The Week Of December 16, 2024

Over the next few sessions, I suspect that we are going to continue to see the US lead the way. After all, just this past weekend, we have seen Moody’s downgrade French credit (again), as the country’s political situation seemingly gets worse, and of course the profligate spending of the EU on the whole takes front and center stage. I truly believe that Europe is at a crossroads, and what happens in the next few years will determine if there even is a euro.

Monday

There are a ton of PMI numbers coming out of Germany, France, the UK, and the USA during the session. While I think this of course matters, in the bigger scheme of things, as there are so many other things on the docket that I think the noise will be just that - noise. I would also point out that most traders are positioning for ending the year on a high note. In other words, the only people taking big bets right now are being forced to by their underperformance. Monday might be a bit choppy, but in the end, it isn’t the highlight of the week by any stretch.

Tuesday

The UK releases unemployment claims, and the Canadians release CPI numbers. Neither of these are major announcements in my opinion, however, the Bank of England is still reasonably tight in comparison to others, so if there is some kind of massive miss on Claimant Count Change numbers (unemployment claims), then we could see a reaction. I believe that the BoE is tending lower with rates, but is much more cautious than others. (This is part of the reason the Pound continues to be stubbornly strong against many currencies on the whole.) The Canadian numbers will not matter at all would be my guess. Canada is a mess, and that’s not changing easily.

Wednesday

The UK releases CPI. New Zealand releases GDP. These will be squeezed out by the FOMC announcement. With the Federal Reserve likely to cut rates by 25 basis points, this is a situation where traders will look to see the tone of both the statement and the press conference to determine the next move by the Fed. At the time of writing, the Fed Funds Futures markets believe that there is an 80% chance the Fed doesn’t cut again in January. If this holds, this will continue to benefit the USD in the FX markets. In fact, I believe that any dip in the value of the dollar is an opportunity.

Thursday

The Bank of Japan comes into focus, as they have a monetary policy decision, statement, and press conference. The BoJ has no real chance of tightening the monetary policy with any real gusto. After all, the Japanese have some of the worst debt ratios in the world. They simply cannot afford to pay back the debt with just about any interest.

This makes the American government look responsible by comparison. This is unacceptable, and it is only a matter of time before Japan pays the price. In the meantime, the central bank is stuck. The yen will more likely than not continue to fall in value longer-term. That being said, expect a lot of volatility during the announcements.

The Bank of England also has an interest rate decision, but it is expected to stay at where it is, 4.75%. However, pay attention to the vote count, and whether more members of the are thinking about cuts. This will be the biggest mover of the Pound this week I believe. If you like the Pound, I would suggest avoiding crossing it with the USD. There are plenty of other currencies out there to match up again. (EUR/GBP is a trainwreck.)

The US will release GDP and Weekly Unemployment Claims. Nobody will care much. Any reaction will more likely than not be felt in the stock markets in New York. I suspect this will be one of the last “hurrahs” of the year for Wall Street, as it will be the 19th, and anyone who has had a good year will be more than happy to report that to their clients.

Friday

Canada will release the Retail Sales figures, and nobody will care. It might move the CAD, but I wouldn’t hold my breath. The US will release Core PCE Index figures, which the Federal Reserve loves as a measure of inflation in the United States. While I don’t expect much reaction due to the FOMC taking most of the oxygen out of the room this week, it is something to consider when contemplating the next meeting in January.

What I am focusing on.

I am focusing on buying “cheap US dollars” this week. I suspect we could get a little bit of a “risk on rally” in the start of the week - think NASDAQ, DAX, and stocks in general - but by the end of the week, I think that a lot of traders will be looking to own dollars more than anything else.

• I look at any bounce in the EUR/USD with suspicion. I am more than willing to short this pair if it does rally, with an eye on the 1.0750 level as a ceiling.

• I believe that gold will continue higher, but this week could be difficult.

• The surprise could be in Bitcoin, with the FOMC this week. It wants to go higher, but hasn’t found a reason to. Will Jerome Powell cause that spark? Maybe, I think if he sounds even remotely dovish, it will cause chaos for a day or so.

• The “Santa Clause rally” is a real thing, and we are in the middle of it. Although i am not heavily involved in the stock market, I do have a position to the long side. I know that I will not be shorting the stock markets between now and January. It isn’t worth it.

• As inflation is going to be reaccelerating in America, energy will begin to look attractive to some. If the Fed sounds dovish, this is rocket fuel for the oil market. (I expect to see this early next year, although the timing is still up in the air for me.)

I suspect next year is going to be a wild one, but in the meantime, I will be expecting more of the same noise we have seen. At this point, it is all about not owning currencies other than the USD, and of course recognizing that a lot of foreign money continues to flow into America as well. We could, and should for that matter, see this change eventually. We just aren’t there yet.

Trade well,

Chris