Market Review: UNITED STATES JULY 2018 CONSUMER PRICE INDEX (CPI)
Economic calendar (highest volatility): 6th August – 10th August 2018:
Fundamental: 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 strengthened on Friday to 94.67 as the Federal Reserve's upbeat assessment of the economy combined with a flare-up in the trade tensions between the U.S. and China continue to boost demand for the US currency. The USD uptrend was also supported by the U.S. Treasury yields, coupled with forecast-beating employment data on Wednesday and Thursday, hence matching estimates and suggesting a continued robust performance from the U.S. economy. While the USD maintained gains made against most major currencies, it saw subdued trading action on Friday after the nonfarm payroll numbers came in below consensus estimates at 157,000. Despite the continuing strength witnessed in the U.S Dollar and the progress made on the trade agreements between the U.S. and European Union last week where the U.S. and EU agreed to a zero tariff deal and ironed out issues related to trade barriers and subsidies, the trade war between the U.S. and China is continuing to intensify, following the Trump administration’s plan to propose a 25% tariff on US$200 billion in Chinese imports, up from an original 10%, in a bid to pressure Beijing into making trade concessions. In response, China announced retaliatory tariffs on US$60 billion worth of U.S. goods. The team here at FintechFX view that the trade wars could be a hindrance to the USD's strength moving forward.
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. In addition to this, the trade dispute between the U.S. and Canada continues to mount with Canada hitting 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 Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Tuesday and Wednesday respectively to bring about substantial market volatility during the early part of the week. Though both the RBA and RBNZ are expected to keep interest rates on hold at 1.5% and 1.75%, respectively, nonetheless the AUD and/or NZD could move nonetheless, particularly if one or both of these central banks drop their bearish views. However, if the Banks decide to increase interest rates earlier, this should augur well for both the AUD and NZD. Nonetheless, the largest volatility trigger should come from the U.S Consumer Price Index (CPI) scheduled for release on Friday where if positive, should keep the overall strengthening trend of the USD largely in check.
This week, the AUD/USD presents traders with some trading volatility as there stands to be a number of crucial AUD related data scheduled for release. The Reserve Bank of Australia's (RBA) Monetary Policy Meeting Minutes is due for release on Tuesday and the team of us here at FintechFX view that the bearish tone out most of the Australian committee members is set to continue. Nonetheless, 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, the market is looking at the AUD/USD to regain some of it's strength which has been lost throughout the years. However since the market still remains largely focused on USD's strength, the team here Fintechfx view some continuity for the AUD/USD to break past crucial levels and head towards new lows as indicated in the chart below.
The GBP/USD has recouped much of its post-Brexit losses however, has weakened broadly last week after the Bank of England’s (BoE) monetary policy committee decided to hike the base rate by 25 basis points to 0.75%, a move that seemed unfavorable among investors. Governor Mark Carney also warned that future rate hikes will be gradual and limited. The team here at FintechFX views for a "buy on rumour" move to potentially develop pending the Interest Rate Decision provided that U.S Dollar optimism or the Brexit negotiations led by Theresa May does not outweigh this sentiment. The quarterly GDP estimate from the UK this Friday, which is expected to nudge higher, would also be vital as the main measure of U.K. economic growth. The new quarterly figure is expected at 0.4% from the prior quarter’s 0.2%. If this target is hit, the GBP may receive a small boost, but any misses would push GBP further lower. Hence if a positive GDP outcome is not seen, the team here at FintechFX view the ongoing positive sentiment of the U.S Dollar to sustain.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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