I confess to a great deal of confusion regarding the price action since the last FOMC, and I have looked at some of the comments of my brethren Elliott Wave theoreticians… confusion reigns. After the damaging fall in equity prices leading into FOMC, I started to raise the probability of a significant fall in prices from small to probable, but here we are, just a whisker below the record highs. I will have to reassess what this means before I can make any further guess-timations about where we go from here. I will say however that, as unlikely as it seems, the expectation of a significant fall is only eliminated when a new record high is posted – not happened yet. Talk about hanging on to a view for dear life!
Not surprisingly there’s not much on the data front today. We’ve already seen some import price data out of Germany this morning which I believe highlights the disinflationary effect of lower energy prices. The year on year import price index to November is down 2.1%, versus a 0.3% fall previously and -1.8% forecast. At this stage, any Eurozone data signalling lower inflation will give Mr Draghi the ammunition he requires, and it’s particularly helpful if it’s German data. Call me cynical but I suspect Herr Weidman will be slightly less trenchant with his principles if Germany is directly affected. That’s not to say he doesn’t genuinely believe in his position (the ineffectiveness of quantitative easing, and more specifically, the illegality of the ECB buying sovereign bonds).
What can we say about the mighty greenback? EUR/USD made a new low last week, which makes it highly likely that the trend is reasserting itself, and further lows should follow. It is worth noting however that the recent general pressure on emerging market currencies appears to have abated. The Russian rouble has made a stunning comeback, and even today it has appreciated 4%. It remains to be seen if this is just a pause or if the crisis will re-gather its strength in the coming weeks.
The last fortnight of the year is a time of very poor liquidity and any moves that occur tend to be of the questionable variety. For now I will view 1.2303 as a EUR/USD short term pivot level, above this level I would call a halt in the short term to the dollar bullish trend, but for now, I would continue to view the path of least resistance as lower for EUR/USD (and higher for the US dollar).