Global macro overview for 13/12/2017

Before the last meeting of the FOMC in 2017, everything indicates a third this year rate hike by 25 bps, from 1.25% to 1.50%. The two-day meeting of the Federal Open Market Committee (FOMC) ends on Wednesday 13 December with the publication of the decision on interest rates at 07:00 pm GMT. Together with the decision, the macroeconomic statement and forecasts will be published. The press conference of Fed chairman Janet Yellen is scheduled for 07:30 pm GMT. However, the market will be more interested in the prospects for monetary policy for the future. Economists expect the Fed to remain optimistic with hopes for inflation acceleration and a favorable impact of fiscal policy, maintaining the forecast of three hikes in 2018.

For weeks, the market is convinced that the December FOMC meeting will bring an increase in interest rates. The guidelines were included in the statements after the last meeting, according to which "many members believe that another hike in a short time is justified"The macroeconomic conditions remain favorable for further normalization of monetary policy. The economic growth is nearly 3.0%, the labor market is tightening and the unemployment rate is 4.1%, which is already below the estimates of the "natural side of unemployment". In addition, from Congress there are signals about almost certain approval of the tax reform and the beginning of new infrastructure projects from the new year. The problem for this is persistently low inflation, which does not show any sign of acceleration to the 2.0% target from 1.4% currently.

The FOMC message and press conference of the Chairperson Jannet Yellen offers two kinds of risks. On the dovish side, the concerns of FOMC members about the persistence of low inflation and dubiousness in its transitional character will stand out. However, it is unlikely that these fears may weigh heavily on the sound of the press conference, which will be the last in the performance of Chairperson Yellen. Due to the fact that Yellen was the main voice emphasizing the transitory nature of low inflationary pressure, now it probably will not change its opinion and she will be defending forecasts that show inflation returning to the target in the medium term. Moving the attention to the positive risks associated with fiscal policy may add a hawkish accent. Considering that the valuation of the hike in March 2018 is currently at the level of 60-70 percent, it does not give much scope for upward revision at this stage. As a result, it may be difficult to have a clear and lasting impact of Fed's decision on USD this week.

Let's now take a look at the USD/JPY technical picture at the H4 time frame. The price is testing the lower channel line around the level of 113.00, just above the 200 periods moving average support. The bulls were not strong enough to convincingly break out above the 61% Fibo at the level of 113.24 and now the negative divergence between the price and momentum indicator is pushing the price lower ahead of FOMC decision.

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