Financial market research and analysis

The FOMC minutes of the last Fed meeting that ended on August the 1^st are scheduled to be released this Wednesday afternoon. The minutes are expected to give additional clues on the path for US interest rates. According to market consensus the Fed is expected to continue its regular quarterly tightening process and deliver two more rate hikes this year, in September and then an additional rate hike later in December.

We don’t expect any dramtic shift in language, however, some Fed policy members are likely to highlight the downside risks from the trade war and may highlight the negative real wage growth.

Consumer inflation rose by 2.4% y/y, but prices are rising quicker than wages, leading to negative rela wage growth. The US economy is 70% dependent on consumption, so it needs to have positive real wage growth to sustain the current level of economic growth.

Overall the Fed’s  minutes shouldn’t bring anything new to the table and the market participants are expected to shift their focus to the headlines from the Jackson Hole economic symposium, which will gather together central bankers around the world.

Source: LCG MT4, 22/8/18

US treasury yields broke to a seven-week low during the first trading days of the week while the greenback give back some of the latest price gains. The EUR/USD recorded five consecutive green days, bouncing off of the lowest level since June 2017. The key psychological number 1.1500 will dictate the short-term price action and while there are not many catalysts that have the force to change the current bearish sentiment, EUR/USD exchange rate has a higher probability of resuming its downwards trend sooner rather than later.

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