Market drivers to remain unchanged in Q1

The announcement of the date for the Italian Government Elections which will be held on March 4th merely confirmed that one of the main drivers for the Euro in Q1‘18 will be politics.

The election in Italy, the third largest economy in the Eurozone could be overshadowed by a return to the polls in Germany where Angela Merkel is struggling to convince her long-term coalition ally in Government, Martin Schultz to return to the negotiating table. Schultz main issue is that despite a poor showing in the election as the right wing AfD ate into his votes, he stood on a platform of not entering another coalition.

The Eurozone economy will continue to improve with growth getting stronger and inflation, despite German claims to the contrary remaining below average and far from the ECB’s 2% target.

One new issue facing the ECB as it starts to unwind its asset purchase programme will be the losses it is likely to incur. This has, so far, been a subject that has been “kicked down the road” but as it must be faced, Mario Draghi will need to use a fair amount of his credibility to ensure that the damage is minimal.

Sterling facing further Brexit woe

If the battleground for stage two of Brexit talks is likely to be financial services, the first skirmishes have taken place with Brussels displaying its now renowned hard-line that demonstrates the determination of Messrs Tusk and Juncker to provide zero encouragement to any wavering states to advance their own agenda.

The pound has been relatively steady since the approval of the move to stage two but the proposals they are expected to provide before talks restart could prove to be fantasy.

Versus the dollar it has finally managed to stagger back to the level it was trading at prior to the result of the June election while against the common currency it has been a little more volatile but within narrower ranges.

Emboldened by two victories in Parliament, Government rebels are sure to try to impose their desire for a soft Brexit in the Prime Minister while within the Cabinet the departure of her closest ally has unbalanced their beliefs towards a hard or no deal Brexit although those feelings have been kept under wraps for now.

Sterling will close the year in a similar position to that in which it started. Although there is greater public understanding of the demands being placed by Brussels, the desire for a second referendum remains unchanged.

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Goodbye 2017

2017 has been a year of opportunity to FX traders. Volatility has been sufficient to allow all manner of traders to make money by being disciplined and determined. Ranges, particularly daily, have been narrow due to the amount of liquidity available particularly in major currencies. I hope that I have been able to create a more balanced environment for traders more used to studying charts. I was certainly enlightened by the Price Action Day in Warsaw where I met several traders with very et ideas on how to make money in financial markets.

As we say goodbye to 2017 and a warm hello to the new year, I wish every reader a successful and prosperous 2018.

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