Market Review: UNITED STATES Q2 GROSS DOMESTIC PRODUCT
Economic calendar (highest volatility): 23rd July – 28th July 2018:
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 94.78 following an upbeat assessment from Federal Reserve Chairman Jerome Powell. The USD also rose after Census Bureau data showed retail sales rising by 0.5% in June, which is faster than was expected, suggesting a continued robust performance from the US economy during the second-quarter. The USD maintained gains made against most major currencies. Despite the continuing strength witnessed in the U.S Dollar, the trade war between the U.S. and China is continuing to intensify, following the Trump administration’s plans to impose tariffs on an additional $200 billion on Chinese goods. The team here at FintechFX view that this 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 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 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 U.S Advanced Gross Domestic Product (GDP) is expected to bring about the most trading volatility for the week. In addition to this, the Australian dollar and Euro dollar will also be wacthed closely by traders ahead of the release of Australia’s Q2 Consumer Price Index (CPI) reading on Wednesday and the next European Central Bank (ECB) Governing Council’s monetary policy meeting decision which is scheduled for Thursday. Traders look at the ECB meeting decision to gain an understanding of what monetary policy will be in the future. The team here at FintechFX view the Australia’s Q2 CPI reading to bring about substantial market volatility to the AUD during the week as any spike in inflation that would trigger an acceleration of the pace of interest rate hikes by the Royal Bank of Australia.
This week, the AUD/USD presents traders with some trading volatility as there stands to be a crucial AUD related data scheduled for release namely the Australian Q2 2018 CPI. 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 its 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 on some USD correction.
This week for the EUR/USD, the team here at FintechFX views the Euro has largely been affected by two catalyst, notably the actions taken by the U.S on wanting to impose a new 20% duty on cars built in Europe as well as June’s ECB monetary announcement that it would not be raising interest rates in June 2019. A potential strategy which could be utilized this week ahead of Europe Interest Rate Decision is to 'sell on rumour' and 'buy on fact' since there is no expectation for an Interest Rate increase.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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