For traders Q4 is our “crunch time,” when we take aim at significant year-end Forex trends. We look to earn some sensible profits before the curtain closes on the year at hand. What follows are the Forex trends that promise to be most in play this year, as well as a few ideas for trading them. Hopefully knowing about these crucial forces in the markets will give you some helpful perspective. This will help you search for (and hopefully find) your last great trades of 2015!
Equity traders likely know about the “Santa Claus rally,” a known seasonal cycle that tends to prop up stocks heading into year-end. Forex trends are not quite that predictable. A calculated look at today’s macro environment will easily reveal those that are likely to take center stage this year. Fundamental factor are key, not technical ones. Yet each is undeniable and a mandatory concern, even for the most devout technical traders. One just so happens to be the largest of all Forex trends happening in the current environment.
A Possible Interest Rate Hike by the US Fed: Recent job numbers and rhetoric by key voting members suggest a high likelihood of an interest rate hike at the December Fed meeting. If that materializes, it would most certainly propel the US dollar (USD) higher against a host of other currencies. Particularly those whose central banks are still actively easing. That makes this the most prominent Forex trend happening in the world today.
Geopolitics & the War on Terror: Tragically, outbreaks of violence, and the military and political action that follows, can wreak havoc on the markets. Traditionally, terror attacks have resulted in Forex market reactions that lasted anywhere from a couple days to over a week. As a result, definitely monitor ongoing developments in the allied response against ISIS. Trade cautiously, or do not trade at all. if the conflict escalates, or if, heaven forbid, another terror attack should occur.
Traders on Holiday: Another of the undeniable Forex trends all of us will contend with going into year-end. The low volume and low volatility always prevail as traders step away from the markets to prepare for and celebrate the holiday season. Perhaps you are even one of those traders! Regardless, be prepared for less volume and momentum than usual. Adjust accordingly, much like we often do in the difficult summer months.
See also: How to Survive and Thrive in Low-Volatility Markets
Together, these are three of the most prominent forex trends in all the world today. While not connected in the least, it seems there’s one, common theme here regarding the best way to trade them. This theme is to take advantage of divergent monetary policies wherever you can. If battling against geopolitical forces, or unfavorable, holiday-inspired trading conditions, remember that not trading is your right. Taking a prudent course of action would be sensible. In the event that the Fed does raise interest rates, though, here are a few of the currencies you might target. You do this in order to really put the power of diverging monetary policies in your favor.
EUR/USD: Quite possibly the easiest and best trade target. The European Central Bank (ECB) remains strongly committed to quantitative easing measures at a time when the US Fed would be raising rates and tightening. A strong and decisive continuation to the downside would be likely in EURUSD. This is regardless of how far the pair has already fallen in long-standing anticipation of this event.
USD/CAD: For USDCAD, the story is much the same as in EURUSD. With diverging monetary policies a key driver of price action in the currency pair. Add to the equation the drag on the Canadian dollar (CAD). Canada’s economy as a whole, not helped by sagging oil prices, is likely to create another decisive catalyst for strong and potentially sustainable USD strength. This time against its Canadian counterpart.
USD/NOK: Those looking to buy or sell US dollars do not always think of the Norwegian Krone (NOK) as a counterparty. Yet its correlation to the EUR and European economies, and tendency to produce long and lucrative trend moves versus the USD might make NOK the best currency trade target.
See also: Non-Major Currency Pairs That Are Just as Trade-Worthy
We traders have but a matter of weeks to get in what will be the last good trades of any particular year. We therefore urge you to keep an eye on these key Forex trends, and make the most of them if you can. In the meantime, trade well, and trade safely, all the while grateful for our ability to live on and trade another day.