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MARKET REVIEW: UNITED STATES SEPTEMBER 2018 NONFARM PAYROLLS

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MARKET REVIEW: UNITED STATES SEPTEMBER 2018 NONFARM PAYROLLS

MARKET REVIEW: UNITED STATES SEPTEMBER 2018 NONFARM PAYROLLS

Economic calendar (highest volatility): 1st October – 5th October 2018:

Fundamental:

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 Federal Reserve’s outlook for more rate hikes beyond this year, thus leaving intact its plans to steadily tighten monetary policy, the USD rose to its highest level in two weeks to close at 95.13 last Friday. Nonetheless, the team here at FintechFX view that trade wars could be a hindrance to the USD's strength moving forward.In the latest chapter of the heated U.S.-China trade dispute, Trump’s 10% tariffs on US$200 billion of imported China goods took effect on September 24, before it ratchets up to 25% in January 2019. This dispute sets the stage for reprisal tariff by China on U.S. goods worth US$60 billion.

Furthermore, the team here at FintechFX view that political risk related issues might deter the rise of the USD as concerns for more aggressive retaliations out of China built in to the currency market, even though the USD was higher than most major pairs this week as the market saw that the U.S. would be better equipped to weather a slowdown in trade than other major economies. Worries of escalating trade wars with neighboring countries like Canada could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. Negotiations between the U.S. and Canada are still underway as the two parties seek to come to an agreement on the future of the NAFTA, but negotiations remain hung up on the dispute resolution mechanism as well as on Ottawa’s strict control over its domestic dairy market, which Trump has repeatedly failed against. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.

In regards to this week, there is a chance for another 'buy on rumour, sell on fact' move again for the USD approaching the end-of-the-week with the release of the U.S September 2018 Non-Farm Employment Change (NFP) which is anticipated to bring about the most trading 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 Reserve Bank of Australia (RBA) interest rate decision, the Canadian September 2018 Employment Rate data, as well as the multiple Purchasing Managers’ Index (PMI) releases out of the United Kingdom (U.K). 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. 

Technical: 

This week, taking a slight recap on the USD/Canadian Dollar (CAD), the team here at FintechFX would like to highlight that the Bank of Canada (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. The BoC also intends to raise rates in October, assuming a successful NAFTA deal is struck. Nonetheless, the team notes that a 'sell on fact' play was witnessed straight after reinforcing our views that the USD strength largely outweighs. In addition as of late, the CAD has largely been affected by the progress of the NAFTA negotiations with the U.S. With a touted deadline of October 1 and disputes still not settled, risks are rising with regard to no agreement being reached, consequently putting the CAD at a disadvantage. Alongside this, reports have suggested that discussions to reach a deal may take place after the US mid-terms in November, which in turn prolongs the uncertainty for the CAD. Traders will have the monthly Unemployment Rate read for September to bring about substantial market volatility to the CAD during the week because a higher than expected reading should be taken as bearish for the CAD, while a lower than expected reading should be taken as bullish for the CAD. Generally, a lower unemployment reading can produce inflation and any spike in inflation would trigger an acceleration of the pace of interest rate hikes by the BoC to keep inflation in check.

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 Friday for fear of a no-deal Brexit. Following a statement by European Union chief negotiator Michel Barnier last week a Brexit deal could be struck by early November, in the latest Brexit development this week that focused on the EU Summit in Salzburg, the Summit appeared to have made little progress on Brexit after EU's Donald Tusk rejected PM Theresa May’s plan to use technological solutions to manage the border between Northern Ireland and the Republic, right after PM May herself rejected Michel Barnier's own proposal for managing the border. This has resulted in PM May announcing that the end result of the Brexit negotiations may be no deal. 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. The IHS Markit/CIPS UK Services PMI will be the main data release out of the UK this week. While an increase in the PMI reading would be a welcome sign that economic growth is starting to pick up, investors will also be seeing if concerns about Brexit will adversely affect the UK Services PMI release.

Source (Charts): https://www.investing.com

Source (Economic Calendar): https://www.forexfactory.com/calendar.php

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