Market Review: UNITED STATES FEDERAL OPEN MARKET COMMITTEE MEETING MINUTES
Economic calendar (highest volatility): 15th October – 19th October 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 despite U.S. President Donald Trump’s antagonism to rate hikes by the central bank. Trump’s criticisms the Federal Reserve and its interest rate policy and a sell-off in U.S. equities, coupled with a drop in U.S. Treasury bond yields and the weaker-than-forecasted rise of 0.1% in U.S. consumer prices, saw the dollar closing lower on a Friday-to-Friday at 95.23 last Friday.
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 tariff and steel as the USMCA does not prohibit such tariffs. There is also nothing in the USMCA that suggests Trump’s tariffs on China would not keep escalating. Trump had 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. 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 September 2018 Retail Sales release to bring about the most volatility. There is some expectation that this figure will turn out to be better than expected following a sustained inflation level. Canada will also release their August 2018 Retail Sales numbers towards the end of the week. Meanwhile although not making much of a highlight in the economic calendar, the team views the New Zealand, the U.K, and European Union’s Consumer Price Index (CPI) release, if largely positive, could be a 'dark horse' which could bring about major volatility for the week as well as Royal Bank of Australia and FOMC’s monetary policy meeting minutes.
This week, the Australian Dollar (AUD) /USD presents traders with some trading volatility as there stands to be two crucial AUD related data scheduled for release namely the Australian Monetary Policy Meeting Minutes and Australian related Employment / Unemployment data. 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 most crucial driver for the Great Britain Pound Sterling (GBP) continues be the development of Brexit talks. While the GBP has been hit hard by concerns over a growing conflict within the ruling Conservative Party over PM Theresa May’s Brexit plan, news that good progress had been made as the EU began to engage with new British proposals on how to avoid extensive border checks in Ireland pushed the GBP higher against the USD as markets continue to price in the prospect of a Brexit deal being agreed in the coming days. The border between Ireland and North Ireland has been a point of contention in Brexit negotiations, with questions arising over how to trade and free movements of goods will work between the North and the South. 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. Hence, as GBP volatility is expected as developments on Brexit continues to drive GBP exchange rates, traders will be monitoring closely this week’s EU Summit meeting in Brussels which has been pinpointed to be the pivotal point in Brexit negotiations. Upbeat economic data has also contributed to the bullish GBP momentum, although next week’s indicators may not be as positive. The U.K. CPI figures will be watched on Wednesday for evidence that inflationary pressures in the U.K. continue to edge lower towards the Bank of England’s 2% target. The CPI is expected to is expected to lower to 2.6% in August, from 2.7% in August. Retail sales numbers will follow on Thursday and will be watched to gauge the strength of UK consumption. Retail sales are expected to show a 0.3% month-on-month contraction in sales in September after a 0.3% gain in August.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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