September 26, 2018
Pulse of the Market
· The U.S Dollar slid to the lowest levels of the day ahead of the two-day Federal Reserve meeting
· Data yesterday showed that confidence among U.S consumers rose to its highest level in 18 years
· Trade concerns remained to the fore after the U.S and China imposed tariffs on each other’s imports
· ECB President Mario Draghi said the pickup in inflation in the euro zone was “relatively vigorous”
|The market is pricing in a 100% chance of a quarter point interest rate hike by the Federal Reserve today, which would be the third round of tightening for the central bank this year. Normally rate hikes are positive for the currency but this month their guidance could send the dollar spiraling lower. The Federal Reserve has been the most aggressive central bank this year and many investors are wondering if they’ll give consumers a break before taking rates towards 3% in 2019. Based on the futures markets, which is discounting 75% chance of another 25bp hike in December, investors don’t expect the central bank to slow down. The stock market is at a record high, the labor market is strong and so far, the impact of trade tensions has been limited. However, we are beginning to see signs of weakness. Since the central bank last met, retail sales, inflation, housing and manufacturing activity slowed. So it would behoove the Fed to take a break before barreling ahead in 2019 especially with 10-year yields hovering near 1-year highs. Since rate hike is a done deal and we don’t expect any major changes to the Fed’s forecasts. If a change were to be made, it would most likely be in an upgrade. The median forecast should stay unchanged, signaling 3 more hikes in 2019. The main question will be the pace of tightening beyond September. If Fed Chair Powell suggests that its time to slow down, the dollar could descend quickly from its highs as it would cast doubt about the rate hike in December. However, if he is unambiguously hawkish the dollar will soar against all of the major currencies. In the event of a dovish hike, the best currencies to trade will be USD/JPY and EUR/USD. For USD/JPY 113 would become a double top as the pair heads back below 112. The euro is attractive because ECB President Draghi thinks inflation is on the rise. In the event of a hawkish hike, the best currencies to trade should be AUD/USD, USD/CAD and GBP/USD. The RBA has no plans to raise interest rates this year, sterling is still vulnerable to Brexit risks and it is becoming increasingly clear that Canada won’t be able to strike a trade deal with the U.S. before the September 30th deadline. The only risk for the USD/CAD trade is that President Trump plans to hold a press conference today. He’ll be talking about the “news of the day,” which could mean either the Canada-Mexico trade deal, Kavanaugh nomination, Rosenstein’s fate or all of the above.|
|01:00||New Zealand ANZ Activity Outlook (SEP)||Medium||3.8|
|06:00||Japan Machine Tool Orders (YoY) (AUG)||Low||5.3%|
|08:30||U.K BBA Loans for House Purchase (AUG)||Medium||39700||39584|
|11:00||U MBA Mortgage Applications (SEP 21)||Medium||1.6%|
|14:00||U New Home Sales (MoM) (AUG)||Medium||0.5%||-1.7%|
|14:30||DOE U.S. Crude Oil Inventories (SEP 21)||Medium||-2057k|
|18:00||FOMC Rate Decision (Upper Bound) (SEP 26)||High||2.25%||2.00%|
|18:00||FOMC Rate Decision (Lower Bound) (SEP 26)||High||2.00%||1.75%|
|18:30||U Fed’s Powell Holds Press Conference Following FOMC Decision||High|
|21:00||NRBNZ Official Cash Rate (SEP 27)||High||1.75%||1.75%|
The single currency bears are holding tight, setting the common currency up for a potential short squeeze that could turbocharge a burgeoning rally. Euro gained as the Dollar weakened ahead of a Fed meeting that is widely expected to end with an interest rate hike, as investors already have priced in two more rate increases this year and some in 2019. Overall, the EUR/USD traded with a low of 1.1729 and a high of 1.1791 before closing the day around 1.1765 in the New York session.
The Japanese Yen continued sliding against the US dollar yesterday after the BOJ released its minutes for the previous meeting. The minutes showed that a few officials are concerned about the dangers of the ongoing ultra-easy policies. The bank has retained negative interest rates for years in a bid to increase activity in the country. Overall, the USD/JPY traded with a low of 112.72 and a high of 112.96 before closing the day around 112.95 in the U.S session.
The British Pound continued to gain against the US dollar yesterday, although compared to Monday the latest pound US dollar exchange rate advance is smaller. This is a continuation of the relief rally that started yesterday when Brexit Secretary Dominic Raab spoke of continuing negotiations in good faith. There was limited US economic news out yesterday. Overall, the GBP/USD traded with a low of 1.3093 and a high of 1.3191 before closing the day at 1.3180 in the New York session.
The Canadian Dollar edged higher yesterday as oil prices rose, but the currency traded in a narrow range amid slow progress on talks to renew the NAFTA trade deal ahead of a U.S.-imposed deadline of the end of September. Canadian Prime Minister Justin Trudeau took a cautious line over talks to update the North American Free Trade Agreement. Overall, USD/CAD traded with a low of 1.2933 and a high of 1.2970 before closing the day at 1.2951 in the New York session.
The Australian Dollar has been among the hardest hit by President Donald Trump’s so-called trade war against China, given that it’s underwritten by the nation’s commodity trade with the world’s second largest economy and often serves as a surrogate for speculators seeking to express bearish views about China’s own state-managed currency. Overall, AUD/USD traded with a low of 0.7234 and a high of 0.7261 before closing the day at 0.7247 in the New York session.
EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 70 and lies above the neutral zone. In general, the pair has gained 0.33%.
Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 64 reading and lies above the neutral zone. On the whole, the pair has gained 0.65%.
Currently, the cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral region. In general, the pair has gained 0.12%.
This cross is currently trading above 14, 50 and 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 50 and lies above the neutral region. On the whole, the pair has lost 0.33%.
This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 51 and lies above the neutral region. In general, the pair has gained 0.54%.
|FOREX Closing Prices for September 25, 2018|
|Daily Pivot Points|
Sources: News, Charts & Quotes (Courtesy: Reuters, US Department Of Treasury)
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