The United States economy might not be quite as strong as many analysts originally had believed it was. The gross domestic product of the U.S. dropped slightly for the month of July, and although many traders were surprised by this, for those that had a hand in the markets and an ability to adapt and trade the news, they were able to take advantage of the news.
As a result of this, the U.S. dollar fell dramatically on Friday, July 29th, against the major currencies. The EUR/USD finished up the U.S. trading day at 1.1174, after starting below 1.1100. That’s not an unheard of move, but it is a rather large one, and it is one that even those that don’t pay attention to the Forex market will have to take note of if they want their trades to remain accurate. For binary options traders, this is especially important as it is just as easy to trade a currency pair’s movement as it is any other type of asset. In fact, this could spell even more opportunity for some because many brokers offer higher rates of return on currency pairs.
As you probably know, when the dollar drops, stocks go up. This was certainly the case on July 29th, as the major indices rose. Yes, there was a lead in this category anyway thanks to major companies like Google, Facebook, and Apple all releasing their earnings during the course of the previous few days, and all of these companies had surprisingly good earnings. The indices were bound to rise, but a weakening dollar made this almost guaranteed. The price of gold, which had begun to show signs of entering a bull market, took off at an even more rapid pace.
One interesting thing to note is that the Dow Jones Industrial Average dropped by 0.1 percent, its fifth straight drop in price. While the S&P 500 is sitting just a couple points behind its all-time highest level, the Dow is slowing down it’s advances. It trimmed back its gains to 2.8 percent for the month of July. This is the Dow’s longest slump in over a month, but as stocks gain more and more traction, it’s something that should be easily overcome. In fact, this could even present a great opportunity for some traders as it leaves more room for growth after the Fed decision to wait and the weaker than expected GDP data.
Right now, according to estimates, the odds of a Fed rate hike stand at 36 percent for December. Because of the less than outstanding data that was released toward the end of July, what is happening is that investors are predicting that the Fed will not be able to raise the interest rate until after the results of the U.S. Presidential election is over. Major elections have the ability to sway markets, but the results are usually short term. The only reason that a decision by the Federal reserve would be stalled until after the election would be because of a long term need. And while the prediction rate has dropped for a December move, it is still viewed by the professionals in the industry as the most likely time that a rate hike will occur.
Of course, there will be both ups and downs in the markets until the next rate hike occurs, but oftentimes a Fed move is seen as the catalyst for change. And while it is, the move is often predictable and at least partially accounted for before it occurs. As you go about making trades in any market, keep this in mind so as not to expose yourself to too much undue risk by ignoring sudden changes or predicted changes that never materialize.