US manufacturing activity improves, Fed to maintain interest rates until 2023

Global equity market

(Source: KVB PRIME)

The manufacturing industry improved after the FOMC conference, while the equity market started to become weaker. The S&P500 decreased 0.46% to 3385.49; the NASDAQ declined by 1.69% to 11247.60 and the Dow Jones follows suit with a 0.13% decrease to 28032.38.

Following the latest round of UK-EU negotiations, the DAX increased 0.29% to 13255.37 and the FTSE is reduced by 0.44% to close at 6078.48.

Meanwhile, the Chinese market took a big hit yesterday, recovering only slightly towards the end of the day: the Shanghai Stock index, SZSE Component index and GEM index each declined by 0.54%, 0.83% and 1.55% respectively.

Crude oil forward contracts

WTI crude oil kept rising after the opening on Wednesday - continuing the strong upward trend seen since Tuesday -moving from around $38.5 to just over $39.

After the US market opened, stronger growth was seen with the price peaking at $40.41 with a closing price of $40.15, representing a daily increase of 4.57%.

Brent oil also closed up by 4.03% at $42.29 per barrel.

Precious metal forward contracts

The price of gold rose after the market opened on Wednesday, edging higher from $1950 to $1965. After the US session began, the price peaked at $1973.49.

However, the next day, gold moved lower to finish the day at $1959.00 per ounce, resulting in a 0.31% increase for the day.

The silver price saw a 0.03% increase at $27.13 per ounce.

Currency pairs

·        USDX up to 93.07 (0.043%)

·        EUR/USD down to1.18139 (-0.287%)

·        GBP/USD up to 1.29651 (0.601%)

·        AUD/USD up to 0.72995 (0.014%)

·        NZD/USD up to 0.67288 (0.258%)

·        USD/CAD down to 1.31731 (-0.060%)

·        USD/JPY down to 104.93 (-0.455%)

Global Fundamentals

United States

The US Federal Reserve announced its latest interest rate decision on Wednesday, pledging that the current near-zero rates will remain constant for the foreseeable future(likely until the year 2023). In Addition, the Fed indicated that it may adjust the government’s balance sheet when the timing is right.

Fed Chairman Jerome Powell also reaffirmed his belief that the US’ economic development in the US would need to relyon a greater amount of both monetary and fiscal policy support.

The US announced its monthly retail sales index at 0.6% - short of the initial expectation of 1.0%, making it the third consecutive monthly decrease.

Europe

Based on data published by the UK Bureau of Statistics on 16th August, the UK Consumer Price Index (CPI) rose 0.2%in August compared to the same time last year.

This figure is lower than the 1.0% increase seen for July and much lower than the 2.0% inflation target set by the Bank of England (BoE). It was also the lowest level of increase since January 2016.    

Japan

Yoshihide Suga was elected Japan's 99^th Prime Minister succeeding Shinzo Abe and pledging to follow Abe's course.

Based on institution alanalysis of August’s figures, Japanese exports - especially to the US -have seen double-digit decreases for six months in a row due to the coronavirus.

International

The Organisation for Economic Co-operation and Development(OECD) predicts that the global GDP will recover by -4.5% an adjustment from the previous estimation of -6%. Expectations for the economic recovery of developed countries, including Japan and US,were marked up as part of the revisions.

Additionally, are cently released US Energy Information Administration (EIA) report showed commercial inventories were down by 4.38 million barrels to 498 million barrels, dropping by another 0.9%. The market was reportedly expecting an increase of 1.27 million barrels; lower than last month’s 2.03 million barrels.

The Cushing Crude Oil Stocks Change has also hit its highest level in five months.

Today’s major asset analysis

EUR/USD and GBP/USD

Yesterday’s prediction could have caught a 35-pip profit margin, but the pound didn’t follow our expected trajectory (i.e. moving downwards) and instead edged higher.

Both the GBP and EUR price have differed for the past three days, and we could expect this to be the prevailing pattern before the Brexit-related Internal Market Bill is finalised.

In terms of strategy, we will most likely hold on to our previous estimation for GBP and EUR over the mid and long term. Intraday, even tonight’s slated interest rate decision from the BoE is likely to boost the pound in the short term.

Our target will be to capture 60 pips, but strict risk control will be necessary. After the US releases its latest employment data, we could place a short position around the key resistant at 1.303.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Another 25 pips were gained from our predictions yesterday, and the Australian dollar’s price is expecting to fall further,continuing to follow our strategy.

In terms of short-term placements, we could expect another 12 pips’ reconsolidation upwards and a further fall for another 22-25 pips.

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

A 13-pip profit is a good but not excellent result from our analysis. At the moment, gold is oversold so we would not suggest further chasing of profits from short positions during the Asian session.

We will likely need the price to pull back to 1960 and further fall another $8-10, which will be our target. 

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

If we were to be conservative, we could grab around $0.35, whilst an aggressive approach could see gains of up to around $0.4.

The USDX hit our mid-term target of $93.4 this morning, so it would seem wise to now simply realise our profits and return to simply observing intraday.

With strict risk control, the reconsolidation towards $93.2 could provide opportunities for participation.

Today’s interest decision from the BoE will potentially promote the USDX further, but equally the USDX could fall during the North American session.

Overall today, observation seems more beneficial than participation.

(USDX, four-hour chart] (Source: KVB PRIME)