Bill Poulos is an investor who regularly studies the markets and stays abreast of current market trends to bring the latest news to his clients. He is the President of Profits Run, Inc. Discover more about Bill Poulos here. Below Bill discusses the FOREX market.
The Fed minutes were released this week presenting a few surprises. The unemployment rate is the lowest since the 1960’s and the producer price index came in better than expected which means that it is possible that the Fed may take a more hawkish tone than previously expected. Though the likelihood of another rate hike anytime soon is very remote and could be damaging to the ongoing recovery, it is a balancing act that the Fed is perpetually battling.
It has been reported this week that the lingering US/China trade war has caused US companies to rethink their current trade lines by decreasing imports from Chinese companies and increasing imports from companies in countries that are unaffected by the tariffs and trade war. Asian countries that are benefiting are South Korea and Vietnam among others. The USD lost ground to the EUR this week but the pair was relatively quiet trading in a range for the entire week of about 110 pips. It was also flat against the GBP and JPY while losing early and then recovering against the CAD.
Another big mover in the market this week was the economic data coming out of China early Friday morning. The markets were in a holding pattern for much of the lead up to the announcement which turned out to be mixed to Chinese positive. This may signal that the second largest economy in the world may be on the road to recovery. One thing to watch for going forward is that the Chinese government is requiring the banking industry to loosen lending policies for smaller struggling businesses. Total loans outstanding have increased by far more than expected which has the potential to cause a bubble not unlike the late 90’s policy in which the US government required US banks to extend credit to riskier borrowers. This led directly to the real estate bubble and the Great Recession in 2008. We won’t know if there are any parallels for quite some time but monitoring the default rate of the loans will be very telling. After being largely flat for an extended period of time the CNH made an immediate move against the USD as did the other regional currencies AUD and NZD.
There was finally a decision made around the ongoing Brexit debacle which is an extension until October 31st, this was met with mixed reviews by UK and international banks. This gives the UK more time to come up with a firm exit plan, they could decide not to exit at all or they could still end up exiting without a plan. Either way it seems entirely likely that the unrest and arguing around this topic is far from over. While the GBP held up well in general it was flat against most of its major trading partners but it did make a late week move against JPY.
While the AUD did make a bit of move against the USD it was flat against the EUR and it continued its assault against the NZD punishing it for the third week in a row. Since a bullish reversal pattern developed on 3/25 the AUD has been strong and looks as though it may continue possibly challenging the highs of the first quarter of this year.