As financial markets are approaching the half-year mark, 2018 continues its topsy-turvy rollercoaster ride. Geopolitical uncertainty over trade, Europe’s economic downturn, and daily volatile back-and-forth of equity and FX markets can create a confusing headache even for seasoned market watchers.
Here at AccendoFX we believe that our clients become better investors when they can make orderly sense out of the ensuing cacophony. The following report is looking to provide a handy guide for FX investors to the most important events of the upcoming quarter and to give them a sense of direction for major FX pairs.
It has been a heady and tumultuous Spring, and the landscape for Q3 is looking to be just as eventful. Here are some of the key things to keep in mind.
Shadow of Brexit
Brexit continues to be a thorn in relations between the United Kingdom and the European Union, with negotiators unable to come to a satisfactory solution to major issues. With less than a year remaining till the final cut-off date for leaving the EU, the two sides are moving increasingly closer to an economic and social upheaval of “hard Brexit”.
While the current UK government of Theresa May has managed to successfully steward the passage of EU Withdrawal Bill through the UK Parliament, many questions remain about unresolved issues of Irish border, post-Brexit financial regulations and reciprocal rights of EU and UK citizens.
These tensions have become a considerable burden for the Pound Sterling and there are no clear indications yet that the UK government is politically prepared to table any breakthrough solutions in the upcoming months.
Moving into the third quarter of the year, the main currency pairs are all under pressure of global trade uncertainty and rising geopolitical tensions.
Trump Administration’s protectionist policies have ignited a multi-pronged trade war, with China, EU and North America engulfed in escalating tensions. In spite of initial hopeful signs of a Sino-American trade compromise, both sides are now levying sanctions and counter-sanctions against each other.
While trade tariffs may be seen as beneficial to national economies via increased prices, in reality, their benefits are unevenly distributed and more often than not lead to net job losses in other sectors and a worsening outlook for a national currency.
Safety from the Storm
With US, Eurozone and the UK all affected by new reciprocal trade barriers, traders are seeking refuge in other safe-haven assets, including Japanese Yen, Swiss Franc, Nordic currencies, investment gold and US Treasury bonds, side-stepping the familiar trio of USD, EUR and GBP.
Prospects of a trade détente between major powers in the upcoming Q3 2018 look increasingly grim and the trade war confrontation is likely to remain the “new normal” for the time being.
Continue reading to find out more about the key drivers influencing major currencies and register with AccendoFX to work in direct partnership with an experienced FX broker.