The months of December and January are usually quieter on the Forex market. Most market participants are either gearing up or gearing down and liquidity is not at a level which we’re used with. This year was an exception, mostly due to large fundamental news coming in the last quarter of 2015 and the first quarter of 2016, like the Oil crisis and Chinese market collapse. Let’s have a slightly deeper look.
At the end of 2015, most eyes were pinned on the U.S. Dollar. The Fed raised their minimum bid and refinancing rate just when they said they would, and predicted that they will raise these rates four more times over the course of 2016. This clearly gives us the idea that it’s good to be a dollar bull this year, but it doesn’t answer the second part of the question. What currency do we pin the dollar against?
The Euro had a fairly stable Q4, sitting in the same range vs the U.S. dollar, between 1, 07 and 1, 11. This is a rather small channel and experts are predicting that it will be broken in 2016. The problem is that they don’t know in which direction – up, if the Fed doesn’t raise rates as soon as the market likes, or down, if the ECB continues diving into their quantitative easing program?
A good idea would be to trade the Dollar with the Yen. After a good Q4, the Bank of Japan decided to cut their main interest rate in early 2016 to -0, 3%, also dipping into negative rates. Probably the best carry trade available at the moment right now is going long on the USD/JPY, but be advised that the pair is quickly going upwards and you might not catch the train.
Commodity currencies, on the other hand, did not enjoy a good end of the last year, and didn’t seem to start this one particularly well. The AUD, NZD and CAD are all dependent on other economies (China) or on certain commodities (OIL) and thus can’t pick up wins at this moment. Of course, this can all change over the course of the year.
There is no clear trend in sight at the moment, but it’s just the beginning of February. We’re all waiting to see which direction the market chooses to go in order to hop onto the bandwagon and make some good, green pips.