Wednesday Forex Traders Money Market Update. 19th December 2018.
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As we often see when markets make new yearly lows there are always a few bargain hunters around and whilst I don’t believe the lows created on Monday are as low as we will go, US stock indexes did attempt a rebound on Tuesday. The Dow Jones was up over 300 points mid-morning but the buyers faded quickly in the afternoon forcing the DJ to close up just 89 points when the bell was rung on Wall Street. Yes, they still actually ring a bell.
The Aussie and Kiwi Dollars both erased strong gains that were made in the Asian and European sessions following comments from China’s President Xi Jinping that were seen as supportive for the local economy. The AUD v USD and NZD v USD rallied earlier in the day as traders sold down long US Dollar positions ahead of the Fed statement. Any perceived good news for China is always going to have a positive impact on emerging market currencies throughout Asia. The point I want to make this morning is that an overwhelming number of news stories are beginning to surface about the potential for a weaker US Dollar post the Fed statement. This will mean many novice traders will be getting short on the US Dollar expecting the US Fed to announce that it will go slow with rate increases in 2019. Experience tells me that those traders will likely have their pants pulled down at 6.00am AEDT tomorrow. The market is already expecting the Fed to raise rates this week and announce they will slow the pace next year, so for the US Dollar to fall sharply the Fed will have to say something that it has not already mentioned previously and I don’t think this is going to happen. The market is pricing in a 70% chance the Fed pulls the trigger on rates in December which is down from 78% a week ago. Trump is desperate for the Fed to stop increasing rates and had another crack at the Fed committee with a Tweet on Tuesday. I think the US Fed will remain upbeat about the US economy and stick to its previous script of continuing to raise rates into 2019 but at a slower pace and this will likely put upward pressure on the US Dollar post the statement.
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