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Home / Special Reports / 2018 FX Outlook

This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

17 December 2017

2018 FX Outlook

After a rollercoaster year for Sterling, there’s still a long way to go if it wants to revisit the heady heights of 2016. However, if there’s a year in which the recovery can really mount a charge towards its pre-Brexit highs, it’s 2018.

With a range of events scheduled that could alter the foreign exchange landscape for years to come before even considering any more major shocks, FX traders will need to have their fingers on the pulse in 2018.

Thankfully, Accendo FX is here to provide you with a handy guide to the year’s major new and continuing macroeconomic and political themes.

2018: The year of Brexit

The UK voted out in 2016; March 2017 saw the triggering of Article 50 and the beginning of the formal Brexit process; 2019 will be the date that a transition period begins or the UK leaves the EU, with or without a deal. However, 2018 will be the most important year for Brexit of them all.

2018 will see the start of all-important trade talks between the two parties, potentially beginning in March and continuing until the end of the year.

The EU’s Chief Negotiator, Michel Barnier, has warned that no deal can be reached before the 2019 deadline. His UK peers, however, will be doing everything in their power to secure some sort of trade deal before EU Commission President Jean-Claude Juncker’s October 2018 deadline.

It’s crunch-time for the UK.

Can negotiators hammer out a deal, including some sort of transition agreement, before time runs out? Will there be single market access for UK companies? All will be revealed in 2018.

Bonne Chance, Europe

After the Netherlands, France, Germany and Britain all went to the polls in 2017, Italy is the final major Eurozone economy to elect a permanent leader.

The country has been without an elected leader since Matteo Renzi resigned from the position of Prime Minister in 2016 after a failed referendum on reforms.

That is set to change, however, as Italians vote on 4 March. The populist 5 Star Movement gained a foothold in local elections and, should it perform strongly in March, could pose a major threat to the resurgent EU under Franco-German leadership.

Farewell Janet, welcome Jay

2018 already has one notable retiree on its books. Janet Yellen, Chair of the US Federal Reserve, will leave both her post and the Fed entirely, giving way to her colleague Jerome Powell who was nominated to the top job by President Trump in 2017.

The new Chair, a former investment banker, will now navigate the world’s largest economy through its course of policy normalisation, following almost a decade of extraordinary accommodative policy.

Will Powell follow Yellen’s monetary policy lead or guide the central bank along a more hawkish road?

2018 Wildcards

Could a leadership race force a new UK government? Will the US go to war with North Korea? Could President Trump face impeachment after Mueller’s special investigation? Might the Chinese economy endure a hard landing after years of speculation?

Over the page, we analyse the top three currency pairings traded by Accendo FX’s clients.

Page: 01

GBP/USD ‘Cable’

Stuck between ongoing Brexit negotiations in Europe and the controversy of the Trump administration in the US, Cable continues to be an interesting gauge of market sentiment. This year’s performance has been dominated by the UK side of affairs, with the pairing recovering from January’s 22-year low of $1.1985 after PM May’s Lancaster House speech, rallying to $1.366, a post-Brexit high, as Brexit negotiations began in September.

Brokers are currently evenly poised on Cable’s prospects, according to broker data compiled by Bloomberg, with just over 50% expecting the pairing to improve from the current price, however the average target is 1.6% lower than its current level. Recent updates are on the whole positive, with ING Financial Markets providing a bullish target of $1.46 (11 Dec), while Commerzbank expects the price to fall to $1.30 by the end-2018 (11 Dec).

Events: UK Local Elections – May; US Midterm Elections – November; Fed & Bank of England meetings


The Brexit thermometer will be one of the most closely watched currencies of 2018 as the ebbs and flows of UK-EU negotiations are scrutinised to the nth degree. Reacting to the progression of divorce proceedings between the two, the pairing has been largely rangebound in 2017. Its 2017 high of €1.203 came in following the triggering of Article 50, while an 8-year low of €1.075 was traded in August after the UK government lost its majority.

