By Alfonso Esparza, Senior Market Analyst, OANDA
2016 was a fascinating year to be a retail trader. The surprise results in the Brexit referendum and the U.S. Presidential election were just the tip of the volatility iceberg. The aftermath of 2016 is likely to continue to resonate, and along with the likely rise of new political and economic risks, markets in 2017 are unlikely be any calmer.
Uncertainty can be a welcome prospect for retail traders but the next 12 months could well be volatile for a whole different reason. Following a year that was characterized by surprise after surprise, the events of 2017 may be easier to anticipate. Well-prepared traders – those with sound risk management strategies supported by the fastest technology for trade execution – are using last year’s lessons to prepare for whatever lies around the corner.
Here are five reasons why 2017 may be the best year to trade forex and CFDs since 2008:
2016 may have been the year Brexit surprised the world but this year we’ll really start to find out exactly what it means. The pound and the FTSE, which have been extremely volatile since the vote in June, are likely to remain in the trading spotlight for the foreseeable future. Over the coming months, we’ll find out just how the leave decision will affect the UK economy in the short-term and get a little more insight into Britain’s future relationship with the EU. The deal that the two parties agree will determine whether firms flee the UK to retain access to the single market. Traders should take note.
The promise of fiscal stimulus has left the markets feeling relatively upbeat about the prospect of a Trump Presidency so far. But there were good reasons for concern in the run-up to the vote, with Trump’s trade and foreign policy positions having caused particular anxiety – both of which we’ll learn a lot more about in 2017. All of this uncertainty, at a time when the Fed is in the early stages of raising interest rates, should lead to a very interesting year.
The anti-establishment vote reared its head in the UK and the US in 2016, with weak economic growth, rising inequality and low wages among the many complaints leaving people feeling disillusioned. With elections taking place in Germany, France, the Netherlands and possibly Italy next year and anti-establishment parties gaining in popularity, we could see further populist votes in 2017 – with significant consequences.
It should be a very interesting year for central banks with the Fed aiming for continued tightening of monetary policy at a time when other central banks take a looser approach. These divergent monetary strategies should ensure markets remain volatile in 2017. It will also be interesting to see how emerging markets respond to the Fed tightening at a faster pace, having previously been very vulnerable to such moves. Add into the mix that the BoE may be forced to raise interest rates to curb inflation and that the ECB has begun reducing its asset purchases, thus slowing its quantitative easing earlier than expected – and could be in for quite a volatile year in the markets.
Oil has been extremely volatile in recent years as OPEC intentionally allowed the market to flood in an effort to retain market share. But in 2016 it became clear that the strategy was backfiring and recent deals between OPEC and other producers should go some way to ensuring the market rebalances. If the agreements are implemented as agreed, the US is likely to ramp up production once again to capitalize on higher prices, which could complicate matters and ensure oil remains volatile for some time to come.
There’s plenty for experienced traders to get their teeth into in 2017. But recent history reminds us that unpredictable volatility can spring from any corner of the globe at any time.
To thrive, advanced traders will rely on technology to guide their moves. And they’ll use it to trade even faster than ever. Automated risk management is a major asset for retail traders, as is the ability to quickly capitalize on new information. With cutting-edge technology underpinning trading strategies, a volatile 2017 may present the opportunities that make it the best year ever for retail traders – the market’s volatility hunters.