What Now For Forex?
It seems that what goes around comes around. Although the strength of the euro and the pound was the centre of many trading circles during the past few years, we may have turned a proverbial corner. The United States dollar has continued to gain ground in relation to its Transatlantic counterparts and if all indicators are correct, this momentum will be felt well into 2017. Recent comments from Federal Reserve Chair Janet Yellen appear to cement what many Forex traders have been observing for the last few months. Due to favourable inflationary figures and a solid labour market, we may soon see another rise in interest rates during September (1). What does this mean for the average Forex trader?
Room for Movement
It should already be obvious that many investors are shying away from both the British and the European marketplaces due to recent drops in the relative value of these currencies in relation to the dollar. However, this can be approached in two ways.
Short-term traders will be looking to capitalise on any gains made by the dollar within discrete trading periods. As the outlook appears to be strongly bullish, this could be an excellent strategy. A hike in interest rates may strengthen this position further in the coming months.
However, we must also recognise that purchasing positions in the euro and the pound could just as well be a prudent strategy. Inter-currency fluctuations between the two may be able to add another “string to the bow” in regards to short-term liquidity. The fact of the matter is that regardless of the route that traders choose, there is no doubt that the final financial quarter of 2016 will be very interesting.
A Hidden Message?
While the comments made by the Federal Reserve certainly illustrate the strength of the economy and the dollar as a whole, there could be a bit more than meets the eye in terms of any interest rake hikes. Forex traders keen on entering into the United States currency markets are likely to still be a bit sceptical.
First and foremost, the comments made by Chairwoman Yellen highlighted that a rate increase is “more than likely”. This does not necessarily signify that a hike is “likely” and due to this observation, some markets may still be wary to buy into such a stance until more concrete data emerges. Most Forex traders will be hoping for continued domestic growth as well as favourable inflationary figures during September.
Eyes on the USD/EUR Relationship
The euro has also been making news within the Forex markets, but not necessarily for good reasons. Flagging support amidst questions in regards to the long-term plans of the European Union continue to weigh heavily upon this 28-nation currency. The upside to this scenario is that short-term positions with a USD/EUR Forex trade could be the best way to secure moderate profits before more concrete economic data emerges from the Unites States.
Thanks to online platforms such as CMC Markets, it is now quite easy to keep abreast of all of the latest news. This ability will be even more beneficial as substantial hints trickle down from the powers that be within the United States Federal Reserve. Investors in the United Kingdom who are looking to avoid the medium-term ramifications of the Brexit could also choose to focus more upon the dollar-euro relationship for the time being. Having said this, it is more than likely that many Forex professionals will be eagerly anticipating any news that emerges from the Federal Reserve in the coming weeks.