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All eyes on eurozone inflation

US equity markets finished on a positive note last week as the Dow Jones, S&P 500 and NASDAQ 100 all set fresh-record high as optimism is running high the US will pass the tax reform proposals. 

It is possible that US law makers will vote on the tax reform this week. Some last minute tweaks to be bill last week won over a few Senators, and now there is a greater chance the US will cut the corporate tax rate to 21% from 35%. Whether the cuts will actually encourage American businesses to relocate back to the US remains to be seen, but it makes the prospect of companies moving their headquarters overseas less likely.

The run up to Christmas is usually quiet as traders start taking holidays, there a few economic announcement that that may add some volatility to the markets.

At 10am (UK time) the eurozone will announce the latest CPI data, and on a year-on-year basis the rate is expected to come in at 1.5%, up from 1.4% in October. The European Central Bank (ECB) has a target of 2%, so it is well below their goal. Mario Draghi, the ECB President has regularly expressed concern about the relatively weak level of inflation. Come January, the ECB will reduce the size of their bond buying scheme to €30 billion per month, and the programme will run until September. If inflation doesn’t tick up, Mr Draghi may look to extend the timeline or expand the size of the stimulus package in order to ramp up inflation.

On Thursday the US will announce the final reading of the third-quarter GDP, and the consensus is for a reading of 3.3%. The US economy has performed well this year, and the latest quarterly figures will cover the period of the hurricanes, but the economy seems to have stated the course. The Federal Reserve delivered three interest rate hikes this year, and the outlook for 2018 remains mystery as we are yet to the full make-up of the US central bank. When the new central bankers are named, then traders will be able to form a view the Fed’s outlook. 

Bitcoin futures began trading on the Chicago Mercantile Exchange (CME) last night, the contract which expires in January opened trading at $20,650. The Board Options Exchange (CBOE) began trading Bitcoin futures last week, and NASDAQ has plans to offer a contract too. TD Ameritrade stated they would permit certain clients of theirs to trade the CBOE contract, and the more major names that get behind the market, the more respectable it becomes.

EUR/USD – has been edging lower since late November, and has now dropped below the 50-day moving average at 1.1763, and if it breaks below the 1.1700 region, it could target 1.1554. If 1.1763 is cleared, it may re-target 1.1961.

GBP/USD – is still in its upward trend and while it is above the 100-day moving average at 1.3200 the outlook may remain bullish. Rallies could encounter resistance at 1.3548 or 1.3659. A move below 1.3200 may send the market to 1.3000. 

EUR/GBP – has been edging lower since mid-November, but it has managed to move below the 200-day moving average at 0.8800. If it can hold above 0.8800, it could target the 100-day moving average ay 0.8941. A break below 0.8800 could see it test 0.8689.

USD/JPY – has been range-bound recently, but if it holds above 112.00 it could target 114.00, or 114.73. A break below 112.00 could find support in the 111.00 region.

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