Forex Trading Library

2015 – Currency Markets Recap

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With 2016 just around the corner, traders are more or less likely to ease back enjoying the brief holiday spell ahead of the markets returning to normalcy, coming Monday. In retrospect, the year 2015 has been one full of surprises with expectations bouncing off the peaks and troughs throughout the year. So how was the year 2015 for the forex markets? Here is a quick recap of the most important events that marked the year gone (going) by.

ECB’s QE Program

If there was one theme that dominated the start of 2015, then it was undoubtedly Draghi’s ‘Bazooka’ aka QE. After setting the stage and building expectations, the ECB signaled its willingness to tackle disinflation head on and at the first ECB meeting in 2015, Draghi delivered, announce a massive quantitative easing program, purchasing sovereign bonds from the Eurozone. The news was well communicated and the markets priced in the probability as the ECB announced its decision. Indeed, once it was done with, EURUSD parity was the main theme that dominated the single currency through most of the year…. until Draghi threw a curveball at the ECB’s December 2015 meeting, which saw the Euro surging back higher and putting to rest whatever few voices were left that were talking about EURUSD parity.

The Swiss Shocker

Got to hand it to the SNB for stealing the limelight off the ECB by announcing that the Central Bank was abandoning the Swiss peg to the Euro just a few days ahead of the ‘ECB’s Big Announcement’. 1.10CHF to the Euro was no longer the price level to defend as Thomas Jordan and Co. surprised the markets, just after a few weeks ago the SNB spoke about defending the peg no matter what. The break of the EURCHF peg saw the markets fall off the cliff and the damage had far reaching consequences, not just for the trading community but also damaging quite a few forex brokerages that were unprepared. Even the behemoths of retail trading took a hit on that eventful day in January while Central bank credibility was put to question.

Oil still remained the ‘Sick Man’

Whoever thought that Crude Oil prices could make a comeback in 2015 would have been sorely disappointed as the WTI Crude continued to decline steadily albeit showing some signs of a recovery in the first half of the year. With OPEC putting its feet to the pedal and unwilling to let go, Oil prices continued their declines over the year. The two OPEC meetings were uneventful and while there were a few voices calling for a cut to production, it was market share that was the main theme which kept the Oil producing nations continue to keep up with the production levels despite falling Oil prices. Countries such as Nigeria and Saudi Arabia to an extent also took a hit and as per the OPEC’s December 2015 meeting, production is likely to remain at current levels while demand remains weak. Goldman Sachs expects $20 a barrel and it could very well be the case if the status quo remains.

Year of currency devaluations

2015 was also marked by another big theme which was de-pegging some certain currencies. While the SNB led the way, the Russian Ruble followed suit. Falling Oil prices and economic sanctions against Russia saw the Russian Central bank attempt to contain the fallout but with little to show for, the Central Bank took a smart step by de-pegging the Ruble, in effect weakening its currency. USDRUB saw a volatile ride this year as the USDRUB first nosedived, losing -24.64% before reversing the losses and posting a gain of 7.10% on a year to date basis. With the SNB taking the lead as far as Europe was concerned, the periphery economies were the focus with Sweden, Norway, Denmark and Hungary. While the DKK still effectively remained pegged to the Euro, the Swedish and Norwegian Central Banks managed to peg their economic policies to that of the ECB’s than having to deal with the currencies directly. Besides the above mentioned economies, Nigeria remains a key economy to watch, which has devalued its Naira from its previous rate of 155 to 168. If Oil prices remain near the $35 – $40 level, expect further devaluations.

The Fed Rate Hike

While the markets remained optimistic heading into 2015 on the issue of the US Federal Reserve’s rate hike agenda, there is denying the fact that there were moments where the markets doubted if the Fed would ever manage to get rate hikes up and running. By the second half of the year, the markets were convinced at one point that the Fed would hike only in 2016 with the July 2015 Fed meeting being called a ‘missed opportunity’. However, the October’s Fed minutes managed to breathe life back into the rate hike speculation as the Fed announced that it was still looking at the ‘December meeting’ to hike rates. Two robust job reports later, the Fed eventually managed to hike the Fed funds rate by 25bps and put to rest all speculation. The move marked the end of a prolonged era of ZIRP and easy monetary policy. While some might argue that the Fed acted a bit too late, in retrospect, given that the rate hike was the talk of the town and well communicated (and priced in), the transition was rather smooth.

BoJ – Yen captured the ‘inaction’

The other big theme heading into 2015 was speculation that the Japanese Central Bank would further ease monetary policy. However, the BoJ sat on its hands for most part of this year with the resounding ‘optimistic’ rhetoric from BoJ’s Kuroda that inflation would head back to the Central Bank’s target range. While the Japanese Central Bank did announce a mini-easing by December 2015, it was too little for the markets. USDJPY remained mostly flat throughout 2015, currently up 2.49% on a year to date basis after prices hit a top near the 124 level this year. With years of full-fledged QE and nothing much to show for, the BoJ is likely to come into the picture next year.

China – Sputtering growth

The GDP for China has definitely slowed down as the markets now adjust to an economy that is shifting from an export/manufacturing oriented economy to one that is consumer based. The Yuan has frequently hit the news years this year as the PBoC made multiple rate cuts in a bid to stimulate its economy. However, the biggest achievement for China this year was the inclusion of the Yuan into the IMF’s SDR basket. Due to come into effect next year, it is evident that China will likely follow through to keep the Yuan competitive in a bid to outdo the Euro as the second most preferred reserve currency. Over the past months, China has laid the ground work for direct Yuan convertibility and 2016 could potentially be the year where USDCNH could very well step up as far as trading volumes are concerned.

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