Trends in 2017 – 4 key predictions to affect the currency markets

Now that Trump has secured the electoral colleges and his ascendency to President of the United States is assured, we can look ahead into 2017 with clearer vision. No-one can actually predict the future, but it’s fun to speculate.

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  1. Bitcoin will break $2000

    Fears abound about Trump and his effect on the international political stage; investors are split between enjoying the current dollar surge and running for a safe haven. We believe Bitcoin is going to show its strength in 2017 and break the ceiling it’s been nudging for some time as the Trump euphoria dies down and the cold light of day kicks in.

    via GIPHY

  2. USD rate hikes in March and November

    Yellen and the Federal Reserve Bank of America have strongly hinted that rates will rise more than once across 2017. We think business will change its tune about Trump’s policies once he’s in office leading to a rate rise soon after his inauguration in January. Then, once relations with Chine have dropped off the cliff and the US is again in an arms race with Russia, financial pressure could destabilise the US economy. Yellen could be out of her post in January 2018 so she may feel she needs to take action while she can.

    Trump did what?!
    Trump did what?! (Sputniknews)
  3. Italy will go bust

    Italy is trying to save its banking system and find buyers for bonds to shore up the debt-laden institutions. The problem is compounded by the precarious state of the country’s finances. It’s debt is second only to Greece’s at a whopping 133% according to one measure. While Greece has now had two quarters of growth, the Italian economy still hasn’t recovered to pre-financial crisis levels and is looking decidedly shaky. There are barriers to the bailout for both the banks and the country, which, if things go wrong, could lead to a massive meltdown. Even if it doesn’t go bust, its downfall will shake the Euro project to its core.

    Italy's economic future
    Italy’s economic future
  4. Saudi Arabia will betray OPEC

    At the end of 2016 OPEC decided to reduce oil production in order to inflate prices. Eleven other oil-producing countries, including Russia, agreed to do the same. Hooray for rich oil countries. This price-fixing on a global scale is unprecedented (Trump take spelling notes please) and will mean more money in the pockets of many oligarchs and Arabic nationals, who have gotten used to living comfortably off their countries’ natural assets rather than working for it. As the largest producer in the cartel Saudi Arabia has taken a massive hit from recent price cuts and will lose the most from restricting production. This leads us to speculate that they will be the first to sneakily increase production to cash in on the price rises. But will they be caught in the act?

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How’s the UK bank balance this Christmas?

Many families will be feeling the pinch as Santa and his Elves take a chunk of income to bring magical delight on the 25th. But will the UK be full of festive cheer after the Current Account balance is announced on 23rd or is Scrooge coming to town?

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It’s been a mixed bag for the UK over the last four quarters. Things were positive towards the end of last year as the deficit was shrinking, even reaching a low of -16.8B in Sept 2015. But something shook the bag for March 2016 as the trade gap suddenly widened to a shocking -32.7B. Then Brexit took everyone by surprise and hopes of a reduction were dashed when figures came in at -32.6B in June. September indicated things were heading in the right direction with -28.7B, which was distinctly better than forecast. And now December 2016 looks likely to be more of the same with a conservative, blink-and-you’ll-miss-it, estimated change to -28.3B. Though let’s not forget 0.4B is still a very large sum.

GBPUSD approaches possible support level
GBPUSD approaches possible support level

So, at first glance, the UK isn’t looking as financially healthy as it would have if Brexit hadn’t happened. But the U.K.’s trade deficit shrank from £5.812 billion to £1.971 billion in October and the job market isn’t looking half bad. The Bank of England’s hands-off approach indicated in November looks set to continue so the economy, and the currency, may start to pick up. The UK may not be booking its family trip to Disneyland any time soon, but thoughtful gift for Christmas will be just fine.

via GIPHY

USD ends the year on Thursday at 1.30pm

With so many national holidays next week this is the final major week of trading for 2016 and the USD may be settling down after a period of high volatility. What events are likely to be a cracker this week?

What will go with a bang?
What will go with a bang?

First up is Wednesday’s Crude Oil Inventories, after OPEC’s historic agreement and 11 other oil producers joining in, the first half of 2017 will see a decrease in oil production. This should lead to price rises. The USA isn’t officially taking part in the agreement, but inventories have been dropping fairly steadily for a month and this week isn’t likely to see that change. Experts predict another -2.6M decline and that may see oil price rises and dollar increases too.

Then we have Thursday. Three big events that could affect dollar indexes. And all of it at 1.30pm GMT.

Core Durable Goods Orders gives traders an insight into the minds of US manufacturers and this could help shape the direction of the dollar into the New Year. Are producers buying up optimistically or holding back? Indications are that November‘s 0.8% rise could drop back to 0.2% showing more uncertainty for industry.

Final Quarterly GDP is also at 1.30pm on Thursday. With less impact than the Advance or Preliminary figures released earlier, this still shows a significant increase from the last quarter (1.4% to an expected 3.3% this time). It looks like the US economy is booming.

US Unemployment Claims helps traders on a weekly basis know if the country will have money to spend or not. It also reflects the health of businesses. Since a peak on 1st December of 268K there has been a downward trend and last week saw a healthier 254K. Forecasts are for little change so the economy is much the same in this respect.

