With autumn approaching, what’s clear is that the forex market is still feeling the effects of a rough summer. As key parts of the world experienced a near-enough heat wave, the forex market seemed to swelter under political pressures. Many may have been wishing that September could have brought around a calmer climate, but that proved to be anything but the case. Tensions between the US and North Korea continued to rise, with Donald Trump and Kim Jong-un tangling in a potent verbal exchange. Election fever has also been impacting some parts of the world, specifically Japan, Germany, and New Zealand. When you add this to the fact that Brexit negotiations seem to not only be stalling but possibly even be going in reverse at times, you can see why September created some tumultuous terrain in the world of forex trading.
What’s Been Happening in the Market?
Within the forex market, the GBP has been on the receiving end of a rough time in recent months, with matters being made no easier during September. Moody’s made the call to downgrade the Bank of England’s issuer and senior unsecured bond rating to AA2 from AA1, with this pushing down the GBP/USD to 1.33. What also hasn’t helped matters in the case of the GBP’s performance is the performance of Prime Minister Theresa May. The markets are crying out for details regarding Brexit negotiations, specifically on how Britain might retain access to Europe’s single market. With the weeks passing by and no concrete details emerging, problems are expected to mount. During a speech made by May in Florence, Italy, she stated her belief that Britain should stay in the trade bloc during a two-year transition out of the EU and offered concessions on a divorce deal in an attempt to revive flagging Brexit negotiations. Whether this has the actual power to help alleviate trader concerns and boost the GBP remains to be seen.
Uncertainty has also been prevalent across the Atlantic, as heightened tensions between the US and North Korea seem to be making daily headlines. This has driven money towards the safe-haven JPY, as the market consensus seems to be that the USD is waning. This also proves that the USD is feeling the pressure from Trump’s outlandish outbursts, with USD/JPY hitting a dip of 111.65. That being said, the USD did enjoy the Fed’s relatively hawkish rate decision, but the belief is that this relief will soon fade.
For the EUR, it’s been a case of showing strength. Jumping to 1.19 against the USD, what’s boosting the EUR is the Eurozone’s growing consumer confidence and improving manufacturing levels from within the EU. The manufacturing index shifted from 58.2 to 57.4, while services moved to 55.6 from 54.7. This information indicates that the Eurozone could now see its economy grow by approximately 0.7 percent during Q3 2017.
Major Upcoming Political Events
Looking at major upcoming political events, as mentioned previously, it’s three different elections that have had traders talking. New Zealand’s general election was supposed to be a clean sailing affair from the incumbent National Party and Prime Minister Bill English, but that may no longer be the case. A swift change in leader of the Labour Party—to the energetic Jacinda Ardern—has actually made the race for prime minister much closer than many envisioned. Many believe that the National Party remains market-friendly and thus should boost the NZD higher should a win occur. However, should Ardern’s Labour pull off the upset, you can expect the NZD to drop.
Another important election just happened in Germany. With the country enjoying an impressive international standing and a strong economy, the markets clearly back Merkel in her role. However, many believed that closest rival Martin Schulz (SPD) would win, with the EUR feeling the impact. But since the start, a Merkel looked to be on the cards with the EUR receiving a welcome boost as a result.
From certainty to a surprise, as the Japanese Prime Minister Shinzo Abe has called a snap election, with it being earmarked for October 22. Abe’s time as prime minister has been seen as stable, with economic growth, growing security ties, and political stability being evident. However, a series of scandals occurring within the cabinet has seen his support levels dip. As these issues continue to come to the fore, it appears that he is willing to test the nation’s support of his regime in what is certainly a daring move. It’s not only Japanese citizens that should take heed of this news, as the forex market could feel the brunt of any result. Any change in government could see the “stable” tag wiped from the JPY, as it could lead to a return to the revolving door of prime ministers and policy inconsistency that stifled Japan economically prior to Abe’s election.
Currencies to Watch
With October on the horizon, it appears that the EUR is the key currency to watch. All signs point to it going from strength to strength. As already stated, with manufacturing levels on the rise, the level of economic strength within the Eurozone is only set to improve. Plus, when you add the re-election of Angela Merkel to the equation, it’s hard to see the EUR being anything but resilient in the weeks to come. The only potential stumbling block could be the independence referendum in Catalonia where an unofficial referendum has now created growing divisions in Spain and a potential breakaway state. If this materializes it could stress other differences in the Eurozone and weigh on the EUR.
The USD is facing even more instability, making it a currency to not only watch but also arguably be wary of. As the political turmoil rumbles on, the knock-on effect that it is having is becoming much more prominent. Customer confidence scores are falling, specifically from 122.9 points in August to a projected 119.6 in September. However, it isn’t all bad news, as the USD can take some solace from a small increase in durable good orders, a rise of 1.1 percent, which lessens the whopping 6.8 percent drop that occurred back in July. Also watch out for the latest Non Farm Payrolls released on Friday 6th October for some more direction.
There is no getting away from the fact the world is in the grips of an unstable political environment, with controversies and posturing on both sides of the Atlantic causing a fair helping of economic instability. While September certainly presented an opportunity for traders to turn a profit, it was not without a fair helping of turmoil, especially with regard to some of the world’s major currency pairs.
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