The markets started to move sharply after comments from FED members, but especially Rosengren, increased the chances of a rate hike this year, and also the possibility that this could happen already next week. After that the chances for a rate hike in September increased from 18% to 24%. Today we have more FED members speak, as this is the last day they are able to give comments before the blackout period ahead of the FOMC meeting next week. The speaker that will be most in focus is Brainard, who is considered a dove and close to FED Chair Yellen. If she says that she also sees the time is approaching for raising the interest rate, we can see the expectation of a September move increase even further.
Currencies
EUR/USD – with the USD gaining in strength after the comments from the FED members it moved down on Friday, but the support around the 1.12 level was able to hold, and we are seeing a correction of the downwards move this morning.
USD/JPY – as expected also moved up, also because there is still some expectation that the BOJ will act next week. There have been further talks that they could expand the negative interest rate further, although it is not clear what they will do.
GBP/USD – dropped due to the stronger USD and is trading close to the support around the 1.324 level. We are having a very important week for the GBP with inflation data on Tuesday, unemployment data on Wednesday and the interest rate decision on Thursday.
AUD/USD – has dropped firmly and trades below the level it was before the RBA decision to keep the interest rate unchanged and is nearing the support area around the 0.75 level.
USD/CAD – broke firmly through the 1.30 level as we saw a combination of a stronger USD, a weaker CAD due to disappointing data, as well as a sharp drop in the oil price. Once again we are approaching the resistance around the 1.312 level.
Indices
DAX 30 – extended its losses as equities around the world are dropping due to increased chances of a rate hike in the US this month. We closed around the support area which is starting to form in the last weeks, but we are expected to open lower this morning.
S&P 500 – managed to finally break below the support at the 2167 level, and what a follow through we saw! It was the worst drop since the Brexit vote and we are currently already trading at the next support around the 2100 level. The main reason is the fact that a September move by the FED is still possible after the comments of the FED members which spoke on Friday. In addition, some concerns on the health of Hillary Clinton are also spooking the markets a little bit.
Commodities
Gold – dropped below the support around the 1332 level as the USD strengthened along with the expectation of a September move by the FED. However, we did not see such a huge drop as we could expect, but this could change today if more FED members seem to push for a September hike.
Oil – dropped sharply, and trades below the upwards move after the huge inventories. The reason for this is the lingering doubts that anything substantial will come out of the meeting of oil producing countries in two weeks, in addition to a strengthening USD. While the talk started about a production freeze, it is starting to shift slowly to a possible output ceiling. In any case, history is showing us that any limit is not really respected, as OPEC is continuously producing above its own set quota. Furthermore, we got another increase in the number of active rigs. We can expect the inventories to show an increase again, if the drop really was due to the tropical storms, but that we will only know in 2 days from now.
Stocks
Bayer (DE:BAYGN) – appears to be finally close to reaching an agreement with Monsanto (NYSE:MON) and a deal could possibly be announced already next week.
Tesla (NASDAQ:TSLA) – after facing some criticism and skepticism on the autopilot system for Tesla car, due to a lethal car accident, Tesla’s CEO, Elon Musk, says that the cars will rely more on radar instead of cameras as is the case nowadays. The expectation is that this should reduce the amount of accidents Tesla cars on autopilot are involved in.