Market Review: UNITED STATES JULY 2018 NON-FARM EMPLOYMENT CHANGE & FOMC STATEMENT
Economic calendar (highest volatility): 30th July – 3rd August 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 94.67 in response to easing trade tensions after the U.S. and EU agreed to a zero tariff deal and iron out issues related to trade barriers and subsidies. The USD also rose after the U.S. Department of Commerce data showed gross domestic product increasing 4.1% in the second quarter, hence matching estimates and suggesting a continued robust performance from the U.S. economy. The USD maintained gains made against most major currencies. 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, 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 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, investors will have a busy week with closely watched U.S. jobs data due out on Friday and the Federal Reserve’s latest rate setting meeting two days earlier, where it will probably flag up its third rate hike this year in September. The team here at FintechFX view the Bank of England’s interest rate decision on Thursday to bring about substantial market volatility to the GBP during the week, with most analysts expecting a 0.25% rate increase. Besides the BoE, traders will also at a trio of reports on activity in the manufacturing, construction and services sectors for further indications on the continued effect that the Brexit decision is having on the U.K.’s economy.
This week, the USD/JPY presents traders with some trading volatility as there stands to be a crucial JPY related data scheduled for release, namely the Bank of Japan is set to announce the changes to its monetary policy. A change in policy would probably lead to a rise in the Japanese Yen as the current ultra-loose stance is weighing down on the currency. In the light of a potentially more hawkish statement moving forward, the market is looking at the USD/JPY 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 USD/JPY on some USD correction.
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 this Thursday. 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 various PMI data releases out of the U.K this week would also be vital towards any change in both GDP and inflation guidance. 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.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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