Status of the Market
The US dollar has been going down since it hit the 100 mark on the DXY
index and it’s expected to depreciate some more. At the moment Saturday, June
11, 2016, the DXY is at: 94.66. The FED has been precarious with the increment
of the federal fun interest rate. They want to make sure the economic data like
inflation and unemployment rate are solid. Janet Yellen emphasizes on her last statement
that they need to make sure their economic indicators are a line with their
economic policy. They are also precarious with international data like the
British vote on the exit from the EU, slow down in China, and international
markets. All this economic data will create volatility in the markets for the
short to medium term. The FED is also taking into account the US market which
at the moment is in a bull market and a more hawkish FED would create fear among
investors which could stop the bull market. The S&P 500 stand at 2,096.07
and it looks like is going to break records highs.
One of the FED important indicators is inflation which stands below
their 2% mark. The FED goal is to create inflation which creates depreciation
on the currency. That is because prices will go higher and we’ll need more
money to buy something. For example, if the price of food is at $10 and
increases by 2% that would equal to $12. That means that the value of the $US
Dollar has gone down. Now it cost $12 to buy something that use to cost $10. Other currencies like AUD and CAD will see appreciation.
This is because AUD and CAD are commodity currencies and if we want increment
in prices, the basic commodities prices will have to increase. This is because to
create inflationary prices in one country, the importers prices will go up.
This could be seen on the appreciation of the AUD and CAD.
Next week the FED will decide whether to increase their interest rate
or leave it as it is. The FED is expected to leave their interest rate as it is,
but there is a chance that they might increase it. If the FED leaves it’s interest
rate at .50 there’s a high probability that the US dollar is going to depreciate.
This idea coincides with the FED economic policy and technical indicators on
currency pairs like USDCAD and AUDUSD. If the FED increases their interest rate
there’s a probability that the US dollar will go up but then it is expected to
go down.
