FXTM’s Market Analysts take you through all the major economic events, month by month, highlighting the overall impact they have had and how they can possibly affect the financial instruments in the future.
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For the second year in succession, the financial markets welcomed high levels of volatility in January following a combination between rapid selling in the price of oil and a return of concerns for China’s economy, resulting in heavy losses for the global stock markets.
FXTM expected that the dismal outlook towards the oil markets still favoured additional declines throughout Q1 2016, and that the trend of the Chinese RMB would remain weak following further currency depreciation from the PBoC.
Another factor behind the global stock markets suffering losses was the Federal Reserve unexpectedly declaring an intention towards raising US interest rates another four times during 2016, something that appeared ambitious to the eye and remained under question throughout the remainder of the year.
While headlines over the resumption of selling in the oil markets, and the Federal Reserve declaring an intention towards raising US interest rates another four times in 2016 dominated attention, it was the Japanese Yen that became the unexpected winner of the currency markets!
FXTM market reports were strictly bullish on the Japanese Yen as 2016 got underway, with the Japanese currency expected to become a best friend to traders in times of uncertainty.
Although the Japanese Yen quickly installed itself as the winner of the currency markets, the British Pound was declared as the loser with recent history once again repeating itself and leading to a complete lack of investor attraction towards the Pound. The Q1 outlook from FXTM expected that the GBPUSD could fall to 1.42 and then possibly 1.40 by the end of the first quarter, with this move occurring one month earlier in February.
March paid witness to a spectacular unwinding of USD positions after the markets concluded that there was never any chance of the Federal Reserve raising US interest rates four times in 2016! With gains in the EURUSD seen limited to USD weakness, a viscous round of taking profit on the Dollar encouraged the EURUSD to climb to a 2016 high above 1.17.
While the EURUSD recovered its momentum, there was no easing the pressure on the British Pound following former UK Prime Minister, David Cameron’s confirmation, that the United Kingdom would hold a historical referendum on EU membership later in June.
Elsewhere, and after hitting further milestone lows earlier in 2016, traders were encouraged to direct their attention towards WTI Oil as the commodity teased a bullish reversal after concluding weekly trading above $35.
The opening period of April saw investor attention return to the oil markets with Crude oil exposed to steep losses following oversupply concerns making another appearance to weaken buying sentiment towards the commodity.
FXTM market reports highlighted that the combination between ongoing concerns over depressed oil prices and slowing global growth would encourage risk aversion. We also once again encountered uncertainty sending investors towards the safe-haven Japanese Yen.
As April came to a conclusion, the oil markets continued to dominate attention with the “Doha failure” igniting explosive levels of volatility across the board.
With just one month to go until the historic EU referendum vote, investor uncertainty dominated the headlines with downbeat comments over what a “Brexit” outcome could mean to the UK economy, leading to further volatility in the British Pound.
The GBPUSD alternated between buying and selling momentum throughout the month, with the expectations becoming clear that the outcome to the EU referendum would be a very close call.
Following WTI Oil teasing, a bullish reversal after the conclusion of weekly trading above $35 back in March, the commodity reached a new milestone high for 2016 above $48.
The 23rd of June will be remembered in history as the day where the United Kingdom shocked the world by voting to leave the European Union!
FXTM market reports repeatedly made it clear that investors were at severe risk to pricing in a “remain” outcome as a forgone conclusion, and with investors completely underestimating any risk of the UK voting to leave the European Union, the global markets were left in a state of shock following the referendum outcome.
While it was still a shock to the world to see the UK vote to leave the EU, FXTM market reports regularly pointed out that gains in the GBPUSD were seen as capped between 1.50 and 1.51.
Following the global markets being left in a state of shock after the EU referendum outcome,
the British Pound continued to find itself under heavy selling pressure with the GBPUSD falling to its lowest levels in over 30 years below 1.28.
The sudden change in sentiment towards the UK economy encouraged sharp downgrades in economic growth projections, and expectations that the Bank of England (BoE) would need to ease monetary policy.
With the ongoing EU referendum uncertainty encouraging investors to remain attracted to safe-havens, the Brexit decision represented a true nightmare for the Bank of Japan (BoJ).
Market attention remained on the uncertainty of the EU referendum outcome during August, with the Sterling vulnerable to painful losses.
Following the unexpected EU referendum outcome, FXTM market reports continued to highlight the possibility of the Bank of England cutting UK interest rates in an effort to protect the UK economy from uncertainty with this becoming a reality in August.
