Financial Markets Ushered In The "Perfect Storm". The US Dollar Index Is High.

In the early morning of the week in Sanya, the US dollar index remained at a high level of nine years. The US economic data, which were slightly weaker overnight, were only a short blow to the US dollar. Investors will pay attention to the minutes of the Federal Reserve meeting on Thursday morning in Beijing. The contents of the minutes will provide important clues about the follow-up policy of the Federal Reserve to guide the US dollar trend; on the other hand, the euro / dollar fell to a low level of nine years on Wednesday, and investors waited for the important euro area inflation data to be released. This data should give the European Central Bank pigeons a clear reason for offering bold policy incentives.

On Wednesday (January 7th), the Asian trading session was volatile, and the euro / dollar fell to 1.1842 from 1.1885 in late New York.

Traders said that some of the stops were triggered after the exchange rate fell below the Monday low of 1.1861.

Greece is likely to withdraw from the eurozone, which has hurt the euro considerably.

The data released later on Wednesday will show that consumer prices in the euro area fell in December over the same period last year, the first since 2009. If that is the case, it will undoubtedly be a "bad news" for the euro.

At the beginning of the week in Sanya, the US dollar index was hovering around 91.70.

The US released disappointing economic data on Tuesday and the decline in US bond yields dragged down the dollar.

The United States announced that factory orders fell in November for the fourth consecutive month, and the growth rate of service industry in December was also lower than expected, hitting the lowest level in six months.

Jens Nordvig, head of strategy division at G10, Nomura, said two data released on Tuesday showed that the weakening of the US economy had tied the US dollar, but the US dollar strength remained intact.

The euro is dragged down by a series of factors to maintain extremely weak trend.

At the same time, the yen remained stable against the dollar and the euro at a high of several weeks.

The yen continued to rise for second consecutive days as investors sought safe haven currencies.

Investors are alarmed by the continuing weakness of oil prices and the prospect of deflation in Europe, so they sell stocks and buy bonds.

Spiros Papadopoulos, a senior analyst at NAB, said: "in the face of market caution, the yen continues to be outstanding because of its" risk aversion "advantage.

The decline in US bond yields prompted some investors to start selling dollars / yen, pushing the exchange rate to 118, the first time since mid December.

The US dollar / yen is 118.75, far from the December 8th and seven year high 121.86..

"Global risk appetite has been hit by the stock market and oil price slump," Jeremy Stretch, head of CIBC World Markets, said.

This makes investors think that the market lacks demand, which will drag the growth of global economy. But I am cautious about the conclusion that I just started this year.

The decrease in risk appetite may be temporary. The US dollar / yen will rebound and the euro is expected to go down. "

What signals will the FOMC minutes reveal?

Beijing time 03:00 on Thursday, the Federal Open Market Committee (FOMC) will publish a summary of the December monetary policy meeting, which is the first major move of the Federal Reserve since the 2015 year. The contents of the minutes may have a significant impact on the US dollar trend.

Bank of America Merrill Lynch made a forward-looking report on this major risk event.

According to the report, "the statement after the December FOMC conference revealed that there was a lack of consensus among the Fed officials in the market communication. The complexity of the forward-looking guidance of monetary policy revealed this point, and the fact that officials scattered at the two sides of the hawk doves showed that some of the Fed's internal differences still exist.

The minutes of the meeting may further highlight this divergence, especially in 2015, in terms of the economic and environmental conditions that can raise interest rates.

In the light of the fact that the contents of the statement are more hawkish than the original market expectations, we think the contents of the meeting minutes will continue this trend.

Mei Yin Mei Lin said: "the risk is that at that time the market was more concerned about the remarks made by the chairman of the Federal Reserve, Yellen (Janet Yellen), at the press conference after the conference. The market also regarded it as a hawkish position. Combined with the market fluctuations before the December meeting, we believe that discussions on the global economy, geopolitics and financial risks will be more reflected in the summary.

If the record weakens these risks as in October, the impact of its content may only be gentle on the Hawks.

The report said that in the specific direction of monetary policy guidance, even if the word "patience" was added, the reappearance of "quite a long time" means that the committee may not agree with the full turn of interest rate policy.

"The detailed description of the above two statements may lead to market turbulence. We expect the meeting minutes to show that the hawks and doves have a heated debate about this, which also provides some hints on how the committee will modify its guidance.

The discussion on presupposed conditions for raising interest rates is also a signal to add weight to the rate hike during the year.

In view of the risk of deflation and overcapacity in the global economy, the Federal Reserve could maintain close to zero interest rates for 2015 years, Steven Ricchiuto, chief economist of Mizuho Securities, said on Tuesday.

