Weekly Outlook – Will the FOMC Reiterate Normalization on Wednesday?

  • In the US, the Greenback was on the offer for the second week in a row on the backdrop Yellen’s dovish testimony as well as political concerns over the Trump administration not being able to push through reforms. This sent US yields lower ahead of this week’s FOMC meeting. Despite the political concerns, US stocks enjoyed the drop in yields making the Nasdaq taking home its 10th straight day of gains, recording a 1.2% gain for the week.
  • In the Euro zone, ECB President Draghi reiterated the hawkish stance from the week before and whilst keeping rates unchanged as expected, EURUSD closed above key trend resistance and now eyes key resistance at 1.1710-area. Draghi communicated that the ECB’s Governing Council will reassess the monetary policy in the Autumn this year and market participants are expecting it to be addressed on the September or October meeting. European stocks took a beating with most major indices down for the week – DAX closed below the 100-day SMA and closing in on longer term trend support, currently around the 12,000-mark.
  • From the UK, the inflation data disappointed markets and sending the Sterling lower (the only major to lose ground to the offered US Dollar) on back of negative rate speculation. The weakening currency did make UK stocks post gains for the third week in a row. On the political side, post-Brexit trade deal talks with the US have commenced, but the UK can obviously not commit before leaving the European Union.
  • Asia posted decent growth figures from China, whilst the BoJ kept rates unchanged as expected. The Aussie continued heading higher on the weaker USD, but an increase in the price of gold also helped the currency higher. The precious metal has been on the bid and a close above 1,260 would open up for further upside with key resistance at 1,300-area.
  • This week, the key focus will be on the FOMC on Wednesday. Rates are expected to be held unchanged, but the rhetoric in the accompanying statement should always be noted – especially if Yellen should once again commit to the rate outlook of one more hike in 2017 and three in 2018. US GDP on Friday should also be noted as it will confirm the Fed policy (or put it to question). At the same time of the US GDP release, we also have the GDP from Canada, so there could potentially be a double-whammy for USDCAD.

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