Market Review: UNITED STATES DECEMBER 2018 NONFARM PAYROLLS
Economic calendar (highest volatility): 31st December – 4th 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 the partial U.S government shutdown and closed at 96.39.
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. This was further escalated this week by the Americans who are considering to sign a national emergency executive order for equipment made by China's Huawei and ZTE to have their telecommunications equipment be no longer usable by American companies. On 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 ageing 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$1,281 per troy ounce.
This week, the Chinese Yuan/USD presents traders with some trading volatility as there stands to be a crucial Chinese economy related data scheduled for release namely the China Manufacturing Purchasing Managers Index (PMI). A reading above 50 indicates expansion, while a reading below 50 signals contraction. Nonetheless the official gauge is expected to hold steady from November’s 50-point mark neutral territory as China’s economy continues to slowdown from structural reforms such as deleveraging as well as the trade war with the U.S. While a worse-than-expected figures in the manufacturing PMIs could deepen the risk-off sentiment currently prevailing over the markets as they would fuel concerns about a sharp slowdown in the world’s second largest economy, a lower PMI number would likely prompt Chine policymakers to announce further stimulus measures and boost policy easing measures to support the economy in a bid to counter the negative impact from tougher U.S. trade restrictions. 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 December PMIs for the U.K. could also add to the volatility. The IHS Markit/CIPS U.K. Manufacturing PMI will be released on Wednesday, followed by the Construction PMI on Thursday and the U.K. economy Services PMI on Friday. While dovish set of figures 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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