Foreign Exchange Trends in 2017

photo/ screenshot YouTube

2016 was indeed a turbulent year for the foreign exchange marketplace. However, we cannot necessarily rely upon the past in order to accurately predict the future. Some analysts feel that 2017 represents truly unknown territory due to continued uncertainty as well as major upheavals such as the Trump electoral victory. Although no one possesses a true financial “looking glass”, are there any broad trends that we can expect during the coming year and how may these affect the Forex markets? Let us examine this concept in greater detail.

The Euro-Dollar Relationship

This is arguably one of the most important questions which Forex traders have been asking. Now, we have already seen that the dollar has fallen to a two-month low due to a lack of clarity in regards to the policies of the Trump administration. Many are worried that he is more concerned with protectionism as opposed to discrete policy adjustments. As a result, the dollar has withered in recent days and unless a political paradigm shift is witnessed, this trend will likely continue.

However, the euro is also on rather unstable territory. Much of this involves the belief that the ECB is likely to taper off their current quantitative easing programme by the end of the year. The main takeaway point from the USD-EUR relationship is that these two currencies should be tightly paired for the first half of 2017 and possibly beyond.

The Potential of the Pound

All eyes have been focused upon the results of the Brexit vote. However, the waters have remained muddled since this time. The main concern is the fact that official talks have not yet begun and that Parliament will now need to give its approval to enact Article 50. The main issue here is that investors fear a long and sinuous road may be coming into view. Some realistic concerns that have already been voiced include:

• The trade regulations between the UK and the EU.
• The exact relationship in relation to Scotland, Northern Ireland and Wales.
• The length of time needed to complete the Brexit transition.

All of these variables will weigh heavily upon the pound and therefore, flagging values in relation to other benchmark currencies should continue.

Investor Sentiment

The ultimate question revolves around how investors will react to these (and other) “unknowns” in the weeks and months ahead. They will be forced to keep one eye on the news and the other on the latest Forex charts. This is also why many traders are utilising the tools offered at CMC Markets. Real-time updates, advanced trading instruments, a host of underlying assets and intuitive trading platforms can all be employed to make accurate decisions when the time is right.

There is no doubt that speculation is rife and that the clouded nature of the Trump administration will weigh heavily upon the global marketplace. There is also the question of how foreign powers such as China and Russia will react to potentially protectionist measures. If fear supersedes fact, it is reasonable to assume that Forex traders will adopt a watch-and-wait approach and embrace short-term positions until the overall landscape becomes more stable. However, only time will prove whether or not these predicted trends come to pass.

Author: Pankaj Deb