As 2018 is right around the corner, we thought it would be helpful to take a look at some of the most important trading instruments and see where they leave off the year. Who are the big winners and losers of 2017, and what is in store for them in 2018?
The American Dollar
Of course, we must begin our analysis by looking at perhaps the most important currency in the world, the USD. In terms of the American economy, most reports throughout the year have been very positive: there has been economic growth, lowering unemployment rates, and other positive statistics. At the same time, the Federal Reserve has been baffled by the fact that despite all of this, inflation and wage growth are not increasing quickly enough. Still, they persisted with their tightening monetary policy by beginning to shed their massive investment portfolio (from when they bought a lot of bonds and other securities in order to cushion the blow of the economic crisis of 2008) and increasing interest rates.
Nevertheless, despite the relatively strong economy of the United States and the hard work of the Federal Reserve, the dollar has been most influenced by the political environment in the US. In the first year of Trump’s presidency the USD suffered quite a lot. 2017 opened with almost a parity between the USD and the EUR on the belief that President Trump will lead conservative, protectionist policy, but quickly his inability to keep his campaign promises became evident and investors began doubting the dollar. With the failure of Trump’s healthcare overhaul, the dangerous rhetoric towards North Korea, and towards the end of 2017 the troubles surrounding tax reform, even the rising interest rates were not enough to help the USD. It will be ending 2017 at a lower level than it started, with the potential to lose even more positions as other currencies grow stronger next year.
Undoubtedly one of the heroes of 2017 is the European single currency. This year brought numerous challenges to the euro: Britain’s efforts to leave the bloc, several sets of important elections where the unity of Europe was at stake, as well as issues in Spain where Catalonia voted for its own independence. Still, European leaders and the European Central Bank stood firm in the face of all of these challenges and managed to deal with everything in due time. While the year started with the euro much weaker against the American dollar, it would be ending the year at two-year highs just a little short of the level of 1.20.
We also need to mention that with regard to the ECB, many investors were hoping to hear of a possible tightening of the monetary policy for the eurozone. Economic reports have been overwhelmingly positive and inflation is slowly but steadily rising, so pretty much after every single meeting that the ECB held investors wanted to get a clue as to the end of the stimulus package of the ECB. Still, the central bank reaffirmed that it would not back down on its dovish policy. Nevertheless, if statistics continue to be strong next year, we are likely to see a policy change, and with that, a further strengthening of the euro.
After two dismal years for the oil market, 2017 was finally a year that brought hope. OPEC managed to successfully enact a policy of cutbacks in production and exports in order to calm the oversupplied market and drive prices upwards. It was helped by Russia and a few other non-OPEC states who voluntarily accepted the policy. Appropriate policy-making was also helped by some unplanned factors such as supply cuts in Turkey and Iraq for political reasons, pipeline outages in Libya and the North Sea, and, somewhat surprisingly, lowering reserves in the United States. The prices of oil finally managed to surpass the level of $60 per barrel and will end 2017 at two-year highs. OPEC agreed to continue its agreement in 2018 to further promote a more balanced oil market in the future.
While we won’t go into great detail on these, we wanted to briefly mention a few other instruments’ states at the end of 2017.
The British pound, despite a catastrophic phase after the Brexit vote, is finally beginning to find support due to the fact that a deal was struck between the United Kingdom and the European Union during the first phase of Brexit negotiations.
The Japanese yen will end the year with a lot of volatility, as it has spent most of 2017 in a price channel around the level of 112-115 yens per dollar. The weaker dollar is working against the yen, since the Bank of Japan is actually trying to weaken its currency and promote inflation with massive stimulus packages. We have yet to see any results of those in 2018.
Of course, this overview will be incomplete if we don’t mention Bitcoin, one of the most closely followed instruments of 2017. After increasing by more than 1000% this year, the cryptocurrency experienced a dramatic price correction, but it is now on its way up once again, as there is growing support for cryptocurrencies around the world and futures based on Bitcoin are traded at exchanges.