Market Review: USA Q1 Gross Domestic Product
Economic calendar (highest volatility): 23rd April– 27th April 2018:
Timezone: (GMT -5:00) Eastern Time (U.S & Canada), Bogota, Lima
In the previous week, we note that our main volatility highlight was not focused on the U.S Dollar (USD) but rather, on the Canadian Dollar (CAD). Canada decided on their Overnight Rate last week and left it unchanged at 1.25%. A key note out of the Bank of Canada (BoC) was that "The BoC will continue to monitor the economy’s sensitivity to interest rate movements and the evolution of economic capacity. In this context, Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data". Canada's March 2018 Consumer Price Index (CPI) data and February 2018 Core Retail Sales data brought about mixed results coming in at 1.4% (Previous: 1.5%) and 0.4% (Previous: 0.3%) respectively. In light of increasing interest rate trends globally, the market gave more attention towards the slowing down of the Canadian inflation and hence, weakened the overall CAD.
This week, while the overall U.S Dollar (USD) once again comes into focus pending the release of the U.S Gross Domestic Product (GDP); two major economies are set to release their Interest Rate decisions namely the European Central Bank (ECB) and the Bank of Japan (BoJ). The majority forecast leans towards neither of these two major Central Banks to raise Interest Rates. However, potential positive narratives indicative of the timing of future Interest Rate increases for example, ECB's guidance on the potential timing of the end to the Quantitative Easing (QE) stimulus and narratives in regards to BoJ's two percent inflation target brings about some potential of strengthening in both the Euro (EUR) and Japanese Yen (JPY). The trading direction in favour by the team here at FintechFX continues to be the apparent 'buy on rumour, sell on fact' play as indicated in the past large U.S data releases in light of ‘protectionist’ and 'geopolitical' issues which the team here views 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. Last week, 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. Nonetheless, a sharp rise in U.S treasury yields has given traction for the USD to rise. The U.S Dollar (DX) index currently hovers at a high 90 level compared to the mid 89 level witnessed last week. The team here at FintechFX will continue to monitor these developments and further analyze the potential of a heavier 'trade war' taking place and the implications it would bring on currencies.
The main catalyst for the EUR in our opinion would be the end-of-week GDP release. The chart below currently shows that price is sitting close to the the daily Fibonacci 23.6% level indicating a potential 'test' first prior to moving up higher.
The USD/JPY which is regarded as a safe haven currency frequently correlates with the movements of Gold and the Swiss Franc (CHF). Gold is seen to have erased quite a bit of it's losses post better U.S economic data testing a crucial resistance level, the USD/JPY comes of interest to the team here at FintechFX. This week, price seems to loom steadily above the crucial 50.0% Fibonacci level. The team views that a failed break on this level could well bring the USD/JPY back to the high 106 level once again following growing negative geopolitical sentiments and the potential for weaker American economic data moving forward amidst growing trade restrictions.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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