U.S. Preliminary GDP is expected to come in at 2.0%, down from the first estimate of 2.1%. This is the major report in my opinion because this will let investors know how much closer the economy has moved toward a recession. Remember, the classic definition of a recession calls for 2 consecutive quarters of negative economic activity.
President Trump triggered a steep break in the Dollar/Yen when he tweeted, “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
Based on Friday’s price action and the close at 97.530, the direction of the September U.S. Dollar Index on Monday is likely to be determined by trader reaction to the support cluster at 97.545 to 97.510.
Based on Friday’s price action and the close at 105.420, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to the pivot at 106.013.
Based on Friday’s price action, the direction of the NZD/USD on Monday is likely to be determined by trader reaction to Thursday’s high at .6411. This is because the Forex pair formed an inside move on Friday, which typically indicates investor indecision and impending volatility. This move will indicate that traders have made the decision to go long at current price levels.
It’s a particularly busy week ahead. The markets will need to monitor updates from the G7 summit, chatter on trade, Brexit and the stats.
RBA Governor Dr. Philip Lowe finished his speech by saying ending the political uncertainty would also bring benefits. “With these three levers stuck, the challenge we face is monetary policy is carrying too much of a burden.”
The U.S. Dollar weakened against the Japanese Yen and Australian and New Zealand Dollars after President Donald Trump ordered U.S. companies to start looking for an alternative to China. RBA Monetary Policy Minutes showed policymakers were willing to “wait and see” how the economy does after a pair of rate cuts in July and August. RBNZ Governor Adrian Orr said he was “pleased” with where interest rates were.
The Canadian Dollar rose 0.15% against the U.S. Dollar. Gains were limited by a steep drop in crude oil prices. The Euro posted a 0.46% gain against the dollar, but due to its heavy weighting, it had the biggest influence on the index’s decline.
President Trump lit up the Twitterverse with a series of scathing tweets criticizing the Fed, Jerome Powell and China. But this time, he didn’t stop there, he took action that triggered a steep break in the stock market, while spiking demand for safe-haven assets.
The announcement caught traders off-guard and they responded in textbook fashion by buying safe-haven Treasury bonds, Japanese Yen and gold, while selling higher-yielding U.S. stocks. However, the moves were muted as investors put faith in Powell’s ability to soothe the sudden volatility.
“We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives,” he added.
Today, the Indian rupee currency rose in value as the country’s Finance Minister, declared government’s moves to boost the economy. Meantime, Fed Chair Powell said that the US stays in a safe place and the bank will act appropriately in the upcoming meetings.
Gold markets rallied significantly during the trading session on Friday as we continue to see the bully should run pick up momentum. This was especially interesting considering that Jerome Powell spoke during the day, and that means we are looking through the speech and now at the likelihood of central bank easing.
A wave of risk aversion is flooding financial markets this afternoon after Beijing announced it would apply additional tariffs of between 5% and 10% on $75 billion of US imports from September.
Gold markets initially fell during the week but found enough support near the $1500 level to turn things around of form a bit of a hammer. We are at extended levels though, so the question then becomes whether or not we can continue this move.
The US dollar has gone back and forth during the week but has broken down from the same resistance barrier that we have seen. Ultimately, this is a market that continues to see a lot of trouble at the same levels after a less than clear Jerome Powell speech.
The British pound initially fell during the week but then rallied towards the crucial 1.2250 level again. This is an area that has been important more than once, so it makes sense that we are struggling just a bit here. That being said though, I think that the market is simply bouncing from a very low level.
The Euro continue to hover during the week, going back and forth as there is a lot of uncertainty out there. Ultimately, the Federal Reserve and the ECB are both looking very dovish, so it causes a bit of confusion. Ultimately, one should take a look at the greater economic situation to see where the next likely move is.
The Australian dollar continues to show a bit of weakness, as the US/China trade situation does not seem to be getting any better. If that’s going to be the case, then there’s no reason to think that the Australian dollar will be able to pick it up.
The US dollar has initially tried to rally during early trading on Friday but has ran into a little bit of a brick wall. That being said, the inclusion of the Jerome Powell speech will certainly have a significant amount of influence on this market.
The British pound has gone back and forth during trading on Friday, as we continue to see a lot of volatility in Sterling. Quite frankly, there is nothing on the horizon that looks like the Brexit is going to be salt, so this should offer a nice selling opportunity at higher levels.