A recap of the Forex market in 2016

THE MARKET HAS A HABIT OF GIVING SURPRISES, SO BETTER GET USED TO IT.

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Before we start trading in 2017, let’s have a recap of what happened in 2016.

Last year was one of the most difficult years for forex traders and hedge fund managers. A lot of events took place during the year which had their relative effects on the markets. We had some surprising outcomes that caught the market off guard. As we keep repeating at our trading place that the market has a habit of giving surprises, so better get used to it. And this year around it didnít prove us wrong.

1ST QUARTER

2016 started with Chinese Financial and Commodity market concerns. The Chinese stock market crashed and was poised for a long term slump. However, with govt. intervention things started to stabilize in the coming months. With the Chinese market stabilization, the demand for commodity and commodity dependent currencies started picking up. As a consequence the USD/CAD bubble started to wind up after touching the13 year high of 1.4690.

The FOMC and USD were getting along with each other nicely but what was coming was about to surprise everyone. Out of nowhere the BOJ cut interest rates in negative territory. But the Japenese Yen started strengthening despite rate cuts as the Japanese Finance Ministry data suggested this had duly spurred demand for higher-yielding foreign bonds such as US Treasuries. One reason that this didn’t weaken the Yen could be Hedging.

The Swiss Franc and GOLD also started getting strong as market started chasing the risk free assets. The Dollar remained on the back foot against all major currencies throughout the 1st quarter.

2nd QUARTER

In the 2nd quarter the Dollar continued to weaken in the first month of April. Late April saw some negative Australian CPI data (-0.2%) which forced the RBA to cut interest rates to 1.75% from 2% earlier. This led to severe fall in AUD which by now had been enjoying better yield prospect on account of the nation’s booming mining industry. May also saw some reality check and as the FED’s prospect of hiking interest rates rose all the commodity driven currencies started to weaken again. In June the shocking NFP data took the Greenback for a plunge and now all eyes turned to BREXIT.

BREXIT

 

Image-courtsey ferrancapo

In Britain, all the opinion polls showed ìREMAINî vote as a favored outcome. This surged the Sterling and EURO rally to their respective highs of 2016 against the Greenback but the market was caught on wrong foot on June 23rd when ìLEAVEî vote won and the Sterling plunged 10% in a single day and more than 20% in 2016. The Brexit decision also caused uncertainty in the EUROZONE and in financial markets. The markets have thus far favored the USD as it gained a strong momentum post Brexit which continued for rest of the year.

3rd QUARTER

In the 3rd quarter the markets remained in a consolidation mode as the FED contrary to the market expectations didn’t hike the interest rates even once although it had promised for four hikes during the year. The chances of a hike were increased as US labor markets strengthened and FED officials also started acknowledging this. Financial markets also started to calm down post BREXIT. The Japanese Yen found its bottom near 100.00 levels after 20% weakness. The Pound remained weak against all major currencies. The New Zealand Dollar lost its upside momentum as RBNZ kept cutting its OCR rates.

4TH QUARTER

US ELECTIONS AND FED HIKE

 

Image source-pinterest

In the last quarter the markets kept swinging with polls and opinions and it almost became a political events driven market. Not going with market expectations, Hillary Clinton surprisingly lost to Donald Trump thus proving everyone wrong. The market was caught off guard yet again. But unexpectedly markets recovered sharply post U.S. elections and the Greenback started rising on renew hopes of a stable government, easy policies, tax cuts and more fiscal spending under Trump regime.

November also saw for the 1st time in history that the OPEC and NON OPEC countries came under one roof and decided to cut crude oil output to diminish oversupply and stabilize the crude oil prices.

In December 2016, fist time in the year the FED hiked the federal funds rate to 0.75% from 0.5% earlier. With a better dot plot and with 3 more hikes announced in 2017, the dollar index started skyrocketing and was hovering close to its 13 years highs by the end of the year.

So basically 2016 will be remembered for

  1. Central banks failure
  2. Media and polls failure
  3. BREXIT and TRUMP win
  4. Strong Dollar
  5. Single FED hike
  6. And a best ever closing for US equity Indexes which were driven by future policy expectations. Although this may cause a great concern in near future.
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  • Adif Khan

    A detailed analytic work quite impressive well done

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