2016 may be remembered as a year where repeatedly unanticipated market-shaking events created extreme levels of volatility across the financial markets. The gloom and doom in February when global stocks entered an official bear market only felt like last week while tremors from the Brexit shocker have made Sterling a sellers dream. With the miraculous OPEC and Non-OPEC deal to cut production catching most by surprise, investors may enter the New Year expecting the unexpected. The real highlight for 2016 was Donald Trump’s expectation-defying presidential election win which unexpectedly sent the Dollar to 14-year highs.
The explosive events of 2016 have already left traders rubbing their hands and strategizing on the next big market shakers for 2017. With the ongoing Brexit woes intensifying by the day, Sterling vulnerability could be a dominant theme in 2017. The rising prospects of higher US rates in the New Year may ensure King Dollar maintains the throne while heightened political risks in Europe could keep the Euro depressed. A resurgent Dollar may enforce further pressures on Emerging Markets and commodities which could attract sellers in 2017.
Much attention may be directed to the OPEC developments in the New Year with the ongoing sensitivity over OPEC and non-OPEC members cutting production creating some volatility on the USDRUB. Although Russia has agreed to cut production by 300,000 barrels per day, concerns over non-OPEC respecting their pledge could weaken oil consequently exposing the Russian Rouble to losses. Technical traders may observe how the USDRUB reacts to the psychological 60.00 support which if breached could spark a market-shaking selloff.
2017 may be all about the Federal Reserve and if they will raise US interest rates three times as promised in the December policy meeting. Markets were placed on a roller coaster ride this year amid the fluctuating rate hike expectations and this could become another theme in 2017. The events happening in Europe and the heavily discussed EURUSD parity dream may have a big impact on the FX markets. With uncertainty becoming friends with the Euro amid the political instability, much attention may be directed to how the ECB creates stability in 2017.
Sterling should remain on the radar and could be instore for further punishment in the New Year if the persistent Brexit uncertainty haunts investor attraction towards the currency. The Pound has already secured a position as one of the worst performers amongst majors with uncertainty ensuring upside gains remain limited. From a technical standpoint, technical traders may be observing how the GBPUSD reacts to the 1.23 support which if firmly broken could open a path lower towards 1.22.