MARKET REVIEW: UNITED STATES NOVEMBER 2018 CONSUMER PRICE INDEX
Economic calendar (highest volatility): 10th December – 14th December 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. After coming under pressure recently on signs that the Federal Reserve may slow down the pace of its future rate increases, the USD fell to close at 96.71 last Friday and it is expected to fall further under the global crude oil’s downward pressure.
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 though concerns over the U.S.-China relations remain heightened after the arrest of Huawei Technologies Co Ltd Chief Financial Officer Meng Wenzhou, which threatened to chill talks on some form of trade truce.
In regards to this week, the team here at FintechFX views the Thursday's European Central Bank (ECB) interest rate decision to bring about substantial market volatility during the week as the ECB should give the market some directional cues in regards to their intention to end their quantitative easing program by the end of 2018 and raise interest rates in the second half of 2019. However, if the Bank decides to increase interest rates earlier, this should augur well for the Euro. Nonetheless, the largest volatility trigger should come from the U.S Consumer Price Index (CPI) scheduled for release on Wednesday where if positive, should keep the overall strengthening trend of the USD largely in check.
The Euro had ticked up amid renewed Brexit optimism but at the same time, suffered the ongoing Italian debt crisis. This week, the EUR/USD will certainly be subjected to some degree of volatility given the December interest rate decision which is scheduled to be released on Thursday. Formerly, the market focus for ECB's President Draghi's speeches revolved around the timing of when ECB's asset purchasing programme would be scheduled to come to an end as well as to pick up a clearer timeline for an Interest Rate hike. Regardless whether there will be a hawkish or dovish statement made, 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 EUD. 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. In the latest development, though May has closed 17 months of complex talks with Brussels on November 25 by sealing Brexit arrangements with the other 27 other EU heads of state and government after EU leaders signed off on the terms of the U.K.’s departure from the bloc, May is now facing the daunting task of winning parliamentary approval for her compromise Brexit deal. May's Brexit plan is facing opposition from Brexit supporters, pro-Europeans, the Northern Irish party, and even some of her own ministers and MPs, and risks being voted down by parliament on December 11, hence increasing possibilities for a potentially chaotic no-deal Brexit. 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. parliament rejects May's Brexit deal. Brexit uncertainty continues to linger and with indications that U.K.’s growth may continue to weaken throughout Q4. Against the backdrop of fading Brexit optimism, With Brexit headlines turning out to be an exclusive driver of the sentiment surrounding the GBP, the monthly GDP estimate from the U.K. on Monday, which is expected to nudged higher would also be vital as the main measure of U.K.’s economic growth. The U.K. economy likely to rise by 0.1% month-on-month. 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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