How the Forex Market Succumbed to These Top 5 Economic Themes? By Fuad Ahmed

You can’t blame Trump alone for messing up the forex markets of 2016. If you have finally decided to vent out all that anger, why not take it out on these 5 themes that made 2016 ugly enough for all of us.

Economic Volatility of Chinese Markets

Just minutes after the Chinese equities markets opened, a big sucker punch was felt simultaneously to everyone who worried about the sustainability of China’s growth at the start of the year. This gave off enough energy to induce a “circuit breaker” in the China’s Forex market. It was a pretty sight as well, watching the oil prices hitting hitting the bottom low.

Lucky for forex hungry traders quaking for the slightest signs of volatility, the first quarter was their salvation. While the economically secure currencies such as Yen sky rocketed, other commodity related currencies which are deeply linked with China’s export demand tanked. Soon the selloff lost its momentum after tons of cash was injected wby the PBoC in the markets that consequently weakened Yuan.

EU Referendum AKA Brexit

The brunt of years of mal policy making from European Union (EU) has made most British sentiments quite similar to abashed and unappreciated classmate that has to be the errand runner of a group project. Finally, as things heated up and the mantle started to melt, PM David Cameron took this too personally to call a referendum to win back the Britons from the EVIL EU. This served well for the British sentiments, while it may also have won David Cameron the election as well. The referendum was set into motion on June the 23rd.

The pound was being pounded for weeks, until finally help arrived in the form of a comfortable lead by the “remain” camp. However, that too proved too early to be said, and the “Quite Now” camp got polls by the throat.

Soon the “leave” camp would triumph and wreak havoc in the markets. The pound dropped dead, and it wasn’t playing this time. This was a crucial moment, because David Cameron had to step down. This followed mayhem leading BOE to show some generosity preventing further catastrophe. Even after that the pound could not see recovery, which put even greater stakes on new PM Theresa May on her abilities to carry out Brexit on time.

In the mist of all this, other currencies also suffered. The Italians and the French also started mongering about the chances of Leaving the EU and how it could potentially devastate their economies just as it mauled the Britons.

Global Oil Glut Fiasco

The worldwide oil oversupply situation that was fueled by the under pressure jury of oil producers was one thing. Certain factors were making it difficult to raise the oil prices to their former titles. Among the most nagging factors was no other than abolishment of Iran’s oil sanctions. This deteriorated the situation further by spreading fear of even worse spell of oil oversupply in the first quarter. Luckily, Russia and Saudia Arabia found common ground and hinted future output freezes. The Doha meeting in April proved to be worthless but not entirely. It managed to spike the prices for a while at least.

Hike Expectations for the Fed Rate

The Fed managed to set the benchmark high enough after releasing TWO rate hikes for the year 2016. This was after it raised the rates in the last quarter of year 2015.

The First Quarter was infested with fear for two major reasons. China’s growth and the Weak U.S data. This was a direct blow to the once notorious Dollar. However, the second Quarter brought in some fortune for the Greenback followed by the third Quarter that pushed it high enough. Then again, the external factors rolled in and brought with them Brexit, oil glut concerns and some top celebrity feuds. The fourth Quarter hinted another safe return for the Dollar, backed by top analysts. This put the traders on a Dollar buying frenzy.

The infamous U.S. elections

Now, the most anticipated event of the year, that hammered the last nail to the Brexit saga, was the one and only U.S elections. Its uncanny though, but the nature of Brexit and Trump securing the presidency was witnessed almost with the same pattern. A surge of optimism followed by a flat line of utter disappointment. Risk eversion was hot when Trump’s numbers were on the rise, while a deafening silence was heard when Hillary gained ground. Almost as if the two parties were bent on building the suspense and saving the disappointment to Trump.

 Final Thoughts

Instead of getting involved in the Trump blame game, traders and marketers did the opposite and focused the tax cutting-infrastructure boosting plans promised by Trump and bought the Dollar like crazy. Trump’s position on the issue has made it even difficult for traders to export products to the U.S., but majorly because many other Governments plagued by the Dollar debt are now in debt to the creditors.

 

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