18th December 2018 - Some Clues For 2019

Walid Salah Eldin

Master Trader
Feb 15, 2016
God willing, It is widely expected to see tomorrow another Fed fund rate hiking by 0.25% to reach 2.5%.
I see that the Fed somehow will inform us that we have reached a neutral interest rate level and that can weigh down on the greenback for a while. The Fed is also expected to highlight the US labor market expansion and the economic strength which drove to this new tightening action to curb the upside inflation risks.
The Fed could show some more appreciation of the current "Equities volatility!" or if you want to say slide, it is actually deterioration amid higher borrowing cost outlook, lower global growth expectations, the trade tension turmoil and the geopolitical concerns.
Any clear signal from the Fed about halting of the interest rate rising can show to the markets real serious threats to the economy and that itself can be very dovish message.
Wall Street is just in serious need now to see Fed's fazing of the equities slide and cooling of the Trump's Trade Wars.

In the same time, we see that The ECB cautiousness is still persisting and that stance can be prolonged on its most recent released economic analysis downgrading of inflation and growth forecasts last week.
Mario Draghi said that the balance of risks is moving to the downside but the ECB decided to finish it's QE as expected with no shocks on Eur2.6b balance sheet widening, keeping reinvesting on its holding of bonds maturity with no end yet and holding its TLTROs plans rolling over following the first ECB rate hiking which is still expected to be beyond next summer!
It looks that it may not catch up with this current Fed's tightening cycle!

In UK, The hard Brexit Scenarios greater probabilities, the governmental disapproval to conduct new Brexit Referendum and the Greenback strength on the interest rate outlook differential can keep the pressure on The cable which has main hope in new referendum to avoid further deterioration and spike up.
There is no will of BOJ yet to impose or even hint for any tightening action at the current low inflation levels below its target and that can be ensured again next Thursday when the BOJ members to meet again to hold everything unchanged, while the Fed is still able to tighten for holding PCE close to its 2% yearly target.

In Switzerland, The negative interest rate and The willingness to intervene in the foreign exchange market as necessary remain essential for NSB which is still seeing the Franc is overvalued. It revised down its inflation forecast for 2019 from 0.8% to 0.5%.

AUD is still suffering too as there is No hint yet from RBA to tighten its monetary policy, while AUS Q3 growth figures were really disappointing in the same time we see USD strength and the trade tension fear weighing down on the demand for commodities.
There is also No reason to see Reserve Bank of New Zealand raising rates soon, amid the current uncertainty over US trade tensions and the growing expectations of watching lower growth rates next year.

The lower Oil price is enough to put CAD in defensive position and holds BOC hand from raising rate further following the Fed and that can drove USDCAD higher.

WTI can hold near $50 Psychological level which is not accepted level by OPEC and its allies, As long as the global economic expansion is not expected to exacerbate by a shocking dramatically way and as the oil supply glut is to tighten following OPEC and OPEC+ 1.2m bpd cutting decision.

For Bitcoin, Even the Developing of a single crypto currency can put the others in serious situation and cause investment unwinding out of them. So what about the older frozen ones of them like Bitcoin!
The lower interest rate outlook in US can start giving Gold support and weigh down on UST yields in the secondary market. It can easily gather upside momentum, after easing of the technical downside pressure.

Have a good day and Happier new year

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din