Iran and the US at the Forefront of Traders’ Minds; Crude Oil Opens Lackluster at Monday Open; Intervention by the Bank of Japan Still Front and Center; US Helped Japan to Protect Treasury Market; FedWatch Suggests 55% Rate Hike Odds
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The situation between Iran and the United States continues to be a major driver of financial markets, with the latest headlines being that “We are low-keying it” coming out of the White House. As Iran demands more out of any deal, the markets will be waiting to see exactly what the US is willing to live with. This remains a major driver of risk appetite in many markets.
Crude Oil continues to be a very noisy market, but at the open on Monday, traders look to be waiting for new information, as the tension between the US and Iran remains a big factor, and it is essentially a situation where the US will have to decide whether it can give Iran more control over the Strait of Hormuz and live with it, or if the war will have to drag on.
The intervention by the Bank of Japan in the Japanese yen recently continues to be a major point of debate in the forex markets, as the latest intervention was not just the Japanese doing it, but the Americans as well. At the open on Monday, the USD/JPY pair has been a slightly positive market.
Speaking of intervention by the US and Japan, there is speculation that the Americans have gotten involved to help the Japanese while preventing some forced liquidation of US Treasuries to defend their currency. This is one area where the US can help prevent longer-term rates from spiking, and it's worth noting that the Federal Reserve has pointed to a facility that the Japanese could tap in the future.
The FedWatch tool at the CME suggests there is a nearly 55% chance of the FOMC raising interest rates by 0.25%, with a 45% chance that the Fed holds rates steady at the September meeting. However, with recently cooling numbers coming out of America, this will have employment and inflation data taking on even more importance than usual and will more likely than not have an outsized influence on the US Dollar and Gold for the next 6 weeks.
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