Fed’s decision: sell dollar, buy gold & CAD

2019년 10월 30일

Before moving on to the main event this month, and perhaps the next one too, we will talk about yesterday’s events.

As usual, the most interesting news is coming from the UK. Johnson could find support for his idea of an early election. So in December, the British are expected to have the third parliamentary election over four years. According to some experts, they can become a kind of referendum on Brexit. If residents give preference to parties opposed Brexit, then Brexit might be cancelled.

Our position on the pound has not changed. On the contrary, we believe even more strongly that the pound will rise. Yesterday its strengthening only confirms our idea. But everything goes to the point that its growth will be delayed by at least a month and a half.

Wednesday can be called the main day of the week because today the Bank of Canada and the Fed will announce their decisions on the monetary policy parameters. The results are appearing to be clear, but the foreign exchange market might be wide open with its reaction.

So, the Fed with a probability of 95% + will lower the interest rate by 0.25%. Formally, this is a powerful bearish signal for the dollar, as lowering the rate today will be the third in 2019. And this is considered as a trend. The last time the Fed launched a full-fledged rate reduction cycle, the dollar lost about 15% of its value in the foreign exchange market. That is why we will sell the dollar today, despite its stubborn reluctance to decline.

As for the Bank of Canada, the rate is likely to remain unchanged. Against the background of a potential Fed’s decision to cut the interest rate, in our opinion, this will be an excellent occasion for a further USDCAD reduction. Therefore, today we will sell it (if the Bank of Canada leaves the rate unchanged, and the Fed lowers the rate). based on technical analysis, of course, it is worth waiting for a breakdown of 1.30 and enter the position below 1,30 right after stop losses execution.

Gold looks quite good for purchases in anticipation of the Fed rate cut. Current prices are attractive in their own right, and a decrease in the Fed rate will only add arguments in favour of gold purchases (recall, one of the key problems of gold is the inability of the asset to generate stable income, unlike the dollar in the form of deposit income or purchases of treasury bonds).