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Market Review: July USA Non-Farm Payroll Impact

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Market Review: July USA Non-Farm Payroll Impact

Market Review: July USA Non-Farm Payroll Impact

Economic calendar (highest volatility): 2nd July – 6th 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 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 and now looks highly likely to resume its uptrend. 

Nonetheless to keep risk factors well in check, the team here at FintechFX view that political risk related issues might still stand to deter the rise of the USD. Indeed, every major and emerging currency is trading lower against the US dollar over the last week and month. While the Trump and Kim meeting which took place in Singapore recently seemed to have went well, the U.S seems to be transiting towards forming a pretty frothy relationship with China and Canada and as of late, even the European Union. Last week, President Trump tweeted: "if EU trade tariffs are not soon broken down and removed, we (the U.S) will be placing a 20% tariff on all of their cars coming into the U.S. Build them here!”. This tweet was said to be in response to the EU's decision to slap tariffs on U.S$3 billion worth of U.S goods, some specifically targeted at industries associated with the U.S president. Over the weekend, US President Trump highlighted again the potential leverage from tariffs against the EU automobile industry.

In reflection of President Trump's exchange with Canada and China, the U.S president formerly 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. Trade tensions continued to resurface following an announcement by the U.S. administration three weeks ago that it will initially impose an additional 25% tariff on 818 Chinese imports worth up to US$34 billion. This is part of the original US$50 billion originally mooted by Trump in April 2018. A separate measure affected 284 products worth US$16 billion could also take effect, targeting US energy exports such as coal and crude oil, which would then bring the total to US$50 billion. In a swift rebuke, the Chinese State Council's commission on tariffs and customs said that a 25% tariff will take effect on 6th July 2018 on US$34 billion of U.S. products including soyabeans, beef, whiskey and off-road vehicles.

In regards to this week, the team here at FintechFX view the end of the week June 2018 Non-Farm Employment Change (NEC) data and the mid week's FOMC Meeting Minutes to bring about the most market volatility. The team views the June 2018 ADP NEC data and the ISM Manufacturing and Non-manufacturing Purchasing Managers Index (PMI) data to bring about some early indications on how the American June 2018 NEC would fare at the end of the week. The team also expects the FOMC to release their Meeting Minutes on a hawkish note although if ever indicated otherwise; could lead to some early profit-taking. This week, we will also be expecting an interest rate hike out of the Reserve Bank of Australia (RBA). Similarly to the Reserve Bank of New Zealand's (RBNZ) decision last week, the team largely expects the RBA to keep rates unchanged at 1.50% and if like the RBNZ, the RBA presents the market with dovish statements, a further fall in the AUD/USD can almost be certain. 

The team also notes on the various key Canadian economic data releases which is scheduled for release the same time the U.S June 2018 NEC would be released. This should bring about some added volatility for the USD/CAD and is further discussed in the technical segment below. In addition to this, the array of PMI data releases out of the United Kingdom (U.K) also brings about some trading interest towards the GBP/USD given the potential volatility and hence, also further elaborated by us in the technical segment below. 


This week for the USD/CAD, the team here at FintechFX views that if well supported by key Canadian economic releases, there is a strong chance for a sell-down to take place for the USD/CAD following the move of USD/CAD towards a key Fibonacci resistance level, specifically around 1.3375. As of late, the Canadian Dollar (CAD) has largely been affected by two catalyst, notably the political statements made out of the U.S and the fall in global oil prices; both factors which are viewed to achieve some stability soon. A potential strategy which could be utilized this week ahead of both the important U.S June 2018 NEC data and the various key Canadian economic data is to first let the news play out and if the USD/CAD strengthens to key resistance levels, the team here at FintechFX view that some positions could be taken as indicated in the chart below. 

The GBP/USD has recouped much of its post-Brexit losses however, has been falling down again since mid-April 2018 after failing to break a strong multi-year resistance line. Nonetheless, The BoE has since hawkishly signalled that they may be raising interest rates as soon as their next meeting on August 2018. 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 stalemate in Brexit negotiations does not outweigh this sentiment. The various PMI data releases out of the U.K this week would be vital to determining on whether the BoE's intention can be well sustained. If a positive PMI outcome is not seen, the team here at FintechFX view the ongoing positive sentiment of the U.S Dollar to sustain at least until the end of the week's June 2018 U.S NEC as indicated in the chart below. 


Source (Charts):

Source (Economic Calendar):

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