Brokers are negatively biased on GBP/EUR’s prospects, with almost two thirds of brokers holding a lower target price for the end of 2018 than the current price, according to Bloomberg data. More recent updates range from a bullish target of €1.17 from Barclays (11 Dec) to Morgan Stanley’s bearish target of €1.06 (27 Nov), however the average target price remains a much more attainable €1.12, 1.1% below the current price level.

Events: Italian Elections – March; UK Local Elections – May; Brexit negotiations – ongoing; ECB Meetings

EUR/USD ‘Eurodollar’

The best performing currency pairing in 2017 of the three being analysed in this report, Eurodollar has benefitted from a sustained period of pressure on the US dollar as investors question. In the latter period of the year, however, the pairing retreated from its 32-year highs of €1.209 as the Trump administration scored its first legislative victory with it proposed tax reform bill, however it remains almost 12% higher year-to-date.

Brokers are overwhelmingly positive on EUR/USD’s prospects, with Bloomberg’s compilation of analyst data showing over 70% of brokers have a target price above the current price. Recent updates vary from the most bullish forecast of $1.30 by ING Financial Markets (7 Dec) to the most bearish target from Commerzbank’s $1.12 target. Despite the positivity, however, the average target price of $1.20 is just 1.5% above current price.

Events: Italian Elections – March; US Midterm Elections – November; Fed & ECB meetings

On the following three pages, we look at the technical indicators behind these three hugely popular currency pairings. What will you make of the analysis? Is your preferred currency pair set to move higher in 2018?

Page: 02

GBP/USD ‘Cable’

Will Cable rally back to 2016 highs of $1.50 (+12%) or return to 2017 lows of $1.199 (-11%)?
  • The pairing has spent much of 2017 recovering from a 2-year sell-off. Can it return to pre-Brexit levels?
  • Relative Strength Index (RSI) bounced from pivotal 50 level. Back to overbought or retreat to oversold?
  • Momentum turned negative for first time since early November
  • Brokers are in limbo, with just over 50% forecasting the price to rise by the end of 2018


Bullish: ING Financial Markets, Target $1.53, +14%, (7 Dec)

Average Target: $1.34, -0.1% (14 Dec)

Bearish: Morgan Stanley, Target $1.24, -7.6% (27 Nov)


Pricing and consensus data sourced from Bloomberg on 14 December. Please contact us for a full, up to date rundown.

Page: 03


Will GBP/EUR break out to 2017 highs of €1.203 (+5.6%) or fall to 2017 lows of €1.280 (-5.5%)?
  • The pairing has been rangebound since September. Breakout to 2017 highs or return to 2017 lows?
  • Relative Strength Index (RSI) falling back from oversold towards the pivotal 50 mark
  • Momentum retreating towards zero after trading a 3-month high in December
  • Brokers are negatively-biased, with only a third holding a 12-month price target above the current level


Bullish: Barclays, Target €1.176, +3.4% (11 Dec)

Average Target: €1.124, -1.1% (14 Dec)

Bearish: Standard Chartered, Target €1.01, -11% (30 Oct)


Pricing and consensus data sourced from Bloomberg on 14 December. Please contact us for a full, up to date rundown.

Page: 04


Will EUR/USD return to 32-yr highs of $1.21 (+2.5%)  or fall to November lows of $1.155 (-2.1%)?
  • After retreating from September’s 32-year high, the pairing has met 8-month rising lows support
  • Relative Strength Index (RSI) hovering around pivotal 50 level. Break higher or lower?
  • Momentum remains negative after failing to better zero in December, although off worst levels
  • Brokers are positive, with over two-thirds providing a 12-month price target above current price


Bullish: Nomura, Target $1.35, +14%, (24 Nov)

Average Target: $1.20, +1.7% (14 Dec)

Bearish: Commerzbank, Target $1.12, -5.1% (11 Dec)


Pricing and consensus data sourced from Bloomberg on 14 December. Please contact us for a full, up to date rundown.

Page: 05


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Page: 06

This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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