FOMC over, ECB next

Daily Analysis - 14/06/2018

Waiting for the next central bank meetings

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The Fed raised interest rates as expected by 25 basis points yesterday, signaling more hikes will come this year. The knee jerk reaction for the dollar was to the upside before it sold off quickly. Risk sentiment faded as market focus soon turned to a potential looming trade war between the United States and China. Meanwhile, a profit taking opportunity ensued ahead of two more major central bank meeting – ECB and Bank of Japan.

FOMC delivered


The U.S central bank signaled it may raise rates a total of four times this year. In a press conference following the rate announcement, Fed Chairman Jerome Powell indicated that the U.S. economy is in “great shape” and that further gradual tightening is warranted. USDJPY surged on the news, jumping over 40 pips to as high as 110.84 yen before reversing gains as markets were concerned about a looming trade war with China. The pair is currently testing the key 110 level. The White House is debating whether to carry though $50 billion of tariffs on Chinese goods after talks between the U.S. and China failed to agree on a trade deal.

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Chinese economy losing steam


There was a batch of disappointing data out of the world’s second largest economy today. Industry, retail sales and investment all slowed in May. The central bank of China (PBOC) is expected to shift to an easier policy stance in response to the weak data. Meanwhile, there is the prospect of fresh U.S. tariffs on Chinese exports. Chinese equities were boosted by the news that the PBOC didn’t raise rates, before dropping after the economic data was released. Since Australia is a major trading partner of China, the aussie was negatively affected. Meanwhile soft Australian jobs data also hurt the AUD.

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Crude oil jumps after EIA inventory data show drawdown


WTI oil prices jumped after the EIA crude inventory report saw a drawdown that was bigger than forecast. There was a drop of 4.41 million versus 1.44m barrels expected. Immediately after the data, prices rose from 66.02 to 66.81. The markets will focus on the upcoming OPEC meeting on June 22-23 in Vienna as this would likely give a clearer direction in oil prices going forward.

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