Trading news

Global equities stabilise ahead of FOMC meeting

- FX markets may lower volatility as traders await the outcome of the June FOMC meeting

- In spite of a stronger US retail data result, we do not think it is enough to revive expectations for a summer rate hike as most economic indicators continue to lose momentum

- We expect the dollar to further weaken over the medium term against major currencies as long as the first rate hike since last December 2015 is postponed

- We target EUR/USD to reach 1.1500 over the medium-term

- Brexit fears will continue to weigh on the GBP as we get closer to June 23

- GBPUSD: 1.41 area will likely hold for now as long as the Brexit and remain camps remain neck-and-neck in the polls

- Should polls provide indications that the UK is heading for a Brexit, then the pound sterling would resume its free fall and move towards 1.30

 

FX markets stabilised during the Asian session as traders await the outcome of the June FOMC meeting. EUR/USD was little changed in Tokyo and consolidated the gains made on the release of better-than-expected May retail sales. The headline printed at 0.5%m/m versus 0.3% median forecast, while the previous month’s figures was confirmed at 1.3%. However, one notices that the upside surprise resulted almost entirely from an increase in gasoline (+2.1%) and solid auto sales (+0.5%). The ex Auto and Gas gauge matched expectations and printed at 0.3%m/m. In spite of the stronger result, we do not think it will revive expectations for a summer rate hike - even in July - as most economic indicators continue to lose momentum. The single currency will find a strong support at $1.1137 (low from June 3rd) then $1.1098 (low from May 30th).

Yann Quelenn, market analyst: “FOMC rate decision: Volatility promises to be weak today ahead of the FOMC meeting. Even though a surprise is still possible, this meeting is likely to be a non-event as the Fed should keep rates unchanged at 0.25% - 0.50%. In any case, financial markets have completely ruled out a raise. Even a July raise seems very unlikely at the moment. We will closely follow the press conference and the following statements as we expect that the “dots” projections for next year should diminish. Indeed, the growth forecast should be lowered as it weighs on monetary policy. On top of that given the recent soft data, including weak NFPs and sluggish demand, we continue to believe that no rate hike will happen in 2016. Yet, policymakers will never admit that a 2016 rate hike is off the table and will continue hinting at a closer normalization of the interest rates. As a result we expect the dollar to further weaken over the medium term against major currencies as long as the first rate hike since last December 2015 is postponed. We target the EUR/USD to reach 1.1500 over the medium-term.” --

After a rough Tuesday, the pound sterling stabilised at around 1.4140 against the US dollar. Brexit fears will continue to weigh on the GBP as we get close to June 23. The 1.41 area will likely hold for now as long as the Brexit and remain camps remain neck-and-neck in the polls. However, in the event that the polls provide strong indication that the UK is heading for the Brexit door, the pound sterling will resume its free fall and move towards the 1.30.

In China, the index provider MSCI once again postponed its inclusion of China mainland shares in its main emerging market index amid concerns about the accessibility to the A-share market. This would have provided much needed relief for the Chinese stock market, which is one of the worst performers of 2016 so far. At least, this rejection provides further incentive to improve and implement policy. The yuan moved to a five-year low amid the news as the PBoC set the fix to 6.6001, the lowest level since February 2011.

In the equity market, most Asian regional indices stabilised, putting an end to a 4-day losing streak. European stocks followed the lead as futures were also blinking green across the board. In Japan, the Nikkei and Topix index were up 0.38% and 0.41% respectively. In mainland China, the CSI 300 rose 1.20%. Offshore, Hong Kong’s Hang Seng surged 0.29%, while in Taiwan the Taiex slid 0.35%.

Today traders will be watching the unemployment rate from Turkey; jobless claims and ILO unemployment rate from the UK; MBA mortgage application, PPI, Empire manufacturing, industrial production, capacity utilisation, crude oil inventories and FOMC rate decision from the US; manufacturing sales from Canada; retail sales from Brazil.

Wednesday, 15 Jun, 2016 / 8:51

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Source : http://swissquote-fx.com/en/research-and-analysis/

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