Busy week for central bankers
The US dollar ended last week on a solid footing with the dollar index testing the 94.16 resistance area (high from November 21) on Friday. However, the greenback seems to have lost momentum on Monday morning. The Federal Reserve, which will hold its last meeting of the year this week, is expected to lift borrowing costs by 25bps. market participants have already priced in the decision. The 3m LIBOR has risen to 1.44% since mid-November, an increase of 20bps. According to the Fed funds futures, there is a 98% probability of a 25bps increase.
Therefore, investors will focus on the updated forecast for economic growth and interest rates. According to the last forecast, which was released in September, Fed members are expecting three rate hikes next year. A downward revision would send a very dovish message to investors, which would translate into a USD sell-off. Over the last few months, Fed members have systematically avoided to take strong positions regarding the monetary policy outlook. We anticipate that this behaviour will persist.
The ECB is also holding its last meeting of the year. We do not expect much from this meeting as it will likely be a non-event. The focus will be on Draghi’s press conference, which will follow the rate decision, and the updated inflation projections. We anticipate that Draghi will maintain his traditional neutral and cautious tone to avoid strengthening the euro.
EUR/USD fell more than 1% last week as the USD extended gains across the board. The single currency started the week on a firmer footing with EUR/USD climbing back to 1.18. We maintain our medium and long-term bullish view on the pair with the 1.25 target as first objective.
Futures push Bitcoin price higher
It was a widely awaited event that took place yesterday. It is now possible to trade futures on the first digital currency on the CBOE and CME platform. Bitcoin is becoming more and more mainstream and smart money have now all the tools to get into it. Contrary to many people’s expectations, the Bitcoin price has not collapsed amid the introduction of futures trading and has actually surged.
However, the weekend was tough for Bitcoin with a very strong volatility. Fears are that the institutional are going to enter short Bitcoin position and that futures will artificially increase the Bitcoin supply as what is happening for Gold. It is also important to note that the settlement will be cash and not in Bitcoin. We firmly believe that futures may weigh in a longer run on the Bitcoin price. Yet, the Bitcoin price has not reached its top yet and we may see insane prices within the next couple of years.
In the short-term the greed will still prevail and this is pushing the Bitcoin price higher. For the time being, many investors are still rushing into it. The Bitcoin price is ready to challenge the 17k level anytime soon.