With the EU referendum uncertainty continuing to drive uncertainty, Gold and the Japanese Yen remained the trader’s choice, and the fading expectations over the Federal Reserve raising US interest rates in 2016 encouraged investors to send the Dollar lower.
Investor attention gradually diversified away from the United Kingdom and EU referendum uncertainty in September, as the warning from ECB President Mario Draghi back in July encouraged investors to expect further stimulus measures to be implemented in September.
In reality, the ECB actually disappointed investors by leaving monetary policy unchanged and subsequently triggering a stock market selloff.
Towards the end of the month the focus finally began to shift to the US presidential election with less than two months to go until the election took place.
Headlines throughout October were dominated by the looming US presidential election with uncertainty over who will triumph, leaving investors on edge.
It was highlighted that political uncertainty could represent an environment for selling momentum, as the upcoming US election risks and prolonged weakness in the price of oil weakened risk appetite, and consequently dragged equities lower.
With equity markets looking exposed to losses, investors turned their attention towards the Dollar with expectations rising over the Federal Reserve raising US interest rates, encouraging Gold to sink to three-month lows.
In what will be remembered as one of the biggest political upsets in history, the global markets were left in a state of shock after Donald Trump was declared the winner of the US election. Something that was, once again, not priced into the financial markets.
The intense levels of market volatility following the shock that Donald Trump was set to be announced as the President of the United States is something that traders will remember for a long time, although FXTM was able to highlight the negative repercussions this would have on the emerging market currencies and that the US Dollar was at risk to breaking above the psychological 100 level.
Those expecting the final trading month of the year to conclude on a quiet note received a surprise following the European Central Bank (ECB) extension to its QE program, sending another voltage of volatility across the financial markets.
Markets were then exposed to further volatility after the unexpected agreement between OPEC and Non-OPEC members to cut production of oil encouraged the price of WTI to new 2016 highs, above $54.
The highlight of the month was the Federal Reserve raising US interest rates and announcing an intention towards raising interest rates three times in 2017, sending the Greenback to 14 year highs.
With the visible divergence in monetary policy and growth between the ECB and Federal Reserve alerting investors, the Eurodollar declined to its lowest level since 2003 with speculation heightening over the prospect of the EURUSD parity dream being achieved in 2017.
The year started with a bang and shockwaves reverberated through the financial markets following the Swiss National Bank (SNB) unexpectedly concluding its 1.20 minimum exchange rate against the Euro.
FXTM market reports pointed out that the decision from the SNB to abruptly conclude its minimum exchange rate against the Euro provided a clear indication to the markets that the Euro would continue its decline and that the CHF would continue to surrender gains against the USD in the longer-term.
Elsewhere, FXTM analysts repeatedly highlighted that the GBPUSD would continue to suffer from reduced investor attraction throughout the first quarter of 2015. This was attributed to unexpected inflation risks following the dramatic decline in the price of oil, which repeatedly pushed back UK interest rate expectations alongside the upcoming UK election, which looked likely to weigh on the minds of investors.
In the last few months of 2014, FXTM market analysts forecast that 2015 would see traders confronted by divergence in monetary policy between central banks.
This became evident in February 2015 as the USD continued to gain steam against its trading partners. Coupled with this, US interest rate expectations were attracting widespread headlines, but it was repeatedly made clear that the Federal Reserve would remain in no hurry to raise US interest rates. In other news, uncertainty emerged over whether Greece would reach an agreement on its bailout programme with the rest of Europe.
The beginning of March saw the Chinese government respond to continuous indications that economic momentum was slowing down in China by reducing economic growth targets for 2015 to 7%.
FXTM market reports highlighted that the People’s Bank of China (PBoC) would become regular headline news by continuing to ease monetary policy throughout the year.
Central bank divergence repeatedly encouraged traders towards the USD and pushed the USD higher against its trading partners with the Federal Reserve being in a position to consider raising interest rates, at a time when a host of other central banks around the globe were easing monetary policy. In other news, the Turkish Lira continued to explode into weakness and was pinpointed by FXTM as the currency to repeat the rapid period of weakness seen in the Russian Ruble throughout 2014.
As we entered the second quarter of 2015, FXTM highlighted in market reports and media tours in the Middle East and across Asia that the USD would always remain vulnerable to profit-taking, because traders were being completely ambitious with expectations that the Federal Reserve would raise interest rates before the second half of 2015.
The month of April also saw WTI Oil attempt to recover losses after extended towards the psychological $42 level late in March, which was pinpointed by FXTM as crucial support for the commodity as far back as January.
