The main event of the next week will be FOMC meeting which is due on Wednesday. Markets don’t expect changes in the federal funds interest rate or QE, but should be attentive to the way how the Fed will comment on the government's plans to borrow money in the debt market to fund the new stimulus package proposed by Biden’s administration.

If the Fed does not give a signal that it will help the market absorb a new large portion of bond supply, investors may become frustrated and start exiting the market in anticipation of a decline in prices under pressure from the new supply. Therefore, the Fed should be inclined to signal that it is ready to provide as much support as needed. The dynamics of the Fed's balance sheet shows that the Fed continues to ease monetary policy through QE - the asset balance continues to grow and renews highs:

Accordingly, ahead of the Fed meeting, the FX market may be inclined to dump USD due to expectations that the Fed will again signal about increase in money supply.

On Monday and Tuesday, investors are likely to pay attention to reports such as the IFO German Business Climate Index and the Conference Board US Consumer Confidence Index.

The report on orders for durable goods in the United States, which will be released on Wednesday, will allow assessing the dynamics of consumption of high-value goods and income growth in December. The indicator, following US retail sales, is likely to disappoint expectations, which may have already been factored in asset prices.

Canada's January GDP Growth Report, which is due next Friday, is also likely to cause some volatility in the Canadian dollar. Monthly growth of GDP is expected to slow to 0.3%.

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