By Ed Moya
Dollar bulls have wined and dined like kings and queens in 2018. The greenback appreciated the most against the emerging market currencies. The earlier part of the year saw the focus on rising US interest rates and political stories lead the way lower for EM. Trade wars also contributed to the risk-off narrative and will likely be a key area of focus in Q1.
- Emerging Market Currencies will try to outperform early in H1
- Stocks ready to rally once trade spat resolved
- Brexit clarity needed before cable traders return
Volatility was the story for Q4 as some of the major indexes fell over 20%. The panic that hit the markets saw safe-haven currencies surge on market uncertainty regarding trade wars, Fed quantitative tightening (QT), a partial government shutdown in the US, and Brexit worries. While the data in the US has been softer, many parts of the economy are still strong, such as record-low unemployment and near 3.0% GDP growth. With many risk events in play for the first quarter, we could see Fed policy remain on hold until the latter part of the year. If the Fed pauses interest rate increases and signals a goal on when QT will stabilize, we could see some headwinds for the US dollar in the first half of the year.
Will the Oil bottom hold?
Thin volumes supported the Christmas Eve oil collapse to $42.36 and everyone will closely watch to see if that level holds. While most analysts expect oil to be higher by the end of 2019, the fundamental concerns on both the supply and demand side could see the meltdown continue. In January, we may hear more talks of extending cuts from OPEC+, US offshore drilling companies may need to scale back operations if oil stays near current levels, and if we see a framework agreement on the trade spat between the US and China, we could see positive sentiment return to the battered commodity.
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