In business, it can be exhilarating to close a big deal in the final hours. And likewise, in sports, who doesn’t love a “buzzer beater” that wins the game in the final seconds? For traders, though, Q4 is our “crunch time,” and when we take aim at the significant year-end forex trends and look to earn some sensible profits before the curtain closes on the year at hand and a new one begins.
In light of that, 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 as 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. And while forex trends aren’t quite that predictable, a calculated look at today’s macro environment will easily reveal those that are likely to take center stage this year.
Notice, if you will, how these are all fundamental factors—not technical ones—and 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, and a cornerstone of a strategy deemed by one well-known expert to be “The best way to trade forex into year-end.”
These are those forex trends, starting with the biggest one of all:
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 potential alone makes this the most prominent of all forex trends happening in the world today.
Geopolitics & the War on Terror: As we’ve seen very tragically this past week, 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, and trade cautiously—or don’t 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 is that low volume and low volatility always prevail as traders step away from the markets to prepare for and celebrate the holiday season. Perhaps you’re even one of those traders! Regardless, be prepared for less volume and momentum than usual, and adjust accordingly, much like we often do in the difficult summer months.
Together, these are three of the most prominent forex trends in all the world today, and while not connected in the least, it seems there’s one, common theme here regarding the best way to trade them. To me, that theme is this: Take advantage of divergent monetary policies wherever you can, and if battling against geopolitical forces, or unfavorable, holiday-inspired trading conditions, remember that not trading is your right, and perhaps a prudent course of action, too!
In the event that the Fed does raise interest rates, though, here are a few of the currencies you might target 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, 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, though, the drag on the Canadian dollar (CAD)—and Canada’s economy as a whole—from sagging oil prices, and it’s 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 don’t always think of the Norwegian Krone (NOK) as a counterparty, but 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 that not everybody will have heard of.
Let us first take this opportunity to send regards and our most sincere sympathy following the horrific terror attacks seen in and around Paris this past week. Indeed, the world has changed before our eyes in recent years, and it’s with heavy hearts that we even talk about trading at a time when so many lives were lost. May we always remember and be grateful for the many blessings in our lives, and never forget that there are many things far more important than the result of a trade.
But alas, as the markets and trading go on in the aftermath of this senseless tragedy, we traders have but a matter of weeks to get in what will be the last good trades for 2015, so we 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.