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Market Review: UNITED STATES FOMC INTEREST RATE DECISION

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Market Review: UNITED STATES FOMC INTEREST RATE DECISION

Market Review: UNITED STATES FOMC INTEREST RATE DECISION

Economic calendar (highest volatility): 17th December – 21st December 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. After coming under pressure recently on signs that the Federal Reserve may slow down the pace of its future rate increases in 2019, the USD strengthened to close at 97.42 last Friday boosted by upbeat monthly sales data and on expectations that the Fed is expected to announce a rate hike of 25 basis point on December 17-18

The team here at FintechFX view that defusing trade wars could boost the USD's strength moving forward as 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. For a start, 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 with Canada and Mexico. Despite the disagreements over the U.S. imposition of steel and aluminum tariffs and Trump's hard-line immigration stance that have been the hang up as Mexico and Canada have earlier threatened not to sign the new U.S.-Mexico-Canada Agreement unless the U.S. removes steel and aluminum tariffs, the leaders of the U.S., Mexico and Canada signed a North American trade pact last Friday. Nonetheless, China and E.U. have joined a group of countries asking the World Trade Organization (WTO) to judge the legality of the U.S. metal tariffs on national security grounds, thus creating another trade war. In a separate filing, the U.S. has also asked the WTO to review those nations that retaliated against its duties. Though the outcome of the November 6th U.S. midterm election was unlikely to change the U.S.’s trade war with China as both Democrats and Republicans support a tougher stance on Chinese trade and intellectual property practices and there was a negative fallout between China and the U.S. from the Asia-Pacific Economic Cooperation meeting after the gathered leaders failed to agree on a joint communique, it has been reported that following the meeting between Trump and Chinese President Xi Jinping at the Group of 20 (G20) leaders summit in Argentina over the weekend, China and the U.S. have agreed to halt additional tariffs as both nations engage in new trade negotiations with the goal of reaching an agreement within 90 days. In the latest development of the potential truce in the U.S.-China trade dispute, China has agreed to cut tariffs on U.S.’s autos to 15% from 40%, thus wiping out a levy imposed earlier this year in response to the U.S.’s measure.

This week, the team here at FintechFX views the U.S. Durable Goods Orders release to bring about the most volatility as a report showing an increase in orders is a sign that the economy is strengthening. There is some expectation that this figure will fall following a sustained inflation level. Canada will also release their November Consumer Price Index figures on Wednesday, and retail sales and Gross Domestic Product (GDP) numbers for October on Friday. Meanwhile although not making much of a highlight in the economic calendar, the team views the Royal Bank of Australia and Bank of Japan’s monetary policy meeting minutes, if largely positive, could be a 'dark horse' which could bring about major volatility for the week.

Technical:

This week, the Australian Dollar (AUD) /USD presents traders with some trading volatility as there stands to be a crucial AUD related data scheduled for release namely the Australian Monetary Policy Meeting Minutes which is expected to reiterate its upbeat growth forecasts, while remaining cautiously optimistic about a gradual pickup in inflation. 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 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. The Bank of England is also expected to keep interest rates unchanged at 0.75% on Thursday amid the Brexit chaos. With Brexit headlines turning out to be an exclusive driver of the sentiment surrounding the GBP, the second estimate of GDP growth for the third quarter on Friday would also be vital as the main measure of U.K. economic growth. The U.K. economy is likely to maintain at 0.6% quarter-on-quarter in the three months to September, with the annual rate remaining at 1.5%. Should GDP results appear more encouraging than the estimate, the GBP may receive a small boost, but a worse than expected GDP outcome would push GBP further lower. Hence if a positive GDP outcome is not seen, the team here at FintechFX view the ongoing positive sentiment of the U.S Dollar to sustain.

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

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

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