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Market Review: United States Core Consumer Price Index

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Market Review: United States Core Consumer Price Index

Market Review: United States Core Consumer Price Index

Economic calendar (highest volatility): 8th October – 12th October 2018:

Fundamental:

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. Boosted by positive macroeconomic data and the Federal Reserve’s outlook for more rate hikes beyond this year, thus leaving intact its plans to steadily tighten monetary policy, the USD rose to close at 95.60 last Friday. Non farm payrolls increased lesss than expected in September, likely due to the effect of Hurricane Florence, though data for July and August was revised higher, and the unemployment rate dropped to 3.7%.

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 Canada has agreed to join in the trade deal with the U.S. and Mexico that is set to replace the North American Free Trade Agreement (NAFTA), 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.

In regards to this week, the team here at FintechFX views the Thursday's European Central Bank (ECB) Meeting Minutes to bring about substantial market volatility during the early part of the week as the ECB should give the market some directional cues in regards to their intention to end their quantitative easing programme by the end of 2018 and raise interest rates in the second half of 2019. However, if the Bank decides to increase interest rates earlier, this should augur well for the Euro. Nonetheless, the largest volatility trigger should come from the U.S Consumer Price Index (CPI) scheduled for release on  Thursday too where if positive, should keep the overall strengthening trend of the USD largely in check.

Technical:

The Euro had ticked up amid renewed Brexit optimism but at the same time, suffered the ongoing Italian debt crisis. This week, the EUR/USD will certainly be subjected to some degree of volatility given the pending Monetary Policy Meeting Accounts which is scheduled to be released on Thursday. Formerly, the market focus for ECB's President Draghi's speeches revolved around the timing of when ECB's asset purchasing programme would be scheduled to come to an end as well as to pick up a clearer timeline for an Interest Rate hike. Regardless whether there will be a hawkish or dovish statement made, 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 EUR. 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.

While the Pound Sterling (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 to a 5-day high against the USD. 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. Upbeat economic data has also contributed to the bullish GBP momentum, although this week’s indicators may not be as positive and could fail to provide support for the GBP. This Wednesday’s release is a monthly U.K. Gross Domestic Product report for August, which provides more insights into the third quarter of 2018. The UK economy grew by 0.3% in July, and growth in August is projected to slow to 0.1%. Any slowdown may be attributed to worries about Brexit.

Source (Charts): https://www.investing.com

Source (Economic Calendar): https://www.forexfactory.com/calendar.php

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