Market Review: UNITED STATES Q2 GROSS DOMESTIC PRODUCT
Economic calendar (highest volatility): 27th August – 31st August 2018:
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 U.S Dollar Index (DX) fell on a Friday-to-Friday basis to close at 95.16 on Friday, as new tariffs took effect and markets speculated about U.S. President Donald Trump’s position following legal rulings against his former lawyer, Michael Chen, and his former campaign manager, Paul Manafort. Despite the continuing strength witnessed in the U.S Dollar and the progress made on the trade agreements between the U.S. and European Union last month where the U.S. and EU agreed to a zero tariff deal and ironed out issues related to trade barriers and subsidies, the U.S. and China escalated their months-long trade war, implementing 25% tariffs on US$16 billion worth of each other’s goods. China and the U.S. have now slapped tit-for-tat for US$100 billion of products since early July, with more in the pipeline. Furthermore, trade talks between mid-level U.S. and China officials ended on Thursday without any sign of major progress. The team here at Fintechfx view that the trade wars 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, the trade dispute between the U.S. and Canada continues to mount with Canada hitting back against the U.S. with its list of retaliatory tariffs after the Trump administration went ahead with threatened tariffs on steel and aluminum. 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 U.S Advanced Q2 Gross Domestic Product (GDP) is expected to bring about the most trading volatility for the week. In addition to this, the Canadian dollar and Euro dollar (EUD) will also be watched closely by traders ahead of the release of Canada’s June GDP reading on Thursday and Eurozone’s August Consumer Price Index (CPI) figures which is scheduled for Friday. The final Eurozone CPI read for July showed a slight acceleration in inflation: 2.1% on the headline and 1.1% on core inflation; and a repeat of the same numbers is expected. Traders look at the preliminary Eurozone CPI figures for August which will serve as important input for the European Central Bank (ECB) in its September meeting. The team here at Fintechfx view the Europe’s Q2 CPI reading to bring about substantial market volatility to the Euro during the week as a higher than expected reading should be taken as positive/bullish for the EUD while a lower than expected reading should be taken as negative/bearish for the EUD.
This week, the EUD/USD presents traders with some trading volatility ahead of the release of key inflation data from the Eurozone economy. Core CPI is expected to remain the same at 1.1% across the Eurozone during the month of August, after inflation unexpectedly accelerated 2.1% in July, underlining the case for the ECB to wind down its asset purchase program this year. If we see the figure not reaching consensus forecast, it may make uncomfortable reading for the Governing Council, ahead of following ECB meeting.
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% in July, 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, though the CAD continues enjoying optimism on the North American Free Trade Agreement that helped it overcome weak retail sales. Therefore for the week, the team here at Fintechfx view the USD/CAD to rise further.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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