News background and trading ideas for 25/12/2018

Since today is a Christmas and the day off on FOREX, so besides the wishes all the best for our readers, we have an opportunity to distract a little from everyday fuss and look at the situation in the foreign exchange market more generally outside the context of current events.

Since the base currency so far is the dollar, in the current review we share our point of view of its destiny in 2019.
Admit that the expiring year, in general, was quite successful for the US currency. The key to success was an excellent shape of the US economy, as well as Fed activities.

It could be logical to assume that for the growth in the upcoming year it needs to be at least maintain the current status quo and as maximum - the appearance of the new incentives for growth.

To our mind, the dollar has grave problems in this regard. The incentive to the US economic growth in 2018 was given by Trump’s tax reform, which, at the cost of a budget deficit and increasing public debt, made it possible for large US corporations to save really on taxes and, as a result, to forward the released resources, including their own gains. But after the loss of the House of Representatives by the Republicans, Trump's chances for new fiscal incentives are extremely slender, especially in the light of another shutdown. So, the economy will not receive new ones. At the same time, the current push is clearly losing inertia (see the latest data on GDP or the US labor market). So the economy is unlikely to become reliable relief for the dollar increase. Rather, the frustration of investors may well trigger the dollar sales.


Regarding another powerful boost to the dollar growth in 2018 - the Fed monetary policy, 2019 promises to become a watershed year. The rate is planned to be raised a maximum twice but provided the appropriate signals from the economy. And these signals are unlikely to be very encouraging, what means that we can not see even these two hikes. Which in turn, will cut the ground from under the dollar strengthening feet.

Amid this, the markets can refresh in memory three “D” of the US economy: the budget deficit, trade deficit, and government debt. If investors focus their attention on these 3 components, 2019 can be on of the most failed year for the dollar in recent years.

In this regard, our mid-term vision for the dollar is generally negative. We expect it to decline in the foreseeable future and, accordingly, recommend selling the dollar on the foreign exchange market in 2019.