Massive tax cuts as a result of the Republican tax bill will lead to an increase in the money supply in the economy, offsetting the FED’s action to unwind the stimulus policy. The regulator has so far refrained from bold forecasts promising to raise rates only three times in the New Year, but flattened yield curve of US bonds suggests a soft pace of policy tightening. The dollar still cannot decide on the trajectory as the impact from tax-cut reform will gradually filter into the economy, but given the weak inflation, markets are likely to take a cautious FED and therefore a weaker dollar as a guide.
US producers vs. OPEC confrontation
OPEC extended the agreement in November to trim production before the end of next year, prices rose to the peak of mid-2015, but a record increase in US production prevents the market from staging a full recovery. In the new year, shale oil output will keep rising, surpassing the production pace of Saudi Arabia or Russia. So, in the absence of short-term factors such as supply disruptions, natural disasters and failures of production facilities, the balance of supply and demand in the market will be very difficult to track. Also, high hopes are placed on world oil consumption, which is expected to grow on the background of general economic growth. It will be useful to monitor the data on Chinese production, imports and exports since China is the largest consumer of Oil.
The futures market trades in backwardation, which indicates the current deficit and does not allow US shale producers to fix cash flows, restraining production. Therefore, the forecast for the oil market remains positive with the prospect of continued growth in the New Year.
The main issue that has occupied the minds of many amateur investors is what will happen to Bitcoin and other cryptocurrencies next year. Despite the New Year’s correction from 20 thousand to 11 thousand, and then subsequent instability, the popularity of the cryptocurrency market remains very high. This is indicated by the speed and nature of paring losses, indicating that a line of investors has lined up on the market, ready to buy cryptocurrency on corrections. In addition, the recent fall was not a problem of popularity, but rather a technical problem, as well as warnings from various regulators about the high-risk nature of this asset. In the new year, Bitcoin will continue to grow and the only fundamental obstacle remains the problem of its scalability. News about ways to resolve this problem will probably be the strongest triggers for its growth.
Policy of rate normalization
Central banks around the world are trying to keep pace with economic growth by raising rates, but they do not want to organize a currency revaluation race, which is detrimental to economic recovery, especially if the country wants to stimulate the export sector. Special attention in the New Year will be deserved by the Reserve Bank of Australia, which will probably launch a cycle of normalizing rates, raising the rate for the first time since 2010. Given the pickup in commodity markets, the Australian Dollar looks very attractive for long-term purchases.
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