The final quarter of 2017 will kick-off next Monday and many forex traders will try to push hard over the final three months of the year in order to boost their overall performance. This is rather normal and many traders seek the best returns over that period. It is debatable if the final three months of each year or any other specific period is the best for trading, but volumes do tend to pick up and depending on which strategy a traders follows that could make a big difference in the results achieved. In either case, the trading action in the final quarter of each year is often the most interesting one.
While technical indicators remain little impacted over that period, fundamental factors have a bigger impact. In general a trading strategy remains intact regardless of which period of the year a traders uses it, but forex traders who rely on technical analysis need to be aware of fundamental factors as well and they do change year by year. In order to maximize the returns over the final 12 weeks of trading for the year, it is vital to understand which fundamental factors are likely to cause the biggest price action moves in which currency pair.
Do you have the right Forex Strategy 2017? Here are several factors which traders may want to keep in mind as they seek the best returns over the next few weeks. With the German elections behind us, the attention for for the Euro will focus more and more on the ECB and any signals when the central bank will taper quantitative easing and when interest rates may be adjusted. Statements made by Mario Draghi about the state of the European economy suggest that the ECB may be in a process to prepare traders for a tightening cycle in the near future.
Many analysts have gotten the Euro trade wrong thanks to a combination of extreme bearishness in the Eurozone currency. One of the most evident recipients of this wrong trade has been the EURUSD and it is likely to remain so. Forex traders need to remember that the prospects for the US Dollar remain rather bearish while the Eurozone is a lot more bullish than many analysts have realized. The results of the German elections and the following period of coalition talks together with potential ECB statements and monetary policy moves may result in short-term sell-offs, but traders are advised to use those as long entry opportunities to close out 2017.
Another key fundamental aspect remains tensions on the Korean peninsula and how the US will act in dealing with the situation. So far it has been reduced to a war of words between the two leaders, but it has been enough to send minor waves through the financial markets. No country has shown leadership in order to resolve the situation in a sensible matter and news about events, talks and actions are likely to dominate the rest of this year. The Japanese Yen, considered a safe haven during geopolitical events, has been the benefactor of the soft crisis and has rallied strongly. This fundamental trend is set to continue over the next few months.
The USDJPY has just enjoyed a sharp rally of over 450 pips and depending on what will happen with North Korea could see a full reversal of this rally. The Japanese Yen is not only dominated by the increasing conflict with North Korea, but will also see a ripple effect as central banks tighten further as the Japanese currency, with the Bank of Japan expected to remain accommodative for far longer than any other developed central bank, remains the favored carry trade currency. Moves of several hundred pips in a fairly short time period are common and many see great trading potential in all pairs which have the Japanese Yen as the quote currency.
Finishing our look at the Forex Strategy 2017 will come from the commodity sector which has been stuck in a bear market. Commodity currencies such as the Australian Dollar, the New Zealand Dollar as well as the Swiss Franc to a smaller degree are heavily influenced by what happens to commodity prices. The reason is that Australia and New Zealand are big commodity exporters and a sizeable part of their economy is dependent on the sector. Commodities may currently enjoy a bear-market rally and what happens over the next few weeks with commodity prices will influence the currency of Australia and New Zealand. The Swiss Franc plays an interesting role as a combo between safe haven currency with exposure to commodities.
No matter how well forex traders have performed over the past nine months, the next three months will no doubt have a big impact on how the portfolio performed in 2017. Being aware of geopolitical events as well as factors relevant to specific currencies and currency pairs will make a big difference. Understanding the correlation between currencies and events needs to be part of any well functioning strategy, regardless if fundamentals or technicals are at the core of it. Stay aware of what is happening in order to capture the full potential of each forex trade.