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The Fed’s Turbo Taper and Gold...

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Hi everyone, thanks for tuning into another week ahead for forex and financial markets. The economic calendar is thinning out as we head into the holidays but the ongoing response to the Federal Reserve’s ‘turbo-taper’ could see volatility stay with us. A question I’m asking is whether this move by the Fed was already priced into the dollar? and then outside of FX markets, another place to look for more reaction to the Fed is gold. So stay tuned!


Of course the big news to hit financial markets last week was the so-called turbo-taper from the Federal Reserve. The Fed is now doubling the pace of its tapering from $15 billion per month to $30 billion - leaving it room to hike interest rates three times in 2022 according to its own economic forecasts. We talked about this hawkish shift from the Fed as well as other central banks in last week’s video but this is possibly a bigger change from the Fed than most expected.


The prospect of higher US interest rates naturally saw the dollar bounce with traders positioning to earn higher yields in US dollars than other currencies. USD/CAD was a top riser boosted by the recent decline in oil prices. Elsewhere the moves were a bit more sanguine. EUR/USD for instance dropped on the day of the announcement but held above 1.12. I suspect currency traders will be watching carefully over the coming days where the dollar gains see any follow through from this news out of the Fed. Because if the dollar can’t gain off good news like this, then it might be a sign we are close to the top.


And now with the Fed getting out in front of rising inflation with a plan for higher interest rates next year, there are big question marks hanging over gold. One of the golden rules in investing is “Don’t Fight the Fed.” If markets take Jerome Powell at his word, then higher rates are coming and that tends to be negative for non-yielding assets like gold. Though like I say, maybe this move is already priced in, giving gold some room for recovery.


Before I move on to discuss the news highlights this week - please remember to give this video a quick THUMBS UP for the youtube algorithm.  Thanks very much!


Right, let's move on to this week’s economic calendar highlights. The second half of December is always a lot slower for economic data as government departments stop collecting data and head on their annual holidays.


From what’s on display, it’d pick out US core PCE, known as the Fed’s preferred measure of inflation. Because of the way it's composed, core PCE always tends to be less than CPI but the rate of change to the upside has been similar in both. It’s gains in this number in the last two months that triggered the inflation worries and the Fed’s move to turbo tapering.


Another data item out of the US worth watching is durable goods orders. This number has been under pressure from supply chain disruptions but expectations are for a rebound in November with higher orders in the lead up to holiday shopping. We want to see economic activity pickup alongside inflation to avoid the situation of stagflation.


Just lastly outside of the economic calendar I think it would be remiss not to mention the new covid restrictions coming in certain counties, notably the UK for those trading the British pound. The countries that experience the worst situation around Omicron as far as the virus itself and the reaction from governments could see their currencies come under pressure.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.


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