Inbound Rate Hikes a Possibility
Yellen implied that she was in favor of a short-term interest rate hike, despite the cautiousness of her fellow policymakers who must hear daily about the massive financial problems in China stemming from similar factors. The Chairwoman’s plan featured a quickly-approaching rate hike, albeit at a slow pace despite urging from many sources, not the least of which is the International Monetary Fund, to hold off on a rate hike of any magnitude or speed. The stock and commodities markets fell as a result of the testimony, while the USD and bonds were strongly bid. In a period where the Federal Reserve is concerned about inflation, economic volatility around the world has increased and forward economic data is difficult to predict, the pressure surrounding a rate hike in September is reaching high levels. The price of gold has steadily fallen on recent dollar strength and continues to do so, hitting $1150 and continuing its plunge.
A recent statement by the Bank of Canada from a broadcast that was largely anticipated to be uneventful, declared that the interest rate in the country would be dropped again by 25 basis points. According to the Central Bank, the impetus behind the new rate of 0.50% was projected economic troubles and a shrinking GDP. Compounding issues of lessening investments in the energy sector, and a decrease of exports in energy, non-energy and non-commodities are also difficult obstacles to overcome, and thus further reasons for an interest rate drop. Upon a revised annual growth expectation of 1.00% for this year, and 2.50% for the next two years each, the USDCAD pair saw blossoming growth. Further boosting the pair was sentiment from Canadian policymakers that deflationary risk due to weak energy prices had forced their hand in the decision to alter monetary policy.
In the middle of violent and fiery protests in Greece, Parliament was finally able to approve bailout terms after Alexis Tsipras garnered support from other influencers for the new deal. The new austerity measures have been extremely controversial, as it was previously thought by the public that lawmakers were against more financial obligation to the Eurogroup. After the shock of Tsipras’ agreement to recent terms in spite of his refusal at earlier and arguably more favorable terms, his party is now split and outlook for his reelection does not look good. The next step is for the European policymakers to give final approval and for liquidity to be returned to banks. This is a risky move, considering the danger of mass disbursement following two straight weeks of a pitiful daily withdrawal limit. The stage is now set for a potential default, as a EUR 7 billion payment is due on Monday with the Euro falling below 1.1000 as a result.
Coffee Downward Trending Channel Trading Opportunity
Stronger rains due to the El Nino weather pattern formation has seen coffee prices drop to the lowest levels since 2014 as recently as last week as the crop yields are forecast to climb. The constant pressure on prices comes at a time when burgeoning supplies are forecast to grow further as accommodative weather conditions raise the probability that oversupply becomes a very real concern. The downward trending channel formation in coffee futures has a distinctly bearish outlook with expectations that prices will retest lows in coming weeks. Ideal positions taken near the upper channel line target the lower channel line with long positions fighting the prevailing trend not suggested due to the worsening risk-reward characteristics. A move above the upper channel line could be indicative of a potential upside breakout, reflecting a weaker outlook for coffee crops.
Wishing you a successful trading day,