Market Review: UNITED STATES NOVEMBER 2018 NONFARM PAYROLLS
Economic calendar (highest volatility): 3rd December – 7th 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. In anticipation that the Federal Reserve is on course for a December interest rate hike, the USD rose to close at 97.20 last Friday though it is expected to fall under the global crude oil’s downward pressure and market sentiment moved by the U.S. Federal Reserve senior officials’ comment on the interest rate direction.
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. Specifically Trump had agreed not to increase tariffs on US$200 billion of Chinese goods to 25% on January 1 as previously announced.
In regards to this week, the team here at FintechFX view the Wednesday November 2018 Non-Farm Employment Change (NEC) data to bring about the most market volatility. The team views the August 2018 ADP NEC data release on Wednesday and the ISM Manufacturing and Non-manufacturing Purchasing Managers Index (PMI) data on Monday and Wednesday to bring about some early indications on how the American August Non-Farm Payrolls data would fare at the end of the week. This week, we will also be expecting an interest rate decision out of the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) The team largely expects the RBA to keep rates unchanged at 1.50% and the BoC to hold rates steady at 1.75% and if the RBA presents the market with dovish statements, a further fall in the AUD/USD can be certain. The team also notes on the various key Canadian employment data releases which is scheduled for release two days after the U.S November 2018 NEC is released. This should bring about some added volatility for the USD/CAD. In addition to this, the array of PMI data releases out of the United Kingdom (U.K) also brings about some trading interest towards the GBP/USD given the potential volatility and hence, also further elaborated by us in the technical segment below.
This week, the AUD/USD presents traders with some trading volatility as the BoC’s interest rate decision is scheduled for release on Wednesday. Though the RBA is expected to maintain its interest rate at 1.75% after it raised its benchmark interest rates from 1.50% to 1.75% in October, hence bringing them closer to the benchmark rate of their neighbor, the U.S., 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 Wednesday during the release of the BoC 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 BoC. 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 trends.
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 Brexiteers, 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, the November PMIs for the U.K. could also add to the volatility. The IHS Markit/CIPS U.K. Manufacturing PMI will be released on Monday, followed by the Construction PMI on Tuesday and the U.K. economy Services PMI on Wednesday. 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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