With just two weeks left till the New Year, it is now possible to assess which currency was the strongest in 2017 and try to perform an analysis of the potential Forex winners in 2018. My 2015 poll about the long-termbest-performing currency (2015–2020) looks to be quite accurate so far — the euro is still the clear leader among the majors. The year 2017 was one of the best for the EUR and one of the worst for the USD:
Contents
1 Fundamentals
1.1 USD
1.2 EUR
1.3 JPY
1.4 GBP
1.5 AUD
1.6 CAD
1.7 CHF
1.8 NZD
2 Technicals
2.1 USD
2.2 EUR
2.3 JPY
2.4 GBP
2.5 AUD
2.6 CAD
2.7 CHF
2.8 NZD
3 Poll
USD (DXY): -8.4%
Other currencies measured against the greenback:
EUR: +11.7%
JPY: +3.6%
GBP: +8.4%
AUD: +6.0%
CAD: +4.1%
CHF: +2.8%
NZD: +0.1%
The NZD follows the greenback closely as the second-worst currency of 2017. This might seem counter-intuitive at first because the New Zealand’s economy is thriving, with unemployment level falling to historical lows while inflation and output growth rise high. However, it is important to remember that the Reserve Bank of New Zealand had cut interest rate thrice in 2017. The euro’s good performance is partially explained by a very low starting position — 2016 had been disastrous for the eurozone currency. This year, the currency just reconquered its lost ground. Fundamentals USD
Pros:
Great economic situation, with unemployment reaching decade-long minimums while the GDP is growing at a relatively fast pace.
Planned monetary tightening process (though rather limited).
President Trump’s favor of stronger US dollar albeit just a verbal one.
Cons:
The political turmoil surrounding the US President Donald Trump is likely to continue next year. The factor of unpredictability will weigh on the USD rate and might prevent it from rising even under otherwise favorable conditions.
The stance of the new Fed chair, Jerome Powell, might turn out to be more dovish than the market currently anticipate.
The midterm elections might bring even more uncertainty into the political landscape of the world’s biggest economy. The resulting chaos may hurt the dollar albeit only for the last two month of 2018.
EUR
Pros:
Planned end to the quantitative easing program (for September 2018).
Cons:
Brexit woes.
Lackluster growth figures in most of the eurozone nations.
Italian general elections planned for May 20 may disrupt the eurozone’s integrity if euroskeptic forces come to power.
JPY
Pros:
Elevated demand for the Japanese bonds as a safe haven asset.
More or less positive GDP/inflation numbers.
Cons:
Continuation of the ‘weak yen’ policy by BoJ’s governor Haruhiko Kuroda.
Lack of global financial crises to drive a rally in refugee currencies.
GBP
Pros:
Potential for Brexit issues resolving without too much damage to the British economy.
Some monetary tightening might be appropriate if inflation continues running at high levels.
Cons:
The situation with Brexit might deteriorate even further. Also, if the actual withdrawal from the European Union happens in 2018, it might further weaken the UK’s economy.
AUD
Pros:
Australia continues to run a positive balance of trade.
Cons:
Iron ore, coal, gold, and natural gas — Australia’s top export goods — are all stuck in mediocre price ranges. If there will be no demand surge for these commodities in 2018, there would not be a need for a demand surge for the Aussie.
There is a chance that China’s economic growth with decelerate more than expected next year, reducing the output of Australia’s export industries.
CAD
Pros:
The current bullish trend in oil prices might continue into 2018, helping the loonie to rise.
Cons:
Despite the hawkish stance of the Bank of Canada, there is little macroeconomic indication to support another rate hike in 2018.
CHF
Pros:
Switzerland continues to run both trade and current account balances in the green.
Similarly to the Japanese yen, the Swiss franc may experience some elevated level of demand due to its safe haven status.
Cons:
The Swiss National Bank continues to call the franc ‘highly valued‘ in its monetary policy statements, which means that the SNB is ready to intervene to weaken the Swissie if necessary.
Although there are no expectations for the SNB to cut the interest rates further into negative territory, there is also no reason for the central bank to tighten the policy, with inflation and GDP growth numbers so low.
NZD
Pros:
The rising inflation may sway the Reserve Bank of New Zealand to a more hawkish stance, warranting a few rate hikes in 2018.
