The Forex Year Ahead: 2016 Traders’ Predictions

Ok, so you’ve read our team’s summary for 2015 (or if you haven’t, make sure you do so here), but now’s the time to look forward, not back. So with Big Ben’s final strike of 2015 not far off, here’s what our expert team of traders and analysts think about the year to come. It’s the Forex Year Ahead 2016…

Sam Barry, Littlefish FX CEO

What you’re most looking forward to for 2016:
As I hinted at in our 2015 review piece (read here), the continued expansion of our offering at Littlefish FX on top of our exciting Fund launch is what I will be thinking ahead to excitedly when tucking into my turkey.

What you’re least looking forward to for 2016:
Lots more Brexit, Greece and rate hike conversations. Although unlikely – it will dominate the news agenda and markets.

What to watch out for:
Headline risk around the three things above, could set some pretty decent trends but don’t be precious on the direction, the world isn’t as bad as the headlines suggest.

What will be the theme for the year:
Still in recovery and it will take a lot of time, rate hikes won’t be quick, they will take a very long time.

Any other thoughts:
Europe could easily post better numbers. The challenge for the Euro is moving towards combined physical policy. We are likely to see more QE in Europe but European equities could do well. The Fed will take their time on this, too much risk to the economy to do anything rash. This will likely draw out the headline chasers – those looking to be far too suggestive into Fed minutes and Fed speaker comments.

I think for headline chasers we could also see talk on Italy, it is still struggling with reforms and if we have another change in political environment we are still unlikely to see major structural reforms, which could see noise on Italy leaving the Eurozone in a similar way to Greece. I don’t think Greece or Italy will leave but it’ll provide some nice ammo for the headline chasers.

UK Brexit conversation could be interesting. Overall its most likely a negative to the UK, but only just. The overall impact either way is unlikely to be catastrophic but there are two big questions. If London loses the financial centre of Europe to Frankfurt on a Brexit vote, then that will really harm London and I think this could put Scotland in an interesting position to force an exit. If it does that, will it try and join the Eurozone? I think a good trade could be shorting London estate agents on a Brexit vote…

I think in the short term (end of the year/early next year) the EURGBP rate could be a challenge for the UK and BoE. If the ECB use QE soon then the Euro / Pound Sterling exchange rate could be a challenge for the UK’s major trade partners. Yes the UK is a net importer, but of its exports, the majority are to Europe and we would be losing value on these. With low oil prices as well this could draw out the UKs growth and could push out BoE rate rises (more wait and see).

Nathan Batchelor, FX Analyst

What you’re most looking forward to for 2016:
Selling the EuroDollar from the 1.2500 level.

What you’re least looking forward to for 2016:
Market hyperbole inbetween FED rate hikes.

What to watch out for:
EURGBP 0.7700-0.7800 SELL Options.

What will be the theme for the year:
The slow pace and small sized basis point increments the FED raise rates and Euro strength.

Any other thoughts:
I’m hoping to see the realization that QE cannot solve all the global economy’s woes, and some sanity return to the markets, with real market pricing gaining some common place in FX and commodities again.

James Harte, FX Analyst

What you’re most looking forward to for 2016:
Simply a clean slate. Always nice to come back to the charts after a nice break, feeling refreshed and reinvigorated for a successful year ahead.

What you’re least looking forward to for 2016:
The tabloid driven consensus call merry-go-round which can get pretty irritating at times, especially when it feels like speculation without accountability.

What to watch out for:
A faster than expected rebound in energy and commodity prices. A large part of the current outlook is built around these markets remaining subdued, and if we see a sharp correction higher this will drag up inflation and lead to a repricing in rate expectations. It could spur a more Hawkish rate path for the US and similarly a sooner rate rise in the UK.

What will be the theme for the year:
I expect the themes for the year to be tied mainly to three key elements. Firstly, the path of US Rates, with changes in data and conditions leading to adjustments in expectations. Secondly, the path of energy and commodity markets, with a sharper rebound leading to a repricing in rate expectations for UK, US and diminishing easing expectations for EU. Finally, the global growth outlook; a further deterioration in emerging market economies, specifically China, could seriously hamper growth conditions next year, which could see inflation taking much longer to rebound than anticipated.

Any other thoughts:
As we saw this year, at so many key points, the obvious and indeed consensus call failed to produce results. Traders operating on expectations alone had a very difficult time, indeed Twitter was alight recently with those selling just ahead of the ECB December meeting which saw EURUSD rip higher. As ever, the advice remains trade what you see, not what you think.

Patrick Munnelly, FX Analyst

What you’re most looking forward to for 2016:
Turning my screens back on after New Year. Yes, I am that much of a market junkie.

What you’re least looking forward to for 2016:
Hearing from the new Pimco advisory board, specifically the legendary Gold trader Gordon Brown.

What to watch out for:
Crude bounce & USD Rollover.

What will be the theme for the year:
The low in commodities.

Neville Hornsey, Trader enrolled on the LFX Prop Trading Programme

What you’re most looking forward to for 2016:
A fresh start.

What you’re least looking forward to for 2016:
It turning into a repeat of 2015.

What to watch out for:
Interest rate divergences and Chinese devaluation, war escalating in Syria and Iraq.

What will be the theme for the year:
Oil prices rising and trading the change / no change in US Interest rates.

Any other thoughts:
Trade what you see on the chart and not the news.

Want to become a Prop Trader with Littlefish FX? Read more about our Prop Trading Programme here.