By Lukman Otunuga, Research Analyst FXTM
The uncertainty of when the Fed will raise US interest rates in 2016 reinforces a growing market currencies. Jakarta Composite Stock Price Index closed higher on Monday. Sentiment towards Indonesia continues to improve. The GDP data was encouraging second quarter by 5.2%, so that economic growth was not alarming. Core domestic data along the second quarter continue to follow a positive trend. Meanwhile, there is optimism that the tax amnesty law recently passed will generate capital inflows reached $ 40 billion and supporting overall GDP. Bank Indonesia projects GDP growth of 4.9% - 5.3% this year. This figure can be achieved if Indonesia continues to survive in this global uncertainty.
In the forex market, S was slightly weaker against the USD at the level of 13213 and this has nothing to do with the negative sentiment towards IDR. The driving factor behind this change seems USDIDR rate is USD sensitivity to increasingly intense ahead of the Jackson Hole symposium.
Markets cautious ahead of Jackson Hole Symposium
Anxiety enveloped global markets on Monday ahead of Friday’s Jackson Hole meeting that might give clarity about when the Fed will raise US interest rates. Asian stocks closed mixed. Nikkei up as weaker JPY support Japanese exporters. European stocks fluctuate up and down because of uncertainty ahead of Jackson Hole and risk aversion led investors to shun riskier assets. Wall Street is vulnerable to losses on Friday and the negative trend may continue if the domino effect bearish from Asia and Europe invites sellers to attack.
Most markets are still very bullish on the stock despite bearish fundamental factors. Thus, the factors driving this dramatic increase is the sentiment. Soaring oil prices and optimism about central bank intervention increases investors’ risk appetite so that global stock markets rallied. Keep in mind that this oil price spike occurred because of freezing production expectations, while the global economic situation is still worrying. Sentiment can change quickly. Given the fundamental factors do not support, the stock may have decreased sharply.
USD gained on expectations of an increase in US interest rates
USD rebounded on Monday as optimistic comments from policy makers at the Federal Reserve about the strength of the US economy raised hopes of an increase in US interest rates in 2016. Fluctuations in expectations about the Fed’s next step is very pressing USD exchange rate last week.
Differences of opinion within the Fed provide a basis for bearish investors to strike price. Although sentiment towards the USD and the US economy remains somewhat bullish, the Federal Reserve is likely to wait for a more complete domestic data to consider an increase in US interest rates in December. Investors seemed to be directing his attention to the Jackson Hole meeting on Friday to signal the Fed’s next move. Yellen hawkish can inspire bullish investors to strengthen the Dollar Index.
From a technical standpoint, the Dollar Index remains bearish on the daily time span. Previous support level at 95.00 could be a dynamic resistance that paved the way towards 94.00.
GBP/USD is under 1.3100
GBP weakened on Friday as the discourse that British Prime Minister Theresa May will probably activate Article 50 in April and triggered the British official negotiations to exit from the EU. Although GBP survive last week as positive domestic data and ease fears of post Brexit, the uncertain situation continues to make the prices are very susceptible to a decline. Sentiment towards the GBP remains bearish and the price can slump due to increased expectations that the Bank of England will cut UK interest rates close to zero before the end of the year.
GBP remains depressed and the possibility of monetary policy divergence between the Fed and the BoE encourage the sellers to deliver GBPUSD lower. Because there is no timetable important in today’s economic calendar, price action may continue so that the GBPUSD is likely to continue under pressure.
WTI rose on expectations freezing production
Volatile oil markets this week and the price of entering the market is optimistic because of the informal meeting of OPEC in September is expected to spawn a deal freezing production levels. The sensitivity of oil in the current oversupply situation further increased speculative boost to commodity prices that have entered a bull market in only eleven trading days.
The number of oil refineries in the US continued to rise last week. Meanwhile, Iraq seeks to boost crude oil deliveries above 5% in the coming days. Sustainability of the current oil market rally is highly questionable because the problem of oversupply and slowing demand continues. If the informal meeting of OPEC’s September production freezing does not produce an agreement, the bearish investors can be moved to deliver the price back to $ 40.
Highlights currency - USD/JPY
USDJPY slipped last week down 100.00 due to uncertainty about when the Fed will raise US interest rates make the USD weakened and investors repeatedly held selloff. The pair remains bearish on the daily time span. The combination of vulnerability and a stronger USD JPY as risk aversion can make this currency pair exchange rate deteriorated. From a technical standpoint, the previous support level around 101.50 resistance level can be turned into a dynamic that encourages further decline towards 99.50.