Financial market research and analysis

In the US, traders reacted positively to the Labour department jobs report on Friday. The headline figure showed 228,000 jobs were created in the US in November, ahead of the 190,000 forecast. Whilst unemployment remained steady at 4.1%, the jobs report also showed that average wages grew at a monthly rate of 0.2% mom or 2.5% yoy, short of the 0.3% mom or 2.7%yoy anticipated.

The US major equity indices focused on the headline figure and closed higher, with the Dow Jones and the S&P 500 finishing the day at record highs. The picture across the week, however, was mixed. The Dow and the S&P ended the week 0.4% higher. Meanwhile, the tech heavy Nasdaq closed the week 0.1% lower.

Fed

The Federal Reserve meet to give their monetary policy decision on Wednesday. The market is pricing in over a 98% possibility of an interest rate rise. Friday’s slightly lower than forecast wage data has doing nothing to help solve the Fed’s inflation mystery. Whilst this is unlikely to deter the central bank from a 25-point interest rate hike in December, it could well evolve into an obstacle for the Fed’s tightening path in 2018.

Despite lingering concerns over next year’s rate rises, dollar traders were pleased enough with Friday’s data to push the dollar briefly past 94.00. The greenback finished the week higher versus all its major peers and has potential to go further. The upside potential mainly boils down to the tax reform. Not only is GOP eagerness to drive the reform through, proving to be dollar positive, but so is the huge repatriation of corporate funds before the end of the year, which could happen as a result of the corporate tax cut. A break through 94.00 for the dollar index could bring 95.15 (Nov high) back into focus.

BoE & ECB

Elsewhere, other central banks will also be in focus. Monetary policy decisions are expected from the Bank of England (BoE) as well as the European Central Bank (EBC). Neither central bank is expected to raise rates on Thursday. As a result, the EUR/USD, particularly, could come under more pressure as the differential between the two interest rates of the currencies becomes increasingly more obvious. The EUR/USD is trading at $1.1762, after reaching a two-week low of $1.1729. In the event of a sell off, a key support can be found at $1.1712 (Nov 21^st low) for the pair.

Timing of an EU-UK Trade Deal Unnerves Investors

In the UK, the big news last week was the UK and the EU reaching a Brexit divorce deal. Whilst the pound rallied into the final hours before the deal was brokered, it fell sharply on Friday following the news. The market is increasingly concerned that there simply isn’t enough time to complete a trade deal between now and March 2019, which could make for a very uneasy Brexit.

The pound is trying put these concerns behind it, as it looks towards a busy economic calendar this week, which includes inflation data, employment data and BoE decision. The pound is trying to push beyond $1.34. Any signs that inflation has not peaked and will tick higher could encourage an optimistic response from the pound and help it back towards $1.35.