Vanity Fair
Vanity Fair

Overall, Thursday’s figures seem to indicate that inflation is rising, jobs are steady and manufacturing is slowing down so employment may fall early in the New Year as a result. But we all know the biggest impact on the dollar over the next month will be PEOTUS Trump. Can he control himself on Twitter? Will he destroy relations with China and start a trade war? Are his team as pro-Russia as they seem? Your guess is as good as anyone’s right now.

A yen for Japanese interest rate action

In the final major week of trading action for 2016, the Japanese Yen could be a good market to play the game in. Tuesday 20th December brings three major events that could send markets into a tailspin.

USDJPY is at resistance
USDJPY is at resistance

The Bank of Japan will reveal its Policy Rate Statement followed by its Monetary Policy Statement and the all-important Press Conference. Currently at -0.10% market sentiment knows this isn’t likely to change in Tuesday‘s announcements. Japan has been hoping for a rate rise in the US and their wishes were granted, but with multiple more rises on the cards for 2017, the old adage that we should be careful what we wish for seems very true.

Bank of Japan (BOJ) Governor Haruhiko Kuroda w
Bank of Japan Governor Haruhiko Kuroda – how many rate rises over there?!

Governor Kuroda at the BoJ isn’t likely to rock the boat with so much turbulence around, so signs point to a drop in the Yen to encourage market forces help the economy boost exports. Pay close attention to the Press Conference as journalists will scrutinise the earlier Statement and push BoJ officials to reveal more.

Definitely a player this week.

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AUD trading week from 19th Dec

In the last real week of trading in 2016 there are conflicting opinions about where AUD will go as we head into 2017. It’s opened the week at a 6-month low trading below the 73 cent level after a rough ride through recent significant USD action.

a rough ride – GIPHY

However, the Aussie currency’s tight links to commodities, and the likelihood that USD will rebalance now the rate hike and elections are out of the way mean there is a good chance of an upswing for the Australian currency through to year end. Monday’s market-opening Mid-Year Economic and Fiscal Outlook from the Australian government contained a few surprises, especially effect and scale of the rally in commodities, but experts say no-one knows how long it will last so the Budget cannot depend on it.

commodity-bulk-prices-myefo-2016-17
Business Insider

This week market-moving action comes in the form of the Monetary Policy Meeting Minutes on Tuesday 20th at 12.30am. This may give traders a better view on future interest rate decisions. Watching the futures market between now and then may give us all a few insights on the market’s mood.

AUDUSD falling hard. Where will the shorts cover?
AUDUSD falling hard. Where will the shorts cover?

Looking ahead to 2017 keep a close eye on the Chinese economy as close trading ties mean any wobble in the land of the Red Dragon may cause AUD to spin off-course.

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Brits get in on the interest rate action

Those little Britons don’t like to be outshone so they’re releasing their Monetary Policy Committee Official Bank Rate and Summary the day after the USA. With all the recent political ructions affecting GBP we can expect markets to be looking for any change of attitude among the 9 committee members. Recent votes have been unanimous in their decision to keep rates at 0.25%, but there’s something in the air and that may change. If it does, markets will react.

The Vote and Summary are released at 12 noon on Thursday 15th December. This is when the main GBP action for the week is likely to happen, but use earlier red flag events such as Tuesday’s Consumer Price Index and Wednesday’s Claimant Count Change and Average Earnings Index to see if the UK economy is looking steady or shaky. This may give you some clue as to the rate decision on Thursday.

GBPUSD
We are at key resistance on the GBPUSD

Oil – who’s on board to make cuts?

Oil rose to over $54 a barrel this week sparking fears among OPEC members that non-OPEC producers may resist cutting production after their agreement to put the squeeze on supply in 2017. After all, if the price is going up then why hold back? But their fears seemed to be allayed when 11 oil-producing countries, including Russia, agreed to cuts on Saturday 10th. This marked an historic global pact to fix supply and therefore bolster prices which have been low for the last two years.

OPEC heard the news

So what we seem to be getting here is a global agreement to limit oil production in order to artificially inflate prices. In some countries, if companies were found to be making agreements to rig prices like this that would be a teeny problem. The local government may have something to say about it and put out the welcome mat for their high security prisons. But international oil is, apparently, above all that.

Brent oil climbs the page on news on production reduction
Brent oil climbs the page on news on production reduction

The US is not part of this agreement, at least officially, so it will be interesting to see what happens to the weekly Crude Oil Inventories figures as we move into 2017. For now, predictions are for another reduction and that trend looks like it could be the new industry direction.

AUD employment game changer

screen-shot-2016-12-11-at-19-59-56

We know it can be hard to predict the future. Clairvoyants work on seaside piers rather than in boardrooms, and lotteries are a success because it’s so tough to know what’s going to happen. But when forecasts are consistently way off the reality, we start wondering if the right analysts are in the job. Take a look at the figures for Australian employment over the last four months. The yellow line is the prediction – consistently positive, and not by a small margin. The blue block is the reality – constantly way below expectations and mostly in the red.

AUDUSD is at resistance
More downside for the AUDUSD? This supply level is key

What’s your feeling about the pundits stab at the figures for this month? They say it’ll be another 17.6K gain. But their track record says otherwise.

another massive gain?