Current activity demonstrated by the most Forex instruments indicates that 2019 may become the year of new trends, different from those observed in the previous year. Forecasts expecting growth of the US dollar are not backed by the fundamentals. In fact, most experts agree that betting on dollar would be the worst trading decision now.
In 2018 market participants based their forecasts on Trump’s tax reform, accelerated economic growth and expectations of aggressive rate hike policy by the Federal Reserve. All of these factors spurred the dollar’s growth at that time. At the beginning of 2019, however, traders faced a new reality - Fed is apparently not as hawkish in terms of its monetary policy as expected and investors are less optimistic with their US economic growth outlook. These sharp changes in market sentiment were caused by the global economic slowdown amid the US-China trade war.
The US economy stumbled for the first time in a long while, which triggered a selloff on the stock market and a flattening yield curve. Today, we can see that the difference between 10-year and 2-year treasury yields has reduced to the lowest in over a decade, which is proven sign of an impending recession. And maybe, this was the reason why Fed has changed its monetary policy rhetoric entirely. The US regulator simply wasn’t ready for multiple rate hikes, which sent the USD/JPY pair to its March 2018 lows, when the pair was ready to test 104.50 support. Despite the fact that the dollar managed to retrace back into 108.00-110.00 range, it’s still considered one of potential underdogs in the currency market. US is still battling the effects of a shutdown, Britain is still stuck with its Brexit deal, the Eurozone is making attempts to avoid the upcoming technical recession.
Under these fundamental circumstances, it would be tactically smart to abandon the dollar and invest into safer instruments, like the Japanese yen, for example. In other words, a well-grounded assumption that the Yen has more chances for strengthening than the dollar is another reason to consider selling the USD/JPY pair. According to some major investment banks, including Citygroup and Bank of America, the USD/JPY will end up around 100.00 mark by the end of the first half of 2019. We recommend taking advantage of this full-fledged downtrend and try to double your capital.