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Fed to Cut Rates in 2024

December 14, 2023
Frank Cabibi

Yesterday's FOMC meeting brought up the discussion of interest rate cuts from the Fed in 2024 sparking an immediate surge in demand for risk-on assets. The dollar fell harshly as a result while gold and indices rose. Talks of a 75 basis point cut at some point next year will likely happen, and some investors think it will happen earlier than we think.

EdgeFinder Analysis

Gold is now a neutral reading proceeded by an extremely bullish score from earlier this month. However, yesterday's conference from the Fed suggest continued strength in the gold market after stating several dovish tones. Although remaining cautionary towards their inflation goal, Powell mentioned that a rate cut could be on the table for next year.

Before yesterday, rate cuts were never on the table. The fact that the Fed is now looking towards that goal means rate hikes may no longer be a threat to investors. The 10 year bond rate fell another 1.44% on the day taking yields to 3.96%, lowest levels since August.

Remember December 2021 in the markets? I forgot what that was like too, but that's where we are again. Stocks surpassed March 2022 highs and are now heading back to all time highs which was during a time of ultra-loose monetary policy. We are not at ultra-loose policy yet, but the fact we are already back to similar levels is impressive for the stock market.

When comparing the two monetary conditions in the market for these two time periods, it makes me speculate just how high the index could go given that interest rates are still 5.5% right now, but could be much lower in the coming years.

Now it is likely other central banks will follow suite with the Fed and begin cutting rates at some point next year. Although this tends to weaken a country's currency, the dollar is likely to be most affected by this news.

EU, GU, AU all share similar behavior with the US stock market. So if USD gets weaker, those pairs will become more bullish as a result. Despite EURUSD's neutral score, price not worried about it as the pair nears 1% gains on the day and breached 2% this week.

Retail Spotlight

Retail sentiment is largely short the indices, and as predicted Monday, stocks were able to find more upside this week. Gold is mixed but will likely turn retail traders short if gold keeps running higher.

Smart Money Spotlight

As COT grows their long net positions over time, retail is getting heavily shorter on EURUSD. This is a good sign for the pair as we approach the end of the year on a dovish note. Price may want to test the 1.106s again before the New Year.

Fundamental Spotlight

In terms of inflation, we are likely to see a lower CPI for both Europe and the US as a result of the current restrictive monetary policy going into 2024. It also appears that EUR will reach that 2% goal before the US by looking at how these rates are moving over the past year.

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