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News Today(12/17): UK Unemployment rate at 2:00 AM, Canada CPI at 8:30 AM and US Retail Sales at 8:30 AM

Highlights:

• U.K. reported significantly stronger-than-expected employment numbers, with Claimant Change (people filing for unemployment) coming in at 0.3K versus an expectation of 28.2K. This provided about 25 pips of relief and helped GBP/USD cross the 1.27 level.
• U.S. Retail Sales data was mixed – while the overall print came in better than expectations, the excluding-auto figure missed estimates. The reaction was muted, and it failed to establish any clear trend in the FX market in the U.S session.
• U.S. 10-year yields have been rising since the start of this month, moving nearly 20 basis points higher. This, in turn, has increased the odds of a rate pause by the Fed next month. However, we might see some relief in yields after the FOMC press conference if Powell delivers any optimistic remarks regarding the rate easing cycle.
• Finally, USD/CAD has started to price in Canada’s recent weak economic data as well as the potential impact of future Trump tariffs. The pair is currently trading at 4-year highs and inching closer to the COVID-era peak of 1.45.
• U.S. equities pulled back slightly following a strong winning session yesterday, with Broadcom (AVGO) down nearly 5%. On the other hand, Tesla’s rally continues, with the stock now up nearly 100% since the U.S. elections.

Tomorrow Outlook:

• Although the 25bp interest rate cut by the Fed is fully priced in, Powell’s comments during the FOMC press conference will help shape the outlook for future Fed rate cuts.
• The current narrative surrounding the Fed’s easing cycle is that Trump’s policies could lead to significant inflationary pressures, limiting the Fed’s ability to cut rates further. If Powell’s comments align with this view, we may see USD continue to trade within its current ranges against all G10 pairs. However, any contrasting remarks could add to the current momentum for GBP/USD to break above 1.30 and reignite EUR/USD’s push to cross the 1.06 level.
• After the market closes tomorrow, we also have the BOJ interest rate decision, where the odds of a rate hike currently stand at just 10%. Combined with no surprise comments from the Fed, this could lead USD/JPY to test new highs and cross the 155 level.
• As I mentioned yesterday, equities seem far more focused on Trump’s policy outlook. Therefore, I believe they are unlikely to react significantly to the interest rate decision or the FOMC press conference.

News Tomorrow(12/18): UK CPI & PPI at 2:00 AM, Fed Interest rate decision at 2:00 PM, FOMC Conference at 2:30 PM and BOJ Interest rate decision at 10:00 PM

Sources: Marketwatch(https://www.marketwatch.com/), , Reuters(https://www.reuters.com/), finviz(https://finviz.com/), fedwatch-tool(https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html), Tradingview(https://www.tradingview.com/)