Market Review: UNITED STATES MIDTERM ELECTIONS
Economic calendar (highest volatility): 5th November – 9th November 2018:
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 after the U.S. nonfarm payroll employment increased by 250,000 jobs in October, beating economists' estimates for 193,000 new jobs, the USD strengthened closed at 96.50 last Friday. The better-than-expected jobs data strengthens the Federal Reserve's case to continue gradually raising rates and leaving intact its plans to steadily tighten monetary policy.
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 has revamped the North American Free Trade Agreement (NAFTA) with Canada and Mexico, 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 steel and aluminum tariffs as the USMCA does not include revisions to such tariffs and Canada and Mexico has stated that it would not sign the USMCA agreement unless the U.S. removes the steel and aluminum tariffs on its two continental neighbors. China and E.U. have recently joined a group of countries asking the World Trade Organization 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. Besides that, there is also nothing in the USMCA that suggests Trump’s tariffs on China would not keep escalating. There continues to be fresh worries about the intensifying U.S.-China trade war following a Bloomberg news report last Monday that the U.S. was planning to impose tariffs on all remaining Chinese imports by early December if an agreement between Trump and Chinese President Xi Jinping at the Group of 20 leaders summit in Argentina at the end of November could not be reached. Trump had earlier 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 view the U.S. mid-term elcetions on Tuesday as well as the Reserve Bank of Australia (RBA), Reserve Bank of New Zealand (RBNZ) and FOMC’s interest rate decision on Monday, Wednesday and Thursday respectively to bring about substantial market volatility during the early part of the week. Though the three central banks are expected to keep their November interest rates on hold at 1.5% for the RBA’s interest, 1.75% for the RBNZ and 2.25% for the FOMC respectively, nonetheless the Australian Dollar (AUD), New Zealand Dollar (NZD) and/or USD could move nonetheless, particularly if these central banks drop their bearish views. However, if the Banks decide to increase interest rates earlier, this should augur well for both the AUD, NZD and USD. Nonetheless, the largest volatility trigger should come from the U.K. Gross Domestic Product (GDP) scheduled for release on Friday where if positive, should keep the overall strengthening trend of the USD largely in check.
This week, the AUD/USD presents traders with some trading volatility as the RBA’s interest rate decision is scheduled for release on Monday. Though the RBA is expected to maintain its interest rate at 1.5%, and the team of us here at FintechFX view that the bearish tone is set to continue given its subdued inflation rate last month, 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 Thursday during the release of the RBA 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 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. 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 the EU Summit in Brussels on September 16-17 appeared to have made little progress on Brexit, with British Prime Minister Theresa May only suggesting the extension of the transition period after the U.K. leaves the EU. Nonetheless, the GBP has an upbeat start to November following reports that Britain had sealed a deal with the EU that would give the U.K.’s financial services companies continued access to the European markets after Brexit, hence adding to the optimism about the prospects of reaching a wider deal with the EU. Also, 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. With Brexit headlines turning out to be an exclusive driver of the sentiment surrounding the GBP, the preliminary third quarter GDP estimate from the U.K. on Friday, which is expected to nudged higher would also be vital as the main measure of U.K. economic growth. The U.K. economy likely to rise by 0.6% quarter-on-quarter in the three months to September, with the annual rate increasing up from 1.2% to 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
Contact Us: [email protected]