2015 Year in Review for FX
So another year has past and we are all looking forward to 2016. How was your trading in 2015? Hopefully your account is in the black (and not the red!!). If you were on another planet, or hiding under a rock, 2015 had 5 dramatic events:
The Swiss National Bank (SNB) removed their support in EUR/CHF at 1.20 on January 15. This was referred by many as a Black Swan event. That said, I have seen many Black Swans in my lifetime but I have never witnessed such a move and the resulting carnage. This move was so shocking as the SNB’s Danthine had reaffirmed the cap on January 13th!! As a result of the “pulling of the plug” EUR/CHF traded to an official low of 0.85 from 1.20! I say official low as trades were being executed at rates far below 0.85. In fact many brokers were still rebooking trades weeks after the event. We saw several brokers close shop and much of what transpired that fateful day is still to be made public. My own opinion is that the so called “omnipotence” of Central Banks will now be very openly questioned.
On August 10 China devalued the Yuan (CNH). Leading up to the devaluation it appeared that China had a strict internalization agenda – so much for that! As a result the markets saw huge volatility in emerging markets, mainly against USD which then brought about a USD mini-crash later in the month.
Simply put: ECB fail!! December 3rd saw the ECB, and more notably Draghi not keep his policy promise. As a result there was a demand for EUR that saw a mini explosion in EUR/USD. Aside from the volatility of the move in EUR/USD this “event” definitely saw a loss of ECB credibility.
December 17th and “The Fed Hike”. Maybe this should be re-named a non-event? For so many FOMC meetings since 2008 the Fed had maintained its policy of low interest rates. With 2015 and the general upturn in the US economy it became clear a rise in US interest rates would occur sooner rather than later. As the months passed it became evident that the increase would occur in Q4 with most market analysts correctly predicting a small hike. I guess this can also be called a non-event as the market was fully aware of what was going to happen. In fact when the Fed raised rates EUR/USD was at 1.0950 and today it’s at 1.0900!
January 21st saw a very unexpected cut in interest rates from the Bank of Canada. This caught many off guard as BoC’s Poloz appeared to be in neutral with his policy and the market clearly had not priced in a cut. As a result we saw huge CAD depreciation. In fact, if you exclude 2008, this was the worst year ever for CAD by a country mile!
2016 – What’s next?
If I could answer that question I would be a Billionaire!! However, I can predict some interesting times ahead:
Oil – how low can you go? Will OPEC try to increase prices by restricting supply?
GBP – a referendum on staying in Europe. What will that mean for GBP and EUR?
GBP – follow the leader with interest rate rises? The BoE’s Carney has indicated rates will rise….
CAD & AUD – so closely tied to commodity prices. Beware Oil?
Pegged currencies – not that many out there but after the debacle of the SNB with CHF could another peg removal happen elsewhere?
China – Let’s be honest the growth in China is still strong although below targets/estimates. Could CNH be the next reserve currency?
War – sadly wars bring about volatility in financial markets. I am not suggesting a World War but be aware of geo-political/religious events.
Trade safely in 2016 and make money!!!
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