While some optimism began to build over some improved economic data around Europe, FXTM market reports continued to highlight that it was too difficult to suggest that the ECB’s policy measures were behind the stronger releases and that the improved data could have been linked to the substantially weaker euro or extra disposable income following the dramatic decline in the price of oil.
During the month of May, markets once again focused on China, as economic data continued to suggest that the China economy was slowing down.
FXTM repeatedly expressed in market reports that the PBoC would continue to ease policy and to do whatever it took to defend the 7% GDP target.
After the UK general election when results were, unexpectedly, nowhere near as close as opinion polls suggested and the election was won by a clear Conservative majority, the GBPUSD was able to move towards 2015 highs of around 1.57. Unfortunately for the GBPUSD bulls, BoE Governor Mark Carney prevented further gains at that time by reiterating some downbeat views about the UK economy which repeatedly pushed back UK interest rate expectations.
Greece dominated headlines in June with the talks between Greece and its creditors installing itself as a reoccurring risk to investor sentiment in recent months and with traders beginning to show unease over how the ongoing five-month negotiations largely failed to present anything tangible.
FXTM regularly highlighted that there was a high risk that most investors were under-pricing the possible global implications of the Greece situation, strengthening the possibility of some violent swings in both equity and currency markets as June concluded.
Recent history repeated itself in July with the emerging markets once again finding themselves under resumed pressure and taking punishment from multiple different directions.
The combination between increased China risks and continual pressure in the commodity markets correlated in no floor in selling for emerging market weakness with this continued as a trend in August.
Overall the threat around US interest rate expectations, a resumption of selling in the commodity markets and the emerging development of possible slowing trade from China resulted in heavy selling throughout the emerging markets and FXTM began defining emerging market currency weakness as a global phenomenon.
Headline attention continued to surround the China economy in August as the markets not only continued to watch a sharp reversal in the Shanghai Composite Index, but were also left shocked by an unexpected Yuan devaluation from the PBoC.
The unexpected currency devaluation from the PBoC was seen as a contributing factor behind the Federal Reserve postponing raising US interest rates as many expected them to do in September.
FXTM also saw the elevated concerns over China as furthering the woes for the emerging markets as the emerging markets were vulnerable to declining trade from China, with trade data early in September showing that China was already importing less from abroad before the unexpected Yuan devaluation.
The majority of all attention during September was directed on the Federal Reserve as the FOMC disappointed USD bulls by refusing to begin raising US interest rates.
This decision was seen by FXTM as adding pressure on both the ECB and BoJ to add further monetary stimulus, which the ECB did at the conclusion of the year.
Elsewhere, further weak economic data from China increased concerns that economic growth would fall below the 7% government target at the end of the current quarter with FXTM once again highlighting that it would be the emerging markets that would be hit the most from woes over the China economy.
The ECB attracted headlines at the end of October when the central bank repeated the growing threat of further monetary stimulus and encouraged the resumption of widespread selling for the Euro currency, as FXTM highlighted here.
The markets were also provided with final confirmation that China GDP growth had fallen below the government target at 7%.
Although investor sentiment towards WTI Oil had been continually plagued by an aggressive oversupply since late 2014 and this remained the case throughout October 2015, concerns over slowing global growth and the impact this would have on demand began to worry investors. This was highlighted in FXTM market reports as far back as July and repeated in early August as a risk for investors to look out for.
With the ECB threatening further monetary stimulus at the end of October, the resumption of a complete contrast in both monetary and economic sentiment between the United States and elsewhere saw traders return to the USD in November.
One pair that suffered losses during November was the GBPUSD, which continued to strictly abide by its major moving averages on the daily timeframe as was previously highlighted in FXTM market reports.
The USDCHF also managed to reach 1.03 at the end of November as the pair recovered its sudden losses following the shocking decision from the SNB at the beginning of the year, with traders regularly exploiting the surpassing of the 200MA on the Daily timeframe as a critical buying signal as expressed by FXTM far back as July.
Those who were hoping for a quiet end to 2015 saw their expectations dashed with volatility continuing and major headlines including another resumption of selling throughout the commodity markets, with Gold hitting another five-year low below $1050 and WTI Oil trading below $35 for the first time since before 2008.
FXTM’s market reports expressed the view, as far back as early October, that there was still an elevated risk over the price of WTI oil hitting one further milestone low before the end of the year.
It was reported, as far back as July, that Gold dropping below the psychological $1100 level would open up the potential for further falls, while investors were also reminded that sell-on rallies have been the name of the game when it comes to trading Gold for months, and that sell-on rallies will continue to be the trading strategy from investors.
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