Market Review: UNITED STATES JULY 2018 CONSUMER PRICE INDEX
Economic calendar (highest volatility): 9th July – 13th July 2018:
Timezone: (GMT -5:00) Eastern Time (U.S & Canada), Bogota, Lima
This month, the United States (U.S) Federal Open Market Committee (FOMC) raised Interest Rates largely as 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 USD dropped on Friday to 93.96 as the U.S.-China tariffs kicked in on USD$34 billion worth of Chinese goods; Beijing immediately responded in kind. Despite better Non-Farm Employment Change numbers which rose by 213,000 last month, there was further pressure on the USD after data showed that the initial unemployment claims and average hourly wages increased unexpectedly last week.
Furthermore in regards to the unexpected employment and wage related data last week, the team here at FintechFX view that political risk related issues might still stand to deter the rise of the USD. The USD was lower than most major pairs this week as concerns for more aggresive retaliations out of China built in to the currency market. Worries of escalating trade wars with neighboring countries like Canada and European Union could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. In addition to this, the trade dispute between the U.S. and Canada continued to mount last Sunday; Canada hit back against the U.S. with its list of retaliatory tariffs after the Trump administration went ahead with threatened tariffs on steel and aluminum. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.
In regards to this week, the team here at FintechFX view the Bank of Canada’s interest rate decision on Wednesday and the Thursday's European Central Bank (ECB) Meeting Minutes to bring about substantial market volatility during the early part of the week as the BoC is expected to raise Interest Rates while the ECB should give the market some directional cues in regards to their intention to end their quantitative easing programme by the end of 2018 and raise interest rates in the second half of 2019. However, if the Bank decides to increase interest rates earlier, this should augur well for the Euro. Nonetheless, the largest volatility trigger should come from the U.S Consumer Price Index (CPI) scheduled for release towards the end of the week where if positve, should keep the overall strenghthening trend of the USD largely in check.
This week for the USD/CAD, the team here at FintechFX views that if an Interest Rate hike actually occurs, there is a strong chance for a sell-down to take place for the USD/CAD following the move of the USD/CAD below a 3-month key resistance level as shown in the chart below. As of late, the Canadian Dollar (CAD) has largely been affected by two catalyst, notably the actions taken by the U.S on wanting to impose tariffs on Canadian steel and aluminium as well as the fall in global oil prices. A potential strategy which could be utilized this week ahead of Canadian Interest Rate Decision is to 'buy on rumour' and 'sell on fact' since there is expectation for an Interest Rate increase.
This week, the EUR/USD will certainly be subjected to some degree of volatility given the upcoming speeches by European Central Bank (ECB) President, Mario Draghi where he is expected to address several concerns in regards to U.K's Brexit negotiations. Formerly, the market focus for ECB's President Draghi's speeches revolved around the timing of when ECB's asset purchasing programme would be scheduled to come to an end as well as to pick up a clearer timeline for an Interest Rate hike. At present due to the recent Brexit development, the implications bring about more of a fundamental negative (as viewed by the market) for both the Eurozone and the United Kingdom (U.K). The team at FintechFX view that this could lead to a continuity of a sell for the EUR/USD given that it was largely hovering above a key support level last week.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
Contact Us: [email protected]