MARKET REVIEW: UNITED STATES DECEMBER 2018 CONSUMER PRICE INDEX
Economic calendar (highest volatility): 7th January – 11th January 2019:
On 2018, the United States (U.S) Federal Open Market Committee (FOMC) raised interest rates four times, settling the benchmark overnight lending rate at 2.50% on December 2018.
Moving along 2019, the team here at FintechFX expects the FOMC to hike Interest Rates two more times, which would then bring the benchmark Interest Rate up to 3%. At this level, the team here at FintechFX view that a 3% Interest Rate environment to still be conducive of inflation. In addition, the highest rate post the U.S Subprime crisis would most certainly encourage greater foreign inflows into the country. Nonetheless, the team views that the U.S Dollar (USD) would eventually weaken as other economies such as the United Kingdom (U.K) and the European Union (EU) move to increase Interest rates during 2019. This week, the U.S Dollar Index (DX) weakened amidst signs of an economic slowdown in the U.S. that pushed investors to bet the Federal Reserve could reverse policy and start cutting interest rates before the end of this year and closed at 96.20.
On the perspective of global politics, there are a few developments which would risk economic stability moving along 2019. Firstly, the political climate between U.S and China in relation to trade and tariff wars does attract much attention. China and the U.S. face a key March 2019 deadline for talks to end the damaging trade war, or Washington could proceed to raise tariffs on Chinese goods originally set for 1st January, 2019. In the latest development, China and the U.S.will be holding a vice ministerial trade talks in Beijing on 7th-8th January, 2019 as both sides look to end a dispute that is inflicting pain on both economies. In March 2019, there should be a conclusion on whether we will have a Brexit or No-deal Brexit to take place. The team here at FintechFX view that a drag in conclusion over the Brexit situation could be detrimental if it crosses over the European Parliamentary Elections which will take place from 23rd May 2019 to 26th May 2019. The team here at FintechFX expect this elections to stem about more fresh political tensions amidst the entries of more 'populist' driven leaders.
Therefore on a larger perspective, the team here at FintechFX view the major theme this year to largely be tariff driven, adding on to last year's 'populism' theme. For example, tensions as witnessed during the recent World Trade Organization (WTO) forum. The team at FintechFX also view the falling price of Crude Oil and the actions to be taken by the affected nations to also stir about more tensions, specially within nations whose Gross Domestic Product (GDP) largely depends on Crude Oil prices.
Lastly, the growing Japanese debt and issues pertaining the country's overall sustainability amidst their aging population also sparks our interest. The team here at FintechFX will continue avidly monitoring these issues and report our findings weekly. 2019 is anticipated to be a pretty exciting year. The risk factors mentioned above are ample but should not be too drastic encouraging good two-way trading volatility moving forward. The team here at FintechFX view that gold for one, could set to see 1,400 this year. Currently, the commodity prices at USD$1,286.89 per troy ounce.
In regards to this week, the team here at FintechFX views the Wednesday's Bank of Canada (BoC) Meeting Minutes to bring about substantial market volatility during the middle part of the week as the BoC should give the market some directional cues in regards to their odds of raising interest rates in 2019. However, should the Bank keep its options open for possible rate hikes in the next few months, this should augur well for the Canadian dollar. Nonetheless, the largest volatility trigger should come from the U.S Consumer Price Index (CPI) scheduled for release on Friday too where if positive, should keep the overall strengthening trend of the USD largely in check.
This week, the Canadian Dollar (CAD)/USD presents traders with some trading volatility as the BoC’s interest rate decision is scheduled for release on Wednesday. Though the BoC is expected to maintain its interest rate at 1.75%, and the team of us here at FintechFX view that the bearish tone is set to continue given its subdued inflation rate last month along with the slump in oil prices, however investors will still be analyzing its outlook report, which will be published alongside its policy statement, for any changes to its inflation and growth forecasts. Nonetheless, regardless whether there will be a hawkish or dovish statement made on Wednesday during the release of the BoC Monetary Policy Meeting Minutes or whether there will be an 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 CAD. 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. 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 Prime Minister Theresa May delayed the parliamentary vote in her Brexit withdrawal deal with the EU as the odds look stacked against May’s ability in getting the Brexit deal approved by a divided British parliament. The move thrusts Britain’s exit from the EU into further confusion, with possible options including a no-deal Brexit, another referendum on EU membership, or a last minute renegotiation of May’s deal with Brussels though May was told that she was not able to renegotiate. 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. Against the backdrop of fading Brexit optimism, the November 2018 Manufacturing Production for the U.K. could also add to the volatility. While a lower than expected reading would increase the downside pressure on the GBP, however it could also potentially add pressure on British MPs to support Theresa May’s Brexit deal as there are growing signs that the prolonged uncertainty is starting to have a more pronounced impact on the U.K.’s businesses and consumers. 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.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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