Before the FOMC meeting, the markets poorly concealed panic

The US dollar on the eve of the key meeting of the FOMC received support after the publication on Friday of a number of quite important macroeconomic data.

The volume of retail sales in November rose by 0.2% compared to October, which slightly exceeded the forecasts of experts, the revision of data for October also turned out to be in positive territory, from 0.8% to 1.1%. The so-called control group of goods, which does not take into account automobiles, gasoline and building materials, grew by 0.9%, year-on-year growth rates slowed down from 2.5% to 2.2%.

Industrial production growth in November was + 0.6%, which also exceeded forecasts, industrial capacity utilization increased, and positive data allowed us to raise the estimate for GDP growth rates. The GDPNow model, calculated by the Atlanta Fed, predicts economic growth of 3.0% in the fourth quarter, while the previous forecast was at 2.4%, a positive adds confidence on the eve of the FOMC meeting on Wednesday.

At the same time, preliminary data on business activity in December give quite different results. The manufacturing PMI slowed down from 55.3p to 53.9p, for the services sector the decline from 54.7p to 53.4p, the composite PMI index decreased from 54.7p to 53.6p, which is 19-month low.

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If before the November meeting the Fed's plans looked clear and well calculated, now everything is completely different. An unplanned fall in stock markets risks turning into a full-fledged collapse if the Fed allows itself to drastically soften rhetoric and, as a justification, declares not a threat of a slowdown in the global economy, but as a fait accompli. Therefore, most likely, the Fed will focus on slowing down the economies of developing countries, while for the United States it will maintain public optimism for some time.

The dollar on Monday morning still looks confident, and has not started the expected deceleration phase. It is not necessary to expect its weakening until Wednesday, since further dynamics will depend almost entirely on changes in forecasts, the insider in such cases is excluded, and investors will prefer to wait.

Eurozone

Eurozone PMIs, published on Friday, look even worse. The manufacturing PMI slowed down from 51.6p to 51.4p, in the services sector slowing down from 53.4p to 51.4p, the composite index fell to 51.3p, which is a 49-month high. At the same time, the European interbank EONIA rate decreases, which always precedes the onset of a recession.

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The ECB highlighted 13 different reasons why the economic growth in the current year was weaker than expected, but it should also be noted that other European Central Banks are in no hurry to start tightening. The NBS left the rate at the current level, the Bank of Norway and the Riksbank pause, and all global weakness is cited as the main cause.

Interesting story occurred with the harmonization of the budget of Italy. After the parties finally found a compromise on a deficit of 2.04%, they would recount their balance sheet positions, and it turned out that the discrepancy is 4.5 billion euros, or 0.25%. That is, the Italian government has hidden part of the planned expenses, and if today this error is not eliminated, the threat of launching the mechanism of penalties will again become relevant.

On Monday, EUR / USD is definitely under pressure, growth to 1.1340 is the maximum that bulls can count on, it is more likely to re-test support at 1.1265 and try to go to 1.1215.

Great Britain

Reducing the likelihood of a happy ending to the Brexit saga disappointed investors, who began preparing for the worst possible scenario. For the second week in a row, according to the CFTC Friday report, short positions in the pound are growing faster than long ones, that is, players have begun to prepare for a new wave of decline in the pound as a more likely scenario.

The currency pair GBP / USD is under pressure, but before the FOMC meeting, the threat of a break of 1.2475 support is low. The pound will spend these two days in the lateral range with a downward trend.

The material has been provided by InstaForex Company - www.instaforex.com