Market Review: UNITED STATES AUGUST 2018 NONFARM PAYROLLS
Economic calendar (highest volatility): 3rd September – 8th September 2018:
Fundamental: This month, the United States (U.S) Federal Open Market Committee (FOMC) raised Interest Rates largely as anticipated, bringing up the benchmark rate to 2% from the former 1.75% level. Interestingly while this decision largely met forecast, the tone of the regulators suggest that two more U.S Interest Rate hikes are likely to take place this year. This brought 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 USD strengthened on Friday to 95.05 as concerns over global trade resurfaced after the U.S. and Canada passed the Friday deadline imposed by the U.S. President, Donald Trump’s administration to revamp the North American Free Trade Agreement (NAFTA) with no NAFTA deal. The USD also rose after the U.S. Department of Commerce data showed gross domestic product increasing 4.2% in the second quarter, hence matching estimates and suggesting a continued robust performance from the U.S. economy. The USD maintained gains made against most major currencies. Despite the continuing strength witnessed in the U.S Dollar and the progress made on the trade agreements between the U.S. and Mexico, the trade war between the U.S. and China is continuing to intensify, following the Trump administration’s plans to impose tariffs on an additional $200 billion on Chinese goods. Besides China, the trade war between the European Union (EU) and the U.S. increased again, following Trump’s rejection of an EU offer to eliminate tariffs on cars. Trump also threatened to withdraw from the World Trade Organization this week. The team here at FintechFx view that this could be a hindrance to the USD's strength moving forward.
Furthermore, the team here at FintechFx view that political risk related issues might deter the rise of the USD as concerns for more aggressive retaliations out of China built in to the currency market, even though the USD was higher than most major pairs this week as the market saw that the U.S. would be better equipped to weather a slowdown in trade than other major economies. Worries of escalating trade wars with neighboring countries like Canada could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. In addition to this, contentious U.S.-Canada Trade talks ended on Friday with no deal to revamp the NAFTA. At a speech in North Carolina on Friday, Trump took a swipe at Canada by saying that they have taken advantage of the U.S. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.
In regards to this week, the team here at FintechFx view the Thursday August 2018 Non-Farm Employment Change (NEC) data to bring about the most market volatility. The team views the August 2018 ADP NEC data release on Thursday and the ISM Manufacturing and Non-manufacturing Purchasing Managers Index (PMI) data on Tuesday to bring about some early indications on how the American August Non-Farm Payrolls data would fare at the end of the week. This week, we will also be expecting an interest rate decision out of the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) The team largely expects the RBA and BoC to keep rates unchanged at 1.50%, respectively, and if the RBA presents the market with dovish statements, a further fall in the AUD/USD can be certain.
The team also notes on the various key Canadian economic data releases which is scheduled for release a day after the U.S August 2018 NEC would be released. This should bring about some added volatility for the USD/CAD and is further discussed in the technical segment below. In addition to this, the array of PMI data releases out of the United Kingdom (U.K) also brings about some trading interest towards the GBP/USD given the potential volatility and hence, also further elaborated by us in the technical segment below.
Taking a slight recap on the USD/CAD, the team here at FintechFx would like to highlight that the Bank of Canada (BoC) has raised Interest Rates from 1.25% to 1.50% on July 11, while investors are convinced that there will be at least one more rate rise by the BoC in 2018 with the timing still open to discussion. Nonetheless, the team notes that a 'sell on fact' play was witnessed straight after reinforcing our views that the USD strength largely outweighs. In the latest development, none of the Canadian Dollar (CAD) had been affected by two catalyst, notably the actions taken by the U.S on wanting to impose tariffs on Canadian steel and aluminium as well as the fall in global oil prices. However, the CAD fell on Friday versus the USD following reports that the U.S. and Canada ended the NAFTA trade negotiations without any deal. Therefore for the week, the team here at FintechFx view the USD/CAD to drop further seeing that the US-Canada trade relations are still shaky.
The GBP/USD has recouped much of its post-Brexit losses in the re don’t weeks following the improved progress in Brexit negotiations, after being under pressure over the last few months for fear of a no-deal Brexit. In the latest development, European Union chief negotiator Michel Barnier said the EU would offer the U.K an unprecedented third-country deal. The team here at FintechFx views for a "buy on rumour" move to continue to develop pending the Brexit developments. The various PMI data releases out of the U.K this week would also be vital towards any change in both GDP and inflation guidance. If a positive PMI outcome is not seen, the team here at FintechFx view the positive sentiment of the U.S Dollar to return.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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