Here’s What Happens Next to the “Trump Trade”

Trump Trade and US Dollar

Today is a big day for the markets…

Wall Street is holding its breath to see if the US Central Bank (or the “Fed”) is going to raise interest rates at 2pm Eastern time today.

Actually, not really.

No one is holding their breath!

You see, the markets and “the insiders” are universally expecting the Fed to raise interest rates to either 0.5% or 0.75% – so it’s almost a dead certainty that they will.

If the Fed does raise rates as expected, take a look at what could happen next to this key market – also known as the “Trump Trade”:

The US dollar is widely expected to rally hard if the Fed increases interest rates.

The reason why the recent Dollar rally is called the “Trump Trade” is due to president-elect Donald Trump’s strong criticism of the Fed that they should have raised rates a long time ago.

Why is this important?

A stronger US dollar will put negative pressure on commodities like gold, silver and oil – not to mention that the Euro currency will probably drop like a stone.

I have highlighted in the above chart 2 potential moves the Dollar could make – one RED and one GREEN.

In the GREEN scenario, if the Fed raises rates, then we could see a strong move in the coming days towards 104 in the Dollar. This would be a continuation of our Wave 3 – the strongest part of a trend.

To my mind, this is the most likely outcome.

However, in the RED scenario, it is possible that the Dollar may initially drop – possibly if the Fed does NOT raise rates (unlikely) or due to some negative statements from the Fed about the state of the economy (also I think unlikely).

If the RED scenario plays out, we could see the Dollar drop to 99 or 99.50, before holding its footing and resuming the uptrend again. This scenario is LESS likely in my view, but it’s worth keeping it in mind as the markets can always hold a surprise up their sleeve.

Remember that a drop in the US dollar would be bullish for the Euro and Gold. The only way I can see gold rallying from here is if either the Fed does not raise rates as expected OR if Janet Yellen throws a spanner into the works by forecasting a “gloomy” outlook for the economy.

One thing to keep an eye on is the “pulse” signal on the Dollar chart. If this pulse fires long (which is likely as the gamma confirmation is blue) then the momentum could put some serious “juice” behind the dollar’s potential up-move.

In any case, it’s going to be an interesting day.

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