Interest Rate Meetings
Yesterday was all about a series of central bank interest rate meetings and subsequent press releases. Base interest rates for both Europe and the UK will remain unchanged. Turkey on the other hand was seemed more willing to make changes,b umping their base rate from 17.75% to 24% in one bound. The lira immediately strengthened in the wake of the decision, causing the USDTRY pair to reach an exchange rate of 6 and other peripheral currencies to follow suit.
Meanwhile US inflation declined more than expected, from 2.9% to 2.7%. The lessening inflationary pressure reduces the likelihood of future Fed rate hikes, which weakened the dollar against other major currencies. The EURUSD rose above 1.17 and broke out of its September channel upwards.
The Trump administration taking a softer tone against China was enough to draw out optimistic investors from behind their defensive lines yesterday. As mentioned before, lower US inflation makes the necessity of additional Fed interest rate hikes questionable. This was enough for more risk averse investors to renew their interest in the stock market. All three major US indices are over 0.5% in the positive, giving the Asian trading session a similarly bullish outlook. The Nikkei, Hang Seng and KOSPI all rose by more than 1%. China’s -0.18% result is also promising, considering today may be the day the US announces its 200 billion dollar tariff plan.
Historically when the Bank of England increased interest rates, the pound declined. Now that they simply left it unchanged, the pound successfully strengthened against the US dollar. It is interesting how while central bank interest rate policy usually plays a major role in the relative strength of currencies, in the case of the pound this factor took a back seat. The underlying reason may be that the fundamentals behind the dollar and the Fed’s expected future actions could completely negate the monetary policy effects of country the size of the United Kingdom.
The past week has been crucial for determining the pound’s long term outlook. Ever since the USD started strengthening in April, the pound has not been able to break its downwards trendline even a single time until now. For the first time since July, the GBPUSD is above 1.31. Price is not to far off from the 200-day moving average and if it manages to successfully rise above it, then that will confirm the trend’s validity. Currently it’s still below 1.33, which is a distance of 150 pips. The pair’s price meeting with its moving average may be the single most significant technical indicator for the GBPUSD in the near future.
Is there no end in sight? Despite being at an all time high, the index comprised mainly of US tech companies is still showing signs of a healthy and sustainable growth. Meanwhile other indices across the world are still struggling to break out of their downwards trends. Yesterday’s increase can likely be attributed to the 2.5% rise in Apple’s stocks. Although Apple may have lost a lot of its allure, it still plays a key role within the sector. The market also reacted favorably to their new iPhone pricing strategy announced on Wednesday. Lowering their prices may help them attract new customers and analysts expect it to significantly increase Apple’s share of the mobile phone market. Selling more phones will presumably also increase traffic for their application store, which on the other hand is not changing its prices, making this seem like a viable business strategy.
The Nasdaq chart’s movements are fairly conventional. Adding the Commodity Channel Index indicator allows us to see that whenever price enters a new high or the asset becomes overbought, a price correction occurs. These corrections are followed by periods of building up momentum before the next upsurge. Price movement follows the trendline perfectly, showcasing potential points of entry for long positions. This balanced movement pattern suggests the Nasdaq will likely continue to rise. The next major line of resistance is 100 points away at 7695, which is another record level.
Laszlo | Market Analyst
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