USD firm on fed interest rate cut but divided forward guidance influenced mixed reaction from global investors.
Summary: US Wall Street last night closed flat on divided forward guidance outlook from Federal Reserve’s FOMC update and press conference. While the interest rate was reduced by quarter percentage point as expected from US Feds, 7 out of 17 members expect another cut before end of this year while remaining 10 members suggest there will be no further easing until end of 2020. Mixed outlook cues from US FOMC update caused a risk appetite to take a hit in Asian market hours. But Japanese central bank’s decision to hold back on rate cut and stimulus measures was viewed as welcoming move resulting in all major stock markets in Asia Pacific market region – Hong Kong, Shanghai, Singapore, Japan and Australia seeing benchmark indices and key stocks close on positive note today. Following cues from Asian markets, European markets opened on positive note and benchmark indices and key stocks received a further positive boost influenced by gains in bank sector shares across European market. Bank of England’s decision to keep interest rates and QE Total unchanged along with higher bar for further policy easing measures set by US Fed’s are acting as major trigger supporting gains in bank sector shares in European markets especially given the trade-dependent nature of European markets. In Forex market, US Dollar rose against safe-haven currencies Japanese Yen and Swiss Franc over fed forward guidance cues and also saw some level of headway against major global currencies but USD’s gains were capped on account of prevalent risk on investor sentiment.
Precious Metals: Rare metal market is seeing positive price action in the global market despite boom in USD following Fed update. The positive price rally is influenced by caution ahead of Trade talks set to begin today and escalating tensions in Middle East.
Crude Oil: Crude oil price rebound post two consecutive sessions of decline today. Both international benchmarks saw more than 1.50% increase in value as supply to demand ratio still remains in favour of crude oil bulls and as there is no projections of boost in Saudi Crude output in immediate future.
USD/JPY: Earlier in the day, following US Fed update, the USD rebound sharply scaling seven week high on forward guidance update. While USD still retains upper hand, the price declined from overnight highs as JPY gained strength following BOJ’s decision to hold back on easing measures.
On The Lookout: All eyes are now on trade talks between US and China which are set to begin today on deputy level. While there is no possibility for major and key decisions to be decided in deputy level, the level of progress in these talks could act as a signal on how things would proceed in high level talks scheduled in early October. Moving on to different topic, tensions in the Middle East are soaring to fresh highs as USA despite stating that it won’t openly retaliate with a war, has began discussion with Saudi Arabia and its allies on possible methods of retaliation for the recent attacks on Saudi Arabia which crippled its Crude Oil output capacity. On Brexit front, Uncertainties remain as strong and fresh as it had been a few weeks ago with no solid directional progress as UK politicians attempt to build a game of thrones using the move as tool to dictate their terms and flaunt their power all of which is ending up affecting EU and UK economies with no solid resolution anytime in near future.
Trading Perspective: Forex markets are likely to remain trading in red in North American market hours as USD remains strong supported by cues from Fed forward guidance. But USD’s gains are likely to be capped by prevalent risk on investor sentiment and cues from Asian & European markets. US Stock and benchmark index futures trading in the international market saw dovish price action ahead of Wall Street on divided investor sentiment hinting at subdued opening in Wall Street later today. On release front, US calendar will see Initial Jobless claims data, existing home sales data, Philadelphia Fed manufacturing index update for September and Canadian calendar will see release of ADP Non Farm Employment Change data.
EUR/USD: The pair is trading positive today despite slight declined in Pacific-Asian market hours on Fed cues as EURO gained strength from fed forward guidance, positive macro data and talks of further fiscal stimulus introduction from ECB officials and French finance minister. However, EURO’s gains are capped on firm USD. Traders now await US macro data for short term profit opportunity.
GBP/USD: The GBPUSD pair is trading in red as GBP suffers from ongoing political turmoil in UK and increasing uncertainties surrounding Brexit. Further, worse than expected UK macro data also weighed down GBP which combined with firm USD caused the pair to see dovish price action. But USD’s gains are capped owing to Fed forward guidance. Traders now await US macro data for short term profit opportunity.
USD/CAD: The pair is trading in red despite firm USD as commodity linked currency Canadian Loonie gained momentum following rebound in crude oil post two days of decline. Further, CAD bulls received support from Fed forward guidance keeping the pair’s price trapped well below 1.3300 handle in immediate and near foreseeable future. Traders now await US and Canadian macro data updates for short term profit opportunities.
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