Market Review: USA FOMC & Interest Rate
Economic calendar (highest volatility): 30th April– 4th May 2018:
Timezone: (GMT -5:00) Eastern Time (U.S & Canada), Bogota, Lima
In the previous week, we note that our main volatility highlight was driven by the release of the United States (U.S) Gross Domestic Product (GDP) which exceeded expectations at 2.3% (Forecast: 2.0%). The team notes that once again, there is an apparent 'buy on rumour' move for the U.S Dollar (USD). This in turn brought the overall U.S Dollar Index (DX) higher to the 91 level, well ahead of the low 90 level recorded in the previous week. The team opines that an aggressive 'sell on fact' move has been temporarily halted due to an array of market moving American data due this week. Nonetheless, in relation to the team's longer term view, ‘protectionist’ and 'geopolitical' issues should continue to 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. Meanwhile, the European Central Bank (ECB) and the Bank of Japan's (BoJ) maintained their Interest Rates as expected. The lack of directional cues from both these Central Banks i.e ECB's guidance on the potential timing of the end to the Quantitative Easing (QE) stimulus and the removal of a solid timeline for BoJ's two percent inflation target weighed in to the further strengthening of the USD.
This week in particular, there will be 'stronger than usual' USD volatility triggered by both the midweek U.S Federal Open Market Committee (FOMC) Interest Rate decision and the end of the week's April 2018 U.S Nonfarm Payrolls (NFP). Previously, the U.S FOMC increased Interest Rates by 25 basis points raising the benchmark Fed Funds rate to 1.75%. Federal Reserve Chairman Jerome Powell indicated that the U.S might raise interest rates as much as four times this year. Therefore, the team here at FintechFX think this could happen as soon as this week while the end of the week's NFP will be closely tracked by markets to gauge on the level of sustainability to continue increasing Interest Rates moving forward. The team at FintechFX wil continue to analyze data related factors against the persisting 'protectionist' and 'geopolitical' concerns and the implications it would bring on currencies. Meanwhile, the Reserve Bank of Australia (RBA) will also be announcing their Interest Rate decision this week and will be issuing their Monetary Policy Statement by the end of the week.
The team here at FintechFX views that coupled with good fundamental data, there is chance for a continuing sell-down to take place following the move of USD/CAD below a key resistance level. This week, a series of Canadian related data will come under scrutiny in which a favoring result, will largely benefit the CAD.
This week, the AUD/USD presents traders with some trading volatility as the Reserve Bank of Australia's (RBA) Interest Rate Decision (Cash Rate) is scheduled for review during the earlier half of the week. The Australian Dollar (AUD) in our opinion, is still highly undervalued and shows some signs of rising this 2018. In the light of a potentially more hawkish statement moving forward, markets are looking at the AUD/USD to regain some of it's strength which has been lost throughout the years. Therefore for this week, the team here at FintechFX view some opportunity to buy the AUD/USD targetting the key multi-year low support level.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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