U.S. Dollar Stabilizes; Weak Pound

PowellIt has been an interesting day in the market, including the Forex market, as the Chair of the U.S. Federal Reserve hinted yesterday in a widely-anticipated speech that the pace of rate hikes would now be slower than the consensus forecast. Although the Federal Reserve is independent, they had come under strong pressure recently from President Trump to make such a shift, and it seems that they have. The speech sent U.S. stock markets higher and the U.S. Dollar down.

Now that at least a day and a half has passed since the speech, how are the markets doing? In Forex, we see something quite telling: while the Euro and the Japanese Yen are up against the Dollar, the Pound is down. This is usually a nice trick to use in the Forex markets – see which currency sticks out like a sore thumb, as the native English speakers say. Here, there is no question that it is the British Pound, and as usually it is the old story of uncertainty over the terms on which the U.K. will leave the European Union on 29th March 2019 which is weakening the Pound. I personally believe that in the end the U.K. may not leave at all.

Turning to the U.S. stock market, although the speech certainly boosted the market by producing a healthy up day, there have now been 13 consecutive daily closes below the key 200-day moving average by the benchmark S&P 500 Index, and unless it can close tomorrow higher than about 2763, December will be the second consecutive calendar month which began with the price below this indicator. However, we are still not really in a bear market yet: the action would have to worsen further still before a bear market could be called with any real conviction. We are still in correction territory.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment. Learn more from Adam in his free lessons at FX Academy.