Fed Meeting
As per expectations the Fed raised interest rates by 25 basis points yesterday. In the subsequent press conference the Fed claimed they may raise interest rates once more later this year, on three occasions in 2019 and potentially again in 2020. Their forecast projects a long period of interest rate hikes for the US. The country’s positive outlook for economic growth and the strong labor market were all well within the Fed’s estimates. The Federal Reserve considers the tension surrounding trade a risk factor that could increase inflation. Another danger in their eyes is the rise of protectionist trade policy, which could hamper global economic growth and possibly even hurt the US economy. Yesterday was volatile for the USD, but by today a clear rising trend emerged and the New York Board of Trade’s dollar index is 0.5% higher than yesterday.
Going South
The Fed’s plan’s to aggressively raise interest rates combined with Trump’s latest comments on China pushed markets in a bearish direction. Yesterday’s wave of sell-offs in the US markets rippled over into the Asian trading session where Nikkei suffered the worst losses at 1%. The decline of Japanese stocks could be due to the assumption that Trump may target Japan next with its protectionist policy. So far the Tokyo government has skillfully avoided his attention, however, the increasing gap in the two countries’ trade balance may eventually cause him to set his sights on them. According to yesterday’s meeting between Presidents Trump and Abe, Japanese import cars could be hit by a 25% tariff unless they allow more US agricultural products inside their countries. China and Hong Kong both declined by 0.5% during today’s trading session, which is approximately equivalent to the results of US indices.
USDCAD
Negotiations on the replacement for the NAFTA agreement between Canada and the USA have come to a standstill. Yesterday President Trump announced that he refused Prime Minister Trudeau’s request to resume talks, since Canada was unwilling to lower their high tariffs. Trudeau on the other hand claims he did not request any personal meeting, making seem like there’s no progress being made towards any mutually acceptable deal. The renegotiation of trade agreements the US President backed out of last year has not been proceeding entirely smoothly. The only successful deal so far was with Mexico, while other countries seem less enthusiastic about pursuing a solution.
As previously mentioned, the US dollar is back on its upwards trajectory. This sharp increase is also clearly visible on the USDCAD chart as well. Following the Fed meeting the USD rose from 1.2970 to 1.3060 against the Canadian dollar. By breaking the 1.2980 resistance line the USD broke out of the trend had been in since September 11. Looking at the Bollinger Bands and candles one can see the increase was so rapid that the last four 4-hour candles opened and closed outside of the bands. There’s another resistance line at 1.3065 and since price is still above the Bollinger Bands, raises the likelihood of a consolidation movement back to the center of the Bollinger Bands. The target of this correction may be 1.30.
Gold
Currencies weren’t the only market affected by yesterday’s Fed rate hike, it greatly influenced the outlook of precious metals in the commodities market. The rising interest rated also mean a narrowing supply of money, which could result in speculative gold purchases declining. Perhaps the fear of that happening is what caused gold prices to drop to 1194 yesterday. Although it did jump pack above $1200 in the aftermath of the initial panic, that did little to change the asset’s general outlook.
The 1200 dollar price appears to be the key price level for the asset at the moment, a battlefield that’ll decide its future direction. It’s plummet in August was halted by the 1175 support line, from where it steadily climbs back to $1200 where it reached an impasse and has stayed near that level ever since. Neither sellers nor buyers have managed to gain the upper hand, confining prince into a narrow 20 dollar range of movement. The chart clearly shows the 1200 dollar line is under heavy pressure, which signals that it may break in the near future. To confirm a successful break through, price would have to reach at least 1194, which would open up the area all the way to 1175 once again.
Sincerely,
Laszlo | Market Analyst
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