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Market Review: Bank of England Official Bank Rate Decision

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Market Review: Bank of England Official Bank Rate Decision

Market Review: Bank of England Official Bank Rate Decision

Economic calendar (highest volatility): 18th June – 22nd June 2018:

Timezone: (GMT -5:00) Eastern Time (U.S & Canada), Bogota, Lima

Fundamental: 

In the previous week, the financial market was largely fixated on the United States (U.S) Federal Open Market Committee's (FOMC) Interest Rate Decision. The FOMC moved on to raise Interest Rates as largely anticipated, bringing up the benchmark rate to 2% from the former 1.75% level. Interestingly while this decision largely met forecast, the tone of the regulators suggest that two more U.S Interest Rate hikes are likely to take place this year. This brought 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. The U.S Dollar Index (DXY) currently hovers at the 94 level, up from the 93 level before the FOMC Interest Rate hike decision. 

Despite this degree of optimism, the team here at FintechFX view that political risk related issues might still stand to deter the rise of the USD. While the Trump and Kim meeting which took place in Singapore last week seemed to have went well, the U.S seems to be transiting towards forming a pretty frothy relationship with China and Canada. Formerly, President Trump quoted that Canadian Prime Minister Justin Trudeau is a "very dishonest and weak" individual. In regards to China, the American President signed a memorandum imposing wide-ranging tariffs of up to U.S$60 billion on China; following previously imposed tariffs on steel and aluminium imports. China has since retaliated with the introduction of it's own tariffs on imports of 128 U.S products. Following this, U.S President Trump further rattled markets by announcing the possibility of an additional U.S$100 billion worth of tariffs to be imposed against China. There is now fresh speculation for U.S President Trump to revive the Trans-Pacific Partnership (TPP) to enact further pressure on China. Last week, U.S unveiled a list of U.S$50 billion in Chinese goods to target with 25% tariffs, pledging more duties if China retaliated. 

In regards to this week in absence of market moving American data, the team here at FintechFX opine the two Interest Rate Decision announcements namely from Switzerland and the United Kingdom (U.K) to bring about the most trading volatility.  Nonetheless, the team also views that the various Monetary Policy Meeting Minute releases out of Australia, Japan, and England to potentially will bring about added volatility to the Australian Dollar (AUD), Japanese Yen (JPY), and Great Britain Pound (GBP). The Great Britain Pound marks out currency pick for the week which is expected to undergo the most trading volatility as we might witness several Bank of England (BoE) committee members shift their stance towards an Interest Rate hike; now that the U.S is taking a more hawkish tone and as the U.K country inflation levels approach the 2% target level. 

In addition to this on the political forefront, the team at FintechFX view the joint meeting between European Central Bank (ECB) President Mario Draghi, along with Bank of Japan (BoJ) Governor Haruhiko Kuroda and Federal Reserve Chairman Jerome Powell who are due to participate together for a panel discussion at the ECB forum in Portugal could bring about some surprise implications which may bring about added trading volatility. 

 Technical:

The GBP/USD has recouped much of its post-Brexit losses however, has been falling down again since mid-April after failing to break a strong multi-year resistance line. Nonetheless, The BoE has cautioned that akin to the U.S, the BoE may also raise Interest Rates faster than expected. This statement will be further scrutinized this week as we approach an Interest Rate Decision out of the United Kingdom (U.K) once again. The team here at FintechFX views that at least the "buy on rumour" move to potentially develop pending the Interest Rate Decision sometime close towards the end of the week. The majority of the BoE's key committee members still do not favour an Interest Rate hike however, this stance could change in the upcomming meeting given the increased likelihood for at least a more hawkish tone to be put forward. 

This week, it would be a good time for 'safe haven' asset play one again as we are wll pass the Trump Kim Meeting. Formerly, safe haven assets erased much of it's gains on a positive Trump and Kim meeting. This week, there will be a Swiss National Bank (SNB) Monetary Policy Assesment which is scheduled to take place. This brings about some room for correction given that the Swiss moved close towards month long highs last week, as indicated in the chart below. The team here at FintechFX attributes a strong possibility of occurence for this since cross correlation wise, the two other safe haven counterparts namely Gold and the Japanese Yen (JPY) are also seen to move in a similar direction.

 

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

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

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