FX & Futures Analysis by Earn2Trade September 26, 2018

United Nations Summit

Yesterday’s UN General Assembly was filled with firm words and butting heads. The most anticipated part of the event was President Trump’s speech and he delivered it in his own well known and distinct fashion. Trump harshly criticized OPEC for ‘ripping off the rest of the world.’ In his speech he cited their inability to increase oil production as the primary reason for rising oil prices, rather than US sanctions on Iran and Venezuela. He also alluded to the possibility of further sanctions against Venezuela in order to pressure them into restoring democracy. Finally, Trump talked about his plans to prevent other countries from exploiting the US economy for their own benefit. His last comment was aimed specifically at China as a means to justify his administration’s tariffs and the resulting trade war.

Digital Market Focus

China has made plans to develop their digital sector, even involving the China Development Bank (CDB) to do so. Their 3.8 trillion digital economy offers an enormous opportunity to create the potential new jobs to replace the ones lost by the trade war. The CDB offered 14.55 billion US dollars in support of this initiative. This announcement was significant enough to offset the news coming out of the UN summit. Both the Shanghai Composite and the Hang Seng started out in the negative, but managed to close 0.92% and 1.22% higher respectively.

EUDUSD

The European Union, with the help of the European Central Bank, aims to create a so-called ‘Special Purpose Vehicle’ system that will act as a clearing house to help facilitate their business with Iran despite US sanctions. This system would allow dealing with Iran without involving either central or commercial banks. China and Russia were both highly enthusiastic about the proposal, due to their need for a payment system that can circumvent the USA. Several US analysts interpreted this move as an open attack on the hegemony of the US dollar. Trump will likely impose sanctions on the EU in response to their dealings with Iran, as he has previously threatened to do. Meanwhile India also announced that they have no intention of obstructing their petroleum companies from importing Iranian oil. It seems as the number of countries willing to adhere to US sanctions declines so does the rift between the USA and the rest of the world widen.

Meanwhile there’s also today’s Fed interest rate meeting, where analysts foresee them raising the base interest rate by 25 basis points. This expectation is already priced into the market to such an extent that it would be surprising if it didn’t happen. The US dollar’s downwards trend since mid August could however be a sign of traders envisioning the end of the current rate hike cycle. The EURUSD pair is now awaiting the Fed meeting at a 3 month high and the MACD indicator shows no signs of it being overbought, which means there’s still room for it to go even higher.

Wheat

Yesterday’s US Department of Agriculture (USDA) harvest report was exceedingly positive, assuring everyone that there will be no shortage of grain. What’s more, harvests for wheat, corn and soy are at a record high. Farmers had the weather on their side this season, making the fall harvest and planting of winter crops go smoothly. On both counts, farmers are doing much better than they were the same time last year. The market on the other hand took it as a sign to sell.

As expected, the price of wheat futures fell from 524 to 516. This 516 line has proven itself a powerful line of support backed by the 200-period moving average. The decline was followed by an equally sharp increase, showing wheat’s relative strength and bringing price back to near the same level it was at yesterday. Price is currently at 524, near the upper limit of its narrow primary price range.

Sincerely,
Laszlo | Market Analyst

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