raise interest rates and upgrade the Fed’s future guidance. As a consequence it would be expected that the Dollar could strengthen significantly next year against the likes of the Euro, the Pound and the rest of the world currencies.
GBPUSD bounced off 1.4860 lows on Thursday last week and since then there has been trading either side of 1.4900 looking for direction and momentum. This will be a really quiet week for the FX market and especially for Sterling, so we might see more of this consolidation between the 1.4860 and 1.4950 range as traders look for a reason to enter the market.
Data to watch: 1.30pm US Chicago Fed Activity Index. 3pm Euro Consumer Confidence.