Market Review: UNITED STATES OCTOBER 2018 NONFARM PAYROLLS
Economic calendar (highest volatility): 29th October – 2nd 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. third quarter Gross Domestic Product growth came in at 3.5% versus the expectation of 3.3% as well as the minutes of the Federal Reserve’s September 25-26 meeting that hinted at more rate hikes beyond this year, thus agreeing on the need to raise borrowing costs further and leaving intact its plans to steadily tighten monetary policy, the USD strengthened closed at 96.32 last Friday.
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 prohibit such tariffs. China and E.U. have recently joined a group of countries asking the World Trade Organization to investigate Trump’s administration’s decision to impose 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. Trump had 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.
This week, the team here at FintechFX views this Friday’s September 2018 U.S Non-Farm Employment Change (NFP) data to bring about the most volatility. In addition to this, there are several other non-American economic releases which are viewed to bring about substantial trading volatility for the week namely the Canadian August 2018 Employment Change data on Friday, the Gross Domestic Product on Wednesday as well as the multiple Purchasing Managers Index (PMI) releases out of the United Kingdom (U.K) and China. The team here at FintechFX view a relatively range-bound trading session to take place before the end-of-the-week U.S September 2018 NFP. Also, in respect to this week in particular, the team here at FintechFX note on two very crucial interest rate releases which can stand to bring about the most volatility in regards to the financial markets. These interest rate decisions concern the Bank of Japan (BoJ) and Bank of England, all which are expected to keep interest rates on hold
This week, the Japanese Yen (JPY) /USD presents traders with some trading volatility as the Bank of Japan’s interest rate decision is scheduled for release on Tuesday. Though the BOJ is expected to maintain its short-term interest rate target at minus 0.1%, however investors will still be analyzing its quarterly 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 Tuesday during the release of the BoJ 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 JPY. 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 last week 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. While PM May stated last Monday that Brexit talks were 95% complete and that the EU had proposed a new customs arrangement to the U.K. as a solution to the Irish backstop issue in a bid to get talks moving again, though Northern Ireland’s Democratic Unionist Party has announced its intention to block the EU’s proposal for a backstop plan for the Irish border. On top of fears that the UK government’s Brexit plan could be blocked, GBP investors are also anxious about the U.K.’s political uncertainties with the possibility that some of May’s critics could be looking to mount a leadership challenge. 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, traders now look forward to the Bank of England Governor Mark Carney's comments over the current developments of the UK economy for some fresh impetus. While the BoE is expected to maintain interest rates at 0.75%, Mr Carney could still spark some volatility to the GBP by mentioning monetary policy. If the BoE Governor does discuss interest rates and backs a rate hike in 2019, then the GBP could rise. A hard Brexit could result in a rate cut.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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