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Summertime sadness for USD

Monthly
July 31, 2017, 06:53

US Dollar:

Previous month (July 2017) US Dollar was weakening across the board against all major currencies as FOMC refused to continue tightening monetary policy since November 2016. Expectations of delay in interest rate hike started to unwind in June, pushing US dollar index down.

New interest rate decision was released by FOMC on July 26. The target range for the federal funds rate was maintained at 1 to 1-1/4 percent level, which was no surprise for the markets—it was already discounted in price of US dollar based assets. Rhetorics of FOMC statement remained positive but indicated that US economic activity was “rising moderately” with roughly balanced risks.

Will interest rate hike for US Dollar be delayed? Next meeting of FOMC in September 2017 will show. Meanwhile, markets will closely monitor key economic indicators, which are going to be released in August. Technically, US Dollar is about to maintain descending trend against major currency pairs.

 

Events to follow:

August 16: FOMC minutes release. Volatility may increase if market finds something unusual in the report. Pay increased attention to risk management 30 minutes before and after the event. See more.

Entire month: Statistics from BLS (Bureau of labor statistics of United States). Markets are always focusing on labor statistics. Most of the released economic indicators are leading, i.e. market pays increased attention to them. The most volatility is expected after “Employment situation” release of August 4, first Friday of the month (“non-farm payrolls” report included). Don’t forget to adjust your risk management during that time. See more.


Euro:

Euro looks strong, with positive expectations for the period of several months according to ZEW sentiment index (it reflects business climate in Germany - the main economic driver in Eurozone).

Next interest rate decision for Euro is scheduled for September 2017. The main question is whether the bullish rally, which started this summer, is going to continue. Monetary policy does not seem to be the main driving narrative for Euro. Previous dovish rhetorics of Mario Draghi opens a path for further rise of Euro, at least for the given moment.

There are no important meetings or political events scheduled in August, so it’s time to keep an eye on classical economic and technical indicators.

 

Events to follow:

July 31: Package of employment statistics.

August 31: Flash Estimate Euro area inflation.

See more.

 


British pound:

Brexit negotiations between Europe and UK will remain in focus of the markets, but domestic policy is important as well. There are no scheduled political events in UK in August, just like for Eurozone. Monitor for publication of interest rate decision and minutes released by Monetary Policy Committee. Currently, interest rate in UK is 0.25%.

In June, 3 members of MPC voted for raising interest rates due to increasing inflation. So, UK may be close to interest rate hike. Speculations around this topic may drive British pound higher, especially against US Dollar, which was not in favor by the markets so far.

 

Events to follow:

August 3: MPC interest rate decision and minutes. See more.

August 15: UK labor market statistics. See more.

 

Japanese Yen:

For those trading in Asian timezone, Japanese Yen is the popular trading instrument. Interest rates are frozen at negative level (-0.1%) for a long period of time, so monetary policy is not a driving narrative for the Yen.

Yen serves as a risk measurement for financial markets. As global risk appetite increases, Yen declines against other major currencies (carry trade operations are in play). As level of “fear” increases, Yen drops again.

Currently, risk appetite is increasing across the global markets, considering the climbing S&P500 index (as a benchmark of risky assets) and decreasing VIX (volatility index of S&P500 index, indicator of “fear” of the market). Should S&P500 hold recent highs, Yen may fall against US Dollar. Internal economic statistics are important as well.

 

Events to follow:

August 29: Japan unemployment rate. See more

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