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September Rate Hikes Back on the Table

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With the August payrolls report showing the US unemployment rate falling to 5.1% and a pickup in the average hourly earnings, the markets are mixed in terms of what to expect from the Federal Reserve at its two-day meeting due on September 16th and 17th. The number of average jobs in August fell short of consensus estimates but it is widely accepted that August forecasts are often overestimated by Wall Street and due to seasonality; the NFP number for August is usually revised higher the following month. The markets are widely mixed on the September rate hike expectations and as such market volatility amidst the uncertainty could prevail.

Weekly Review

Chinese markets were closed for most of last week and is set to return to business on Monday. Investors will be cautious with the main question being if the Shanghai Composite will stabilize from its recent sell offs, or the volatility bearish declines would resume. The Euro closed the week on a bearish note as the ECB's monetary policy last week showed a downward revision to Eurozone GDP and inflation forecasts. The single currency took a hit as ECB President; Mario Draghi commented that the European Central Bank would keep its options open for extending its QE program beyond September of 2016. On the weekly charts, EURUSD is consolidating within an ascending triangle, a technical pattern that often precedes a volatile break out, usually to the upside. Resistance for the ascending triangle sits at 1.1485. A break above this resistance could see a measured targeted move to as high as 1.2097 in the medium - long term. To the downside, in the event that the rising trend line is broken, EURUSD could test the support at 1.0829. We could expect to see EURUSD consolidate for the most part until the FOMC meeting due on 17th of September.

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The Week Ahead

After a busy first week in September, the coming week will see the remainder of the Central Bank's release their monetary policy reviews. The Bank of Canada is the first off the list, due to meet on 9th September. A modest pickup in Canadian GDP which meets the BoC's target, and a largely better than expected jobs report from Canada last week is likely to see the Canadian Central Bank leave policy unchanged with interest rates steady at 0.5%. Right on the heels of the BoC's rate statement, the Reserve Bank of New Zealand meets where expectations are high for a RBNZ rate cut to interest rates by 25bps, bringing down the New Zealand official cash rate from 3.0% currently to 2.75%. Economic data from New Zealand hasn't been very positive lately and the RBNZ could continue to deliver rate cuts in a bid to stimulate growth in light of the slowdown from China and Australia. The Bank of England will be the last of the Central bank meetings this week, due to meet on 10th September. No change is expected to the BoE's asset purchase program or the official bank rate which stands at 0.50%. The BoE will be releasing the meeting minutes right after the statement and the markets will be eager to see any new dissenters in the MPC's voting in respect to interest rate hikes. The MPC vote count currently stands at 1 - 8, with one member, Ian McCafferty in favor of a rate hike from the BoE. If the MPC vote count sees’s new dissenters joining the hawkish camp, it would be considered as bullish for the British Pound. The Cable has declined significantly over the past few weeks, losing over -3.27% in two weeks as the currency fell from the highs of 1.5818 to close Friday, 4th September at 1.5167.

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