How the new market reaction is breaking with tradition

EUR/USD

Key zone: 1.1700 - 1.1750

Buy: 1.1780 (on a confident breakout of the 1.1750 level) ; target 1.1900-1.1950; StopLoss 1.1720

Sell: 1.1680 (on strong negative fundamentals) ; target 1.1550-1.1500; StopLoss 1.1740

The past week has been full of fundamental events, but the nature of the market reaction has changed significantly. Whereas previously the Fed was almost always the key benchmark — especially after its sharp turnaround from QT to the actual launch of a QE analogue just 12 days after the formal end of tightening — the market is now responding much more selectively.

The Fed's decision will certainly be significant. We are talking about injecting approximately $40 billion per month in liquidity until at least April. Such a rapid shift from QT to QE points to deep-seated problems in the banking system. In theory, such measures should be positive for the stock and currency markets in the medium term. However, in practice, the reaction has been limited: the dollar has reacted most noticeably, and even then only weakly, against the backdrop of a new wave of anxiety surrounding the AI sector.

A factor of comparable significance was Trump, who unexpectedly announced that he had not yet made a final choice between the two candidates for Fed chair — Kevin Hassett and Kevin Warsh. Trump clearly intends to test the markets' reaction by periodically "throwing in" new names and signals.

It is obvious that Trump would like to have a Fed that is as controllable as possible — following the Turkish scenario or at least something close to the Japanese model. However, there are currently no institutional prerequisites for such a scenario.

This leads to an important practical conclusion: in the current environment, it is advisable to focus on real money — primarily the dollar — rather than currencies whose stability is largely based on expectations and political compromises, as in the case of the euro.

Next week, the market's attention will again be focused on US macro statistics. The key drivers for the dollar will be the release of the labor market report (NFP) on December 16 and consumer inflation data (CPI) on December 18.

Recall that Powell has repeatedly emphasized that the Fed does not object to further rate cuts, provided that inflation continues to move steadily toward the 2% target. If disinflation does indeed resume in the US and the labor market continues to cool, this will create a solid foundation for a more accommodative policy. In this case, market participants will have an additional argument in favor of selling the dollar.

Thus, NFP could potentially increase pressure on the USD, while CPI data could partially "rehabilitate" it.

Scenarios:

• If the ADP and NFP reports come out in negative territory, euro buyers could consolidate above the 1.1750 resistance level and attempt to move towards 1.1800.
• If the statistics turn out to be stronger than expected, the EUR/USD is likely to retreat to 1.16 and below.

Against the backdrop of EU decisions on frozen assets and general market dynamics, the reaction to the ECB's interest rate may be distorted. Historically, the peak of capital repatriation at the end of the year falls on the period from December 15 to 20, but with the deterioration of the fundamental background for the euro, pressure may begin earlier.

Geopolitical risks for the European currency remain extremely high. Any positive movement for the euro could be interrupted at any moment by both expected and unexpected news.

So we act wisely and avoid unnecessary risks.

Profits to y’all!