Corona Virus
Stay Safe, FollowGuidance
Fetching Location Data…

However, nothing has shaken the markets as much as the USA/ China trade war and its subsequent impact on the US Dollar. The looming Federal Reserve rate cut decision and fears of a US economic slowdown, mean that tensions remain high and that the probability of a US recession are ever increasing.

At the commencement of May 2019 there was only a 68% chance of 25-bps rate cuts occurring by the end of the year; the Federal Reserve’s attempt at avoiding a recession, after one of the longest periods of economic grown in the history of the USA. However, according to the Federal funds futures there is now a hugely increased 100% chance there will be a 25-bps rate cut by the end of July 2019. Furthermore, there is a 90% chance there will be a 50-bps interest rate cut by the end of the year and a 51% chance of a 75-bps interest rate cut by the end of the year.

Federal Reserve Interest Rate Expectations Chart (8th July 2019)

So why has this dramatic increase in probability occurred and how can we track the likelihood of a recession in the USA? The US yield curve can be used to predict recessions and the chart highlights the impact the USA/ China trade war has had, which is twofold. Firstly, with the Fed fund pricing looking increasingly as though there will be short-term rate cuts, the short-term end of the yield curve has fallen. Secondly, now that long-term rate cut percentages have risen, the long-term end of the yield call has also subsequently fallen. With both long and short-term aspects of the yield curve falling simultaneously, this has caused a ‘flattening’ of the yield curve to occur and ultimately this could be hugely detrimental to the US economy.


US Treasury Yield Curve Chart (8th July 2019)

A flattening yield curve highlights the uncertainty within the economy and the questions for traders will need to be ‘is the probability of a US recession rising?’ Recession forecasters state that there needs to be a three month period of the yield curve inverting in the 3m10s, in order for a true predictive signal to be determined. This has been an accurate measure of recession since the 1960’s and at present the 3m10s spread is inverted, therefore the possibility of a US recession is rising.

NY Fed Recession Probability Indicator (8th July 2019)

The US recession probability indicator now highlights that there is a 33% chance of a recession hitting the US economy within the next twelve months. Therefore, traders will need to take the following factors into consideration; will the USA/ China trade war deepen, how will the Fed respond to the rate cuts and finally does the trade war tip the global economy into recession? As the forecast remains uncertain traders should anticipate rising volatility in the Forex markets. The next few months are unlikely to be typical trading months and are expected to be slower than usual average summer months.

ICE FX has a wealth of online resources available for beginners, as well as for experienced traders and investors. You can sign up for an account, chat to other investors and ICE FX Forex Market experts via our online support forum. Providing you with absolute transparency in everything and confidence in your investment and the Forex Trading Market.


Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.