The US Dollar dived on Thursday the minute Janet Yellen announced the US Fed’s latest policy statement which included another interest rate increase at the Central Bank. The most overcrowded trade was to be long the US Dollar leading into the announcement with the rate increase being 100% baked into the US Dollar price. As I said yesterday the market would react based off the Fed’s forward guidance and the statement clearly showed the Fed will tighten rates at a very gradual pace throughout the year, which caught many traders by surprise who expected a more hawkish tone. The Fed also confirmed its intention to lift rates two more times in 2017 and three more in 2018. For the US Dollar to rally post the statement overnight the market needed to hear that the Fed would likely raise rates more than 3 times in 2017 and at a faster pace than first expected. The overnight pull back on the US Dollar in my opinion will ultimately be viewed as a buying opportunity as higher interest rates in the US and a strong US economy is a recipe for a higher US Dollar longer term.
The Euro rallied strongly on Wednesday after Dutch polls showed current Prime Minister Rutte’s would likely win the national election. His opponent was considered to be anti European Union so a win for the incumbent will likely mean political stability in the Netherlands, which is good news for the EU and Euro currency.
When you look at your charts today there are lots of correlations directly related to the fall on the US Dollar and rapid-fire rally on stock indexes. The Aussie Dollar and New Zealand Dollar gained strongly however this was not local currency strength but broader US Dollar selling. There is currently a disjointed market today with a bullish stock market and also a bullish Yen, which is the exact opposite to what normally happens. If we see a rally on stocks the Yen is usually sold but the opposite happened overnight, the Yen rallied as the US Dollar fell. Something’s got to give and I suspect this overnight fall on the US Dollar will be met with some support in coming days.
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts, and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular key-note speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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