US Fed is under extreme pressure from broader markets

Daily Analysis - 21/09/2018

Powell faces hard decisions ahead

Reuters reported that the US Federal reserve and Jerome Powell will face a very difficult task the following week. The reason for the imminent pressure is their two days (Tuesday-Wednesday) meeting which is widely expected to end probably with a 0.25% rate hike while the US economy is raising warning flags but giving the green light at the same time. The popular news agency Reuters also mention that the US Fed is under much pressure from broader markets. The reason behind that is to pressure the US to raise their interest rates at the mentioned Fed meeting, while the US economy continues to give pressure on jobs with unemployment sitting at almost at 20-year lows. Now caution is very important as the yield curve on FED Treasuries continues to be on the red with a major bearish sentiment that stated that an economic recession could be a more real threat that they believed. Traders probably will anticipate next week's almost-guaranteed rate hike. Too many more rate hikes will quickly see the yields on short-term US bonds pushed beyond the rates of long-term debt, an inversion that would signal a coming bear signal in the broader economy.

EUR/USD Consolidating gains

The popular pair EUR/USD hold its profits that gained yesterday as markets remain to relax on trade tensions with China even with the further comments by United States President Trump against China. Now the eyes are on the Euro-zone Flash PMI's.

A 10% tariff on $200 billion worth of Chinese goods was implemented earlier this week by the US Administration. Then China's response was moderate, and the tariff level is relatively low. The EUR/USD went back from the previous high but is now recovering after an intraday retracement that was above the previous resistance at the 1.1728 level. Then the pair pauses its advance many times the last days, and where it set its high in August. At the 4 hours, timeframe chart EUR/USD bounced from a bullish 20 SMA while the Momentum indicator holds its bullish sentiment above its 100 level. If we examine the RSI we can see that has reached its overbought area and lost some upward momentum.

New rate path from Norges Bank

A Research Analyst at Nordea Markets Joachim Bernhardsen said that the new rate strategy from Norges Bank is clearly not a support to their forecast of three hikes next year and he believes that Norges Bank has a very bearish sentiment on the economy. Here some key quotes to support the above fact “With the risk of sounding grumpy after being too hawkish in our rate path call, we struggle to see some of the reasoning behind the downward revision.”

“From time to time Norges Bank “pulls the rabbit out of the hat”, and these magic tricks can be hard to foresee. This time the magic trick does, at least to some extent, smells of fear of being too hawkish in order to prevent further NOK strengthening.”

“We have a forecast for a more or less sideways EURNOK for the remaining of the year, reflecting that the NOK could end up in some kind of vacuum following the initial hike. The next hike in March is still a long way off and it is probably too early for this to be an important driver for the NOK.”

XRP/USD jumped more than 35% in single day

Late on Thursday one of the most promising crypto coins (XRP) jumped to $0.4977 level and then retrace to $0.4530. The Ripple's cryptocurrency had steady growth and it is the leader among top-10 coins with more than 40% gains on a day-to-day basis. The volatility and the trading volumes were skyrocketed and went up to the highest levels since last January. Due to the extreme price increase, XRP's market value went over $18B and was close to the other popular coin’s capitalization the Ethereum's (currently at $22B).XRP added over $7B to its market cap in less than 4 days. From the longer point of view, XRP's weekly gains amounted to about to 63%, These strong movements are usually based on three components: fundamentals, technical factors and emotions or speculations.

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