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Could the Fed drive a Santa Claus rally this week?

It may be the final trading week of the year, but the key risks remain and volatility is elevated. The FOMC monetary policy will be the key risk factor for traders this week. We consider the impact on forex, equities and commodities.

Living in the UK, it is difficult to get away from Brexit right now. Theresa May pulled the vote on the Withdrawal Deal in the knowledge that she could not get it passed Parliament in its current form and in the hope that she could go to the EU Summit and get something better. The EU seem to be in no mood to play ball. Here is my two pence worth. The EU do not want the UK to leave. Critics in the UK Parliament (and outside) are widespread and the EU must surely know that the deal in its current format will never get voted through. If they wanted to actually help Mrs May they would have been far more helpful at the summit. It is in their interest to scapegoat Mrs May in the knowledge that a growing swell of support for a second referendum is forming, whilst “Remain” would likely win in a second running of the referendum. Knowing that Article 50 can simply be revoked unilaterally by the UK, are the EU just playing the long game? It is increasingly likely that the UK will be going to the polls again at some stage in 2019, whether it be a general election or a second referendum, although the mechanics of getting there will be acrimonious to say the least. Away from Westminster, this week focus will be on the Federal Reserve. A rate hike is entirely expected, but the real news will come in how the Fed guides for future rate hikes. Eurodollar futures are pricing for less than one further hike before to December 2019, but the Fed’s dots say three. How Powell plays with these expectations could be crucial. Erring hawkish could drive a significant risk sell-off.

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.