Monday marks the first day of a new month, which means that we can expect an informative and, consequently, volatile week. December can be conditionally divided into two unequal parts. The first part (specifically the first three weeks) is characterized by increased volatility in the currency market, as traders react to key monthly releases and the final meetings of central banks. The second part consists of the pre-holiday and post-holiday periods.
The first week of December plays a vital role in this context.
Monday
During the U.S. session on Monday, we will learn the November ISM manufacturing index value. This vital macroeconomic indicator has been in contraction since March of this year. According to preliminary forecasts, it is expected to remain below the key 50-point level in November, with most analysts predicting a figure of 49.1 after a drop to 48.7 in October. Final estimates for the PMI indices in the manufacturing sector for November will also be released on Monday. According to forecasts, the final estimate will match the initial one. In such a case, the market is likely to ignore this release.
Tuesday
On Tuesday, all eyes will be on Federal Reserve Chair Jerome Powell's speech. He will participate in a panel discussion at the Hoover Institution (a research center that is part of Stanford University). It should be noted that several Federal Reserve officials have recently adopted a "dovish" stance, advocating a rate cut in December. Among them are John Williams, president of the New York Fed; Mary Daly, president of the San Francisco Fed; and Governors Christopher Waller and Stephen Moore. At the same time, many Fed members have called for keeping rates unchanged at the December meeting, including Susan Collins, the president of the Boston Fed; Lorie Logan, the president of the Dallas Fed; and Beth Hammack, from the Cleveland Fed.
Powell has remained silent during this time, so to speak, "above the fray." However, at Stanford, he will have to take one side—either he will express concern about the state of the U.S. labor market (thus supporting a December rate cut), or he will focus on inflation risks (questioning the prospects for a December cut). This will be a critical, possibly pivotal moment for traders in EUR/USD.
Also on Tuesday, preliminary Eurozone inflation data for November will be released. According to forecasts, inflation is expected to remain at the October level—the overall consumer price index is expected to be at 2.1% year-on-year, and core inflation at 2.4%. If the figures are in line with projections, EUR/USD traders are likely to ignore this release, as the U.S. currency will set the tone.
Wednesday
The most important releases on Wednesday will occur during the American trading session. First, there's the November ADP report. Secondly, the ISM services sector activity index will be released. It should be noted that the September Non-Farm Payrolls (NFP) report was quite contradictory but overall better than expectations. Additionally, the October NFP will be published alongside the November report in the middle of the current month. Therefore, the ADP data will hold particular value now, even with its weak correlation with NFP. It is anticipated that the ADP report will show a gain of 19,000 private-sector jobs, a weak result likely to exert pressure on the U.S. currency.
The ISM services sector index for November is expected to remain nearly at the October level, with a slight drop to 52.1 after an increase to 52.4 last month. For dollar bulls, this indicator must stay in the expansion zone, that is, above the 50-point mark.
Also on Wednesday, Markit's manufacturing PMI for China will be published. In August, the indicator reached a yearly high of 53.0. However, over the past two months, it has shown a declining trend. November may become the third month in this row, with forecasts suggesting the figure will come in at 51.8 (the lowest level since July). If the index unexpectedly drops into the contraction zone, it could provide support for the dollar amid increased risk-off sentiment.
Thursday
During the European session on Thursday, data on Eurozone retail sales for October will be released. Over the past two months, this indicator has been in negative territory (-0.1%), while October is expected to show "growth" to 0.0%. The release will affect EUR/USD only if the actual result significantly exceeds or falls short of the forecast.
During the American session, the weekly figures for new unemployment claims will be published in the U.S. Over the past three weeks, the indicator has been declining, reaching 216,000 (the lowest level since April of this year). The dollar will receive support if this week's figure is at the same level (or lower). However, forecasts suggest that initial claims will rise to 220,000.
Additionally, on Thursday, a speech from FOMC member Michelle Bowman is expected. She is a representative of the Fed's "dovish" wing, so her rhetoric may put pressure on the greenback.
Friday
The key release on Friday will be the core PCE index. Unfortunately, due to the effects of the shutdown, we will only learn the September figure on December 5. However, that does not mean the release has lost its relevance.
In August, this crucial inflation indicator remained unchanged—both month-on-month and year-on-year (0.2% m/m, 2.9% y/y). Market opinions have suggested that the index may have reached its peak, and now it will either remain at that level or start to gradually decline.
Given this preview, it is certain that Friday's release will provoke significant volatility in EUR/USD. Moreover, there is no consensus in the market on the direction of movement: some experts expect the figure to accelerate to 3.1%, while others anticipate a slowdown to 2.8% year-on-year.
Additionally, on Friday, the University of Michigan consumer sentiment index will be released. The figure has been declining consistently over the past four months, reflecting decreased consumer activity among Americans. A slight increase is expected in December—from 51.0 to 52.0. However, if the figure unexpectedly falls below the 51-point mark, the dollar will face significant pressure.
Conclusions
Ahead lie information-rich and consequently volatile days. If the ISM indices and the core PCE index fall into the "green zone" and Jerome Powell uses cautious rhetoric, the market will again discuss a pause at the December meeting. In such a case, the dollar will enjoy increased demand, and the EUR/USD pair will return to the 15 level range. Otherwise, buyers will consolidate above the 1.1660 level—the upper line of the Bollinger Bands indicator, which coincides with the lower boundary of the Kumo cloud on the daily chart. Overcoming this target will open the path for bulls to the 17-level range.
