Date: 17 Oct 2019

Market sentiment was notably muted on Wednesday, following a warning from the IMF that the global economy is facing an upcoming financial crisis. Optimism also started to fade towards the recent announcement of a ‘phase one’ trade deal between the United States and China, while weaker than expected retail sales data from the American economy helped dampen the mood on Wall Street.

The International Monetary Fund’s top economist, Gita Gopinath, warned that unless trade tariffs were eliminated, risks coming from ongoing trade war between the United States and China could push the global economy into a synchronized recession, similar to the financial crisis of 2008.

According to the International Monetary Fund, its outlook for global growth is projected at 1.2 percent this year and 1.4 percent in 2020. However, the IMF warned that growing geopolitical tensions and Brexit related-risks could see the growth forecasts further downgraded.

The IMF also warned that global central banks may have already exhausted their firepower, following recent interest rate reduction and the inclusion of monetary policy easing. Gita Gopinath also called on governments to increase investment in infrastructure and reduce geopolitical tensions with neighboring countries.

Many leading economists have also noted that the build-up in corporate debt since the financial crisis of 2008 is another major challenge that the global economy faces. A sudden rise in global inflation could pose advanced and emerging economies series problems, especially if central banks are forced to raise interest rates to combat inflationary pressures.

 

USD/JPY Daily Candlestick Chart | Source: ActivTrader

USD/JPY Daily Candlestick Chart | Source: ActivTrader

 

The U.S Dollar recently surged to its highest level since August 1st against the Japanese yen currency, although bulls have been struggling to break the 109.00 level. The USD/JPY pair is still at risk this month if U.S President Donald Trump faces impeachment charges. Key support is found at the 107.90 and 107.50 levels, while major resistance is located at the 109.30 and 110.20 levels.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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