Market Review: UNITED STATES Q3 GROSS DOMESTIC PRODUCT
Economic calendar (highest volatility): 22nd October – 26th October 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 and 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 closed at 95.38 last Friday, though the USD weakened as bond yields increased after hawkish Federal Reserve minutes last Wednesday showed the central bank's commitment to increase interest rates in December and beyond.
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 the U.S third quarter Gross Domestic Product release to bring about the most volatility. There is some expectation that this figure will be weaker following September’s inflation level that rose less than forecasted. Also, in respect to this week in particular, the team here at FintechFX note on three 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 European Central Bank, Bank of Canada (BoC), Sweden’s Riksbank and Norway’s Norges Bank, all which are expected to keep interest rates on hold, except for the BoC which is expected to raise its rates.
This week, the Canadian Dollar (CAD) /USD presents traders with some trading volatility as the Bank of Canada’s interest rate decision is scheduled for release on Wednesday. Taking a slight recap on the USD/CAD, the team here at FintechFX would like to highlight that the BoC has raised its benchmark interest rates from 1.25% to 1.50% in July, bringing them closer to the benchmark rate of their neighbor, the U.S. with the recent upbeat economic data and with the successful USMCA deal being struck, the team here at FintechFX expects the BoC to lift the overnight rate by 25 basis-point on Wednesday. Nonetheless, regardless whether there will be an actual Interest Rate hike or not, markets generally tend to move during such decisions as any comments about wages, inflation, and future monetary policy may have an impact on the CAD. 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.
While the Pound Sterling (GBP)/USD has recouped much of its post-Brexit losses in the recent weeks following the improved progress in Brexit negotiations, the GBP pummeled last week for fear of a no-deal Brexit. Following a statement by European Union chief negotiator Michel Barnier before that a Brexit deal could be struck by early November, in the latest Brexit development this week that focused on the EU Summit in Brussels on September 16-17, the Summit 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. This suggestion by May that the Brexit transition period could be extended has been seized on by markets last week as a signal that key issues such as the Irish border issue have still not been resolved. To this end, the November summit has canceled, though it can always be rescheduled if enough progress is made over the coming weeks. 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.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
Contact Us: [email protected]