Market Review: May USA Consumer Price Index
Economic calendar (highest volatility): 7th May – 11th May 2018:
Timezone: (GMT -5:00) Eastern Time (U.S & Canada), Bogota, Lima
In the previous week, we recap on the two strong volatility drivers namely the U.S Federal Open Market Committee (FOMC) Interest Rate decision and the end of the week's April 2018 U.S Nonfarm Payrolls (NFP) data release. The benchmark FOMC Interest Rate was left unchanged at 1.75% while the U.S NFP showed a slightly disappointing figure of 164,000 compared to the forecast of 192,000. However, the U.S Dollar (USD) has shown to have remained resilient and continued it's bullish momentum this fresh week as reflected by the U.S Dollar Index (DX) which increased further to the 92 level from the 91 level recorded in the previous week. While there still seems to be sustenance of good USD strength, the team continues to view that there could be an upcoming aggressive 'sell on fact' move due to ‘protectionist’ and 'geopolitical' issues which stand to be of a larger concern to the market compared to Interest Rate hike optimism. Formerly, U.S President Trump 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 on 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. Meanwhile, the Reserve Bank of Australia (RBA) maintained Interest Rates as largely expected.
This week, the volatility highlight in view of the team here at FintechFX would be the release of the April 2018 U.S Consumer Price Index (CPI). The anticipation for this data release follows a statement made out of the previous week's FOMC which highlighted that the outlook for inflation is climbing close to the desired 2% target and stands to exceed this moving along the year. Hence, the team of us at FintechFX view for the large 'sell on fact' move to take place here in event the U.S CPI does not meet its forecast. Furthermore in regards to country related Interest Rate Decisions, both the Reserve Bank of New Zealand (RBNZ) and the Bank of England (BoE) are in line for the week. While the RBNZ are expected to maintain their Official Cash Rate at 1.75%, the BoE could unexpectedly surprise markets by notching up their Interest Rates by 25 basis points, bringing the official rate up to 0.75%. Two out of the seven BoE Committee members favour a May 2018 hike (as indicated in the previous meeting) hence, only two more votes are needed for this to become a reality.
This week, the NZD/USD presents traders with some trading volatility as the RBNZ Official Cash Rate is scheduled for review during the earlier half of the week. The New Zealand (NZD) in our opinion is still moderately undervalued and shows some signs of rising this 2018. Nonetheless for the week, the team here at FintechFX view some opportunity to continue selling the NZD/USD as we view that the strong Fibonacci support range which sits around the 0.68 price level has to be achieved first before any upward momentum can take place.
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 strongly scrutinized this week as we approach BoE's Official Bank Rate Decision. The team here at FintechFX views that at least the "sell on rumour" move seems to be holding strong for now as indicated by the strong downward movement shown in chart below. This is due to the majority of the BoE's key committee members which still do not favour an Interest Rate hike this May 2018. The team at FintechFX view that post the announcement, even if there is no Interest Rate hike, the 'buy on fact' move should commence for the GBP/USD once it bottoms, as there is now an increased likelihood for an Interest Rate hike to take place during the months ahead.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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