The Central Banks Week Will Seal the end of the Year
The last important week for markets has started as the major monetary policymakers are going to hold their last meetings of the year this week. The decisions made by the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) will add a final touch to the very successful recovery year which remains clouded by the still developing pandemic.
Investors are preparing for the Fed to begin to tackle blistering inflation on a wide scale. Inflation has managed to set another record at 6.8% year-on-year for the month of November. The consumer price index has remained above the 2% target for the ninth consecutive month. So, the Fed must discuss additional tapering this Wednesday and the market is ready for such a scenario. I expect investors’ reaction to such a decision from the Fed to be muted. The end of tapering would allow the Fed to hike its interest rates in the second half of 2022.
I have also recently written that the U.S. stock indices have strong chances of ending the year in the green zone, and the closing of the last week of the year may see the Dow Jones index adding some 4.02% and the fact that the S&P 500 broad market index has risen by 3.82% confirms that idea. If there are no surprises at the end of the year, we may expect a mini rally, pushing stock indices to new all-time highs.
The ECB and the BoE would hardly rush ahead of the Fed. Some ECB members are expressing caution to delay the decision of any tapering for the next meeting that is scheduled for February 3, saying that there is still not enough information on the new Omicron variant and its impact on the economy. The emerging Omicron variant restored travel restrictions in the European Union and enforced EU nations to decide about mandatory vaccination for everybody. This will be discussed by the EU leaders on December 16. The BoE will have its meeting on the same day as the ECB. The British monetary policymaker is less likely to hike its interest rates now that the Omicron variant has emerged. Still investors consider there is a 65% chance of such a possibility.
GBPUSD returned above 1.32 at the end of the previous week forming a reversal “morning star” candlestick pattern. If we consider the decline of the last two months, then we may suggest that we have a descending wedge, which is also a reversal pattern. The resistance of this pattern was already broken last Friday and may indicate further strengthening of the Cable. The nearest targets are at 1.3375 and 1.3480-1.3500. However, if the BoE would dare to be the first to switch to the monetary tightening policy, the Pound may soar to 1.3800 in the mid-term perspective.
Investors are preparing for the Fed to begin to tackle blistering inflation on a wide scale. Inflation has managed to set another record at 6.8% year-on-year for the month of November. The consumer price index has remained above the 2% target for the ninth consecutive month. So, the Fed must discuss additional tapering this Wednesday and the market is ready for such a scenario. I expect investors’ reaction to such a decision from the Fed to be muted. The end of tapering would allow the Fed to hike its interest rates in the second half of 2022.
I have also recently written that the U.S. stock indices have strong chances of ending the year in the green zone, and the closing of the last week of the year may see the Dow Jones index adding some 4.02% and the fact that the S&P 500 broad market index has risen by 3.82% confirms that idea. If there are no surprises at the end of the year, we may expect a mini rally, pushing stock indices to new all-time highs.
The ECB and the BoE would hardly rush ahead of the Fed. Some ECB members are expressing caution to delay the decision of any tapering for the next meeting that is scheduled for February 3, saying that there is still not enough information on the new Omicron variant and its impact on the economy. The emerging Omicron variant restored travel restrictions in the European Union and enforced EU nations to decide about mandatory vaccination for everybody. This will be discussed by the EU leaders on December 16. The BoE will have its meeting on the same day as the ECB. The British monetary policymaker is less likely to hike its interest rates now that the Omicron variant has emerged. Still investors consider there is a 65% chance of such a possibility.
GBPUSD returned above 1.32 at the end of the previous week forming a reversal “morning star” candlestick pattern. If we consider the decline of the last two months, then we may suggest that we have a descending wedge, which is also a reversal pattern. The resistance of this pattern was already broken last Friday and may indicate further strengthening of the Cable. The nearest targets are at 1.3375 and 1.3480-1.3500. However, if the BoE would dare to be the first to switch to the monetary tightening policy, the Pound may soar to 1.3800 in the mid-term perspective.
