On Wednesday, the last big economic event of the year 2018 is on the agenda: the FED rate decision. While after the September meeting it seemed like a done deal that the FED will hike rates in December a fourth time in 2018 (at least the FED dot plot suggested a probability of 75%), after high volatility in US equity markets in October, November, the SP500 CFD being down more than 7% in December, and several Twitter “attacks” from US president Donald Trump, it seems as if a fourth rate hike isn’t a done deal as expected one week ago.
Source: Economic Events 19 December 2018 – Admiral Markets’ Forex Calendar
And even if the FED hikes rates by 25 basis points, it is more than realistic that the hike will be a very dovish one. That being said, it wouldn’t come as a big surprise if the FED dot plot will only suggest something between 1 to 2 rate hikes in 2019. Since market participants in the Commitment of Traders Report are still holding on their highest net long position in the US Dollar in around 18 months, such a dovish hike could result in some USD Long unwinding into the yearly close, and could bring the US-Dollar under pressure.
Source: Admiral Markets MT5 with MT5SE Add-on – USDJPY daily chart (between 01 December 2017 to 18 December 2018) – Accessed: 18 December 2018 at 11:00 PM GMT – Please Note: Past performance does not indicate future results, noris it a reliable indicator of future performance.
Especially the yield sensitive USDJPY currency pair could see some further losses, and could accelerate the push lower, initiated already on Monday and Tuesday with an attempt to attack and break below the October lows around 111.50. In fact, such a break lower in combination with the fundamental, but also the CoT picture could point to a weak start in the USD/JPY pair heading into 2019, especially if volatility in equity markets remains elevated. A move towards and below 110 within the next six weeks seems like a serious option.
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