Market Review: ECB Monetary Policy Meeting Accounts
Economic calendar (highest volatility): 19th November – 23rd November 2018:
On September 26, the United States (U.S) Federal Open Market Committee (FOMC) raised interest rates, bringing up the benchmark overnight lending rate by another quarter-percentage point to a range of 2.00% to 2.25%, in view of the tone of the regulators suggesting that four U.S Interest Rate hikes are likely to take place this year. This will bring about sustenance in the U.S Dollar's (USD) value and avoidance of a 'sell on fact' currency play, as the formerly vague expectations for four Interest Rate hikes to take place this year has now been largely reaffirmed. The Federal Reserve also reaffirmed its hawkish monetary policy stance at its monetary policy meeting and stayed on course for a December interest rate hike. Nonetheless, the USD fell to close at 96.43 last Friday after dovish comments from Federal Reserve Vice Chairman Richard Clarissa that he does not expect a big pick up in inflation next year.
The team here at FintechFX view that trade wars could be a hindrance to the USD's strength moving forward. Though the U.S. is now in the early stages of talks with Japan and the E.U. to lower tariffs and regulatory barriers and has revamped the North American Free Trade Agreement (NAFTA) with Canada and Mexico, the team here at FintechFX views that the new NAFTA deal, called the U.S.-Mexico-Canada Agreement (USMCA), is not a sign that threat of escalating Donald Trump’s tariffs is over. There is still uncertainty about Trump’s steel and aluminum tariffs as the USMCA does not include revisions to such tariffs and Canada and Mexico has stated that it would not sign the USMCA agreement unless the U.S. removes the steel and aluminum tariffs on its two continental neighbors though Canadian Prime Minister Justin Trudeau is optimistic about reaching a deal with the U.S. to scrap custom duties for steel and aluminum products later this month. China and E.U. have recently joined a group of countries asking the World Trade Organization to judge the legality of the U.S. metal tariffs on national security grounds, thus creating another trade war. In a separate filing, the U.S. has also asked the WTO to review those nations that retaliated against its duties. Besides that, there is also nothing in the USMCA that suggests Trump’s tariffs on China would not keep escalating. There continues to be fresh worries about the intensifying U.S.-China trade war following a Bloomberg news report that the U.S. was planning to impose tariffs on all remaining Chinese imports by early December if an agreement between Trump and Chinese President Xi Jinping at the Group of 20 leaders summit in Argentina at the end of November could not be reached. Trump had earlier imposed tariffs of 10% on $200 billion in Chinese imports that kicked in on September 25 and the tariffs are set to rise to 25% on January 1, 2019. Trump has also threatened to imposed the full half billion dollars in Chinese imports if China retaliates, as it already has. Furthermore, the USMCA terms also preclude Canada or Mexico agreeing to a trade deal with China as any such accord with China would allow the U.S. to back out of the agreement with short notice. In fact, the U.S. Trade Representative, Robert Lighthizer, said such terms will serve as a template for future agreements. The outcome of the November 6th U.S. midterm election is unlikely to change the U.S.’s trade war with China as both Democrats and Republicans support a tougher stance on Chinese trade and intellectual property practices. Worries of escalating trade wars with could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.
This week, the team here at FintechFX views the U.S. Durable Goods Orders release to bring about the most volatility as a report showing an increase in orders is a sign that the economy is strengthening. There is some expectation that this figure will fall following a sustained inflation level. Canada will also release their October 2018 Retail Sales numbers and Consumer Price Index towards the end of the week. Meanwhile although not making much of a highlight in the economic calendar, the team views the Royal Bank of Australia and European Central Bank’s monetary policy meeting minutes, if largely positive, could be a 'dark horse' which could bring about major volatility for the week.
This week, the Australian Dollar (AUD) /USD presents traders with some trading volatility as there stands to be a crucial AUD related data scheduled for release namely the Australian Monetary Policy Meeting Minutes which is expected to reiterate its upbeat growth forecasts, while remaining cautiously optimistic about a gradual pickup in inflation. The AUD in our opinion, is still highly undervalued and shows some signs of rising this 2018. Nonetheless, regardless whether there will be a hawkish or dovish statement made on Monday during the release of the Australian Monetary Policy Meeting Minutes or whether there will be an actual Interest Rate hike or not though interest rates is still expected to remain unchanged this round, markets generally tend to move during such decisions as any comments about wages, inflation, and future monetary policy may have an impact on the AUD. Therefore, the team here at FintechFX urges readers to be early in picking up these trading cues in order to be able to catch a formation of any particular fresh trend.
The Pound Sterling (GBP) has pummeled over the past weeks for fear of a no-deal Brexit after the EU Summit in Brussels on September 16-17 appeared to have made little progress on Brexit, with British Prime Minister Theresa May only suggesting the extension of the transition period after the U.K. leaves the EU. After having an upbeat start to November following reports that Britain had sealed a deal with the EU that would give the U.K.’s financial services companies continued access to the European markets after Brexit, hence adding to the optimism about the prospects of reaching a wider deal with the EU, the GBP sank amid increasing tensions within British Prime Minister Theresa May's government on whether she can produce an orderly exit plan from the European Union. May's Brexit plan is facing opposition from Brexiteers, pro-Europeans, the Northern Irish party, and even some of her own ministers, and risks being voted down by parliament, increasing possibilities for a potentially chaotic no-deal Brexit. Hence, the team here at FintechFX views for a "buy on rumour" move to continue to develop pending the Brexit developments as the team is in the opinion that the GBP will rise under all Brexit scenarios so long as a no-deal outcome can be avoided, but the GBP is also at risk of falling if the U.K. leaves the EU in March 2019 without an exit deal.As Brexit uncertainty continues to linger and with indications that UK growth may continue to weaken throughout Q4. Against the backdrop of fading Brexit optimism, the British Pound was further weighed down by mixed U.K. economic data that showed a third consecutive quarterly drop in the total business investment. Nonetheless, this week’s economic indicators may also not be as positive. The U.K. inflation report hearing will be watched on Thursday for the latest economic developments and may provide some outlook regarding rate hike expectations, which have fallen after the recent political chaos.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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