Cons:
With GDT Price Index in a downtrend, the demand for the NZD might be subdued in 2018, dairy products still being a large part of the country’s exports.
Potential risk of Chinese economy slowing, cutting demand for the range of New Zealand’s exports.
Technicals USD
The dollar index is currently still below its 50-week moving average but the failure to set a new lower low suggests a trend consolidation. The nearest resistance line at 94.22 will be followed almost immediately by the one at 95.14. However, the supports are also quite strong at 92.53 and then at 91.01. A breach of any of those levels will help the US dollar to decide its course in 2018. EUR
EUR/USD is clearly in an uptrend judging by its 50-week moving average. Nevertheless, the pair will have to break its September 3 high of 1.20922 to move farther up. The support levels at 1.05115 and 1.03359 are well below the first support line at 1.14535. If the latter is broken, the fall may be quite serious for EUR/USD. JPY
USD/JPY looks like a sideways-bound trading instrument right now. Even though the pair is well above the 50-week EMA, it did break the indicator line many times in 2017 without establishing any clear trend. The next resistance at 114.518 is not much closer than the next support at 110.861. Breaking the former in 2018 will allow USD/JPY to proceed to the next resistance at 118.625. Going through the first support will open the way to 107.289 and then to 99.515. GBP
The 50-week exponential moving average has been recently broken to the upside by the pound. However, the pair will have to go through 1.36608 resistance before heading for a much harder one — 1.50129 (the Brexit one). The downside is limited by 1.27808 in the medium term and by 1.19458 as a long-term support. AUD
Even though the currency rate is well below its 50-period MA on the weekly chart, the higher-high-higher-low sequence is still pointing at an uptrend in AUD/USD. The pair still has a chance to bounce off of the 0.73739 support. A lower support level at 0.71545 will be even harder to crack. Then, the support line at 0.68286 is the lowest level since the AUD carry trade unwinding back in 2008. In terms of resistance, 0.7752 will be a tough one due to numerous previous failed attempts. 0.81219 will be a pivotal level after that. CAD
USD/CAD looks like it is ready to break above the 50-week moving average if it will not be stopped by the resistance at 1.29231. The next stop seems to be quite far up — at 1.37996. The third resistance is located at 1.46955. On the lower side, the support at 1.24402 might be problematic. The long-term low of September 3 at 1.20612 offers a distant yet strong second support level. CHF
USD/CHF is currently trading above its 50-week moving average, but the pair’s failure to move farther above the spike levels set back in 2016 produced a new resistance level at 0.99804. The next resistance is not too distant at 1.00922. If broken, it will open the way to 1.03221, which is quite strong. Support side is quite far below at 0.94323 and 0.91542. Evidently, the MA breach is not a very reliable signal with USD/CHF — the trend is more or less cyclical with this currency pair. NZD
The New Zealand dollar is trading below its 50-week EMA for some time already. The support and resistance picture for NZD/USD looks quite erratic. All levels seem to be rather weak. The nearest support level is at 0.67789, with the next one not too far away at 0.66761. Then the price range is basically clear until 0.63511 and then down to 0.61058. The resistance at 0.70673 may serve as an entry point into the range capped by 0.73989. Then a long-term high of July 23 will serve as a rather strong resistance level. Poll
In this poll, consider all currencies to be measured against the US dollar. USD can be measured by the dollar index (USDX/DXY) or it can be named the best performer if it manages to rise against every other currency in 2018.
The currencies in the poll (and in the analysis above) are listed by their average trading volume according to the BIS Triennial Central Bank Survey 2016.
Which of the major currencies will fare best in 2018?
EUR (40%, 6 Votes)
GBP (40%, 6 Votes)
USD (7%, 1 Votes)
JPY (7%, 1 Votes)
CHF (7%, 1 Votes)
AUD (0%, 0 Votes)
CAD (0%, 0 Votes)
NZD (0%, 0 Votes)
Total Voters: 15
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My own bet is that the euro will continue to dominate the FX market (major currency pairs at least) next year — see my FX forecast for 2018. Note: Voting in this poll is open until February 1, 2018.
If you have some detailed forecast regarding the best Forex instrument in 2018, please use the commentary form below to post it.
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