This week started with a tragic note as the events in Paris were poised to influence trading. Markets opened with a gap that was quickly filled, but from that moment on, the direction was clear: buying the U.S. dollar.
There are multiple reasons why the market started buying the US dollar. The first reason is related to the fact that whenever there is a conflict in sight, the “flight to safety” sends investors into buying the world’s reserve currency: the U.S. dollar. As a result, the dollar and stocks active in the military industry are soaring at the moment.
The second reason is related to the overall stance of the U.S. monetary policy. The Federal Reserve of the United States is about to release the FOMC (Federal Open Market Committee) minutes today – which refers back to the meeting that took place three weeks ago. These minutes are important as the statement that followed that meeting indicated that December will likely be when a rate hike will be delivered. Today we have the chance to see if that is indeed correct and, if true, the outcome should be bullish for the dollar.
Moreover, non-farm payrolls in the United States released at the beginning of the month are encouraging for the U.S. dollar to remain bullish. So again, it’s no wonder that the market is buying the US dollar.
On the other side of the Atlantic, the UK has its second consecutive month with negative inflation numbers. The print yesterday was -0.1% making it the first time since the data was recorded, that deflation affected the UK’s economy for two consecutive months. It’s tough to see the Bank of England acting on rates with this kind of environment and the reaction that the market had on the pound was virtually irrelevant.
The Eurozone economy is not looking that great either. Signs of deflation can be seen everywhere. Migration costs are rising, and ECB is threatening to increase its bond-buying program. As a consequence, the Euro dropped against all other major currencies this week, and there is no positive sign in sight for the common currency until December’s ECB meeting. This will hopefully clear some things up and offer a lifeline for the EUR.
To wrap things up; the week started on a negative tone from a fundamental point of view. I won’t expect big moves until Friday’s closing regardless of what the FOMC minutes are saying because, as usual, they are lagging, in the sense that is referring to events that passed three weeks ago and already may be priced in by market participants.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