Ricchiuto said: "at present, the US economy has accumulated a lot of excess capacity, and the world also has huge excess capacity, while deflation risk is greater than inflation. The US economy needs to run healthfully for a period of time.

The economy is largely dependent on financial engineering. If the Fed raises short-term interest rates, the US economy may not be as strong as it imagined.

Ricchiuto believes there is no doubt that more FOMC dove members in the US will help postpone interest rate action in 2015.

Mizuho's prediction that the Fed will not act in 2015 has lasted nearly a year. Ricchiuto expects the Federal Reserve to raise interest rates in the first or second quarter of 2016.

In addition, Eric Green, director of US interest and economic research at TDS, pointed out in the research report that the summary of the December monetary policy meeting of the US Federal Reserve may maintain "neutral" argument. The discussion focused on the market and did not fully consider the mainstream opinions of policy makers on raising interest rates.

The report shows a decline in the US inflation premium.

The discussion will also attract more attention.

Some clarifications will be helpful in interpreting changes in forward-looking guidelines.

Therefore, the US FOMC meeting minutes may maintain neutral argument, and the Fed's short-term interest rate raising action is less likely.

San Francisco Fed chairman Williams (John Williams) said in January 5th that there was no reason to rush to raise interest rates, which deepened the speculation that the market raised doubts about the pace of raising interest rates.

He has the right to vote in the Federal Open Market Committee (FOMC).

Bloomberg economist Carl Riccadonna wrote that the minutes of the FOMC meeting announced at 03:00 in Beijing on Thursday morning may answer some important questions of investors:

First of all, investors need to pay more attention to the expression of low inflation.

One of the biggest changes in the Fed's December policy statement is the expression of inflation.

The Commission seems to be more worried about the lingering weak situation and mentioned the reasons beyond the energy price.

The policy statement seems to indicate that the time point for policy makers to achieve inflation targets has been postponed.

Second, it is concerned about how policymakers perceive the international risks facing the economic outlook, including European and Japanese growth and Russia's further recession.

Jannet Yellen, chairman of the Federal Reserve, seems to have downplayed concerns about these factors at a news conference.

Third, pay attention to

Description of the post interest rate path.

I recall that Yellen once said that the committee may not repeat the "moderate" rate increase process that runs through the last tightening cycle.

Fourth, Riccadonna added.

When we analyze the minutes of the meeting, we must bear in mind that policymakers did not know that the third quarter gross domestic product (GDP) growth rate would be revised to 5%.

Therefore, if there is concern about the overheated economy, this concern may have intensified. On the contrary, concerns about economic slack and low inflation rate may be eased.

Fifth, after the release of the minutes of the FOMC meeting on Wednesday, a number of Fed officials will also come to power.

Charles Evans, the chairman of the Chicago Fed chairman who has the right to vote, will speak on monetary policy later on Wednesday.

Of particular concern is his view on the market's response to the minutes of the FOMC meeting.

The Minneapolis Fed chairman Kocherlakota (Narayana Kocherlakota) will also talk about monetary policy on Thursday.

Finally, Ricci Monde Federal Reserve Chairman Lake (Jeffrey Lacker) will deliver a speech on the economic outlook for 2015 on Friday.

His toughness was ranked first among the FOMC members who had the right to vote in 2015, but still less than the hawks of such members in 2014.

Observers from the Federal Reserve will find clues to see whether Mr Laker will come up with strong objections at the first few meetings of the FOMC new year.

Before his speech, the December employment report has been announced, which is a cause for concern in his speech.

Will euro zone inflation "cost the euro"?

At 18:00 on Wednesday, Beijing time, the European Union statistics bureau will announce the euro area's initial value of reconciling the consumer price index (HICP) in December, with the expected annual decline of 0.1% and 0.3% last month.

If euro zone inflation falls below the zero line level, the euro / dollar may again be under pressure to sell.

"Eurozone data should support the ECB's intention to start quantitative easing (QE) in January," wrote an analyst at BNP Paribas in Paris.

As the data is about to be released, we will continue to look at the euro / dollar.

The overall inflation rate in the euro area could fall to -0.1%, which is the first negative growth in euro area inflation since October 2009, Rabobank's analyst team wrote on Tuesday.

"If crude oil prices continue to linger in the next few months, we expect that the potential negative factors for the decline of crude oil will emerge," the report said.

Therefore, we expect that the euro area HICP initial value will fall below the zero line level in December.

According to the recent changes in commodities and exchange rates, we expect the euro area energy price index to decline at an annual rate or from -2.6% in November to -8%.