iFOREX Daily Analysis : December 07, 2016

 | Dec 07, 2016 03:41AM ET

The dollar rose against most major currencies on Tuesday, on rising expectations of the first rate hike in a year by the Federal Reserve next week. In the U.S., data showed that the trade deficit widened to a four month high of $42.6 billion in October from a revised $36.2 billion in September, as imports rose to the highest level in 14 months.

Another report showed that labor productivity rebounded in the third quarter, with the fastest rate of growth in two years. Factory orders rose 2.7%, more than the 2.6% gain seen month-on-month for October.

The euro retreated from a 3-week high on Tuesday while market volatility stayed close to it’s highest since June’s Brexit vote, ahead of this week's European Central Bank meeting on its quantitative easing program.

In Australia a busy data day with the AIG construction index for November at 46.6, a tick up from 45.9 and third quarter GDP down 0.5% well below the 0.3% gain seen quarter-on-quarter and at a 1.8% on a yearly basis, compared to a rise of 2.5% expected.

The GDP fall, is the biggest since 2008, and is likely one of the biggest forecasting misses by the Reserve Bank of Australia. In addition, the USD/JPY posted a small increase of 0.15% after news that Japan's SoftBank was poised to invest $50 billion in the U.S., creating upwards of 50,000 jobs, in the coming year.

For today, the U.K. is to release industry data on house price inflation, as well as official figures on manufacturing and industrial production.

The Bank of Canada is to announce its benchmark interest rate and release its latest policy statement. The European Central Bank policy meeting is due to set the tone for the currency markets this week, after some sharp moves caused after last month's U.S. election and after the Italian referendum fallout.

EUR/USD

The euro fell from a three week high on Tuesday, with volatility reaching its highest since the Brexit, ahead of this week’s ECB meeting and next week’s FOMC meeting on monetary policy.

ECB Head Mario Draghi is expected to lay out his plans for quantitative easing after March 2017 at a news conference on Thursday.

At least a six-month extension of the program is now expected but some analysts speculate that the bank might also announce some tapering of the monthly bond-buying amounts as part of that move.

Any such change in the direction of the ECB's policymaking would broadly be seen as a euro positive after almost two years of money-printing.

The European Central Bank policy meeting is due to set the tone for the currency markets this week, after some sharp moves caused after last month's U.S. election and after the Italian referendum fallout.