Please enable / Bitte aktiviere JavaScript!
Veuillez activer / Por favor activa el Javascript! [ ? ]

Sunday, November 25, 2018

Four months until 2019: Currencies to watch

What to watch for as we close out the year

This year has been interesting, both for the markets and the general geopolitical scene. We saw the beginning and escalation of a trade war between two of the most economically powerful nations in the world - China and the U.S.
And judging by the rhetoric coming out of both camps, the end doesn't not seem near. We saw Putin win the popular vote to renew his presidency that he has had intermittently held since the early 2000s. We have seen Trump alienate U.S. allies while admiring and socializing with leaders that have been outright hostile to Western interests. Market analysts and market-watchers are warning of a new impending recession (didn't we just have one of those?).
We saw both the economy of Venezuela and Turkey implode, causing their currencies to go into a tail spin - and threatening to destabilize other currencies correlated to them. The UK and the EU seem to be in a brutal punch for punch bout for what the Brexit conditions will be. And as the March 29th 2019 deadline looms (or maybe later according to some news sources) it seems that the UK's Brexit Negotiation team is a bit more battered than the economic bloc's fighters.
Market darlings' cryptocurrencies have left the public eye (finally some would say), but some analysts have hinted that 2019 might be the year cryptocurrencies rise like a phoenix from their post bubble-burst slump. 
It can be easily assumed that certain currencies are going to remain in spotlight in the coming year, including the US Dollar, the British pound and the Euro. What is the currency market landscape going to look like in 2019 though, that is just four months away?
Institutional Intuition
The World Bank, is seeing a slight slump in global GDP from the two previous years of 2017 and 2018 (to date) - which both recorded 3.1. 2019 is forecasted to lose 0.1% dropping to 3.0. There are a few factors that are playing into this, one advanced-economy countries' production is poised to slow down, and emerging markets rapid growth should normalize. When it comes to major economies, the World Bank forecasts:
  • US GDP to drop from the previous year's 2018 of 2.7 to 2.5 but the forecast for 2020 is a significant drop to 2.0.
  • The Eurozone GDP will take a bigger hit dropping from 2018 level of 2.1 to 1.7 but is forecasted only to lose 0.2% in 2020
  • Japan's is going to drop a significant 50% of its GDP rate by 2020 - going from 1.0% to 0.5%
Although included in the Eurozone GDP, the United Kingdom might be on its own, once the 2019 Brexit decision is made. Depending on the outcome - it could pull down the GBP and bolster the EUR (hard exit or no-deal) or bolster the GBP which would leave the EUR largely unchanged (soft exit or favorable deal) or bolster both currencies if (and this is an extreme scenario) a second public referendum is performed that reverses the now infamous "leave" vote.
Around the end of last year Business Insider UK asked 11 analysts to speculate what would happened to the GBP in 2018 - JP Morgan estimated in the end of December 2017 that the GBP would be banded between 1.26 to 1.47 in 2018. This estimation has been surprisingly accurate. 
Although there is no conclusive proof that GDP and the nominal exchange rate (i.e. the value of one country's currency when purchased by a different country's currency) are positively correlated - or if a drop in GDP is caused by a drop in the exchange rate or visa-versa.
The only true effect that has been observed

 is that significantly negative GDP has more of an impact on the exchange rate than positive changes in GDP.
Emerging Markets
Although most news outlets and market watchers put heavy emphasis on advanced economies in the preceding years - East Asia and Pacific economies seemed poised to blow EU and US rates out of the water. Although their GDP is also predicted to drop, it's from the significant 6.3 in 2018 to 6.1 in 2019 and 6.0 in 2020.
So, exotics might be something to watch in the next four months. 
It seems that Bitcoin - the granddaddy of cryptos - has lost a bit of its shine. Its newer competitor for the crypto-throne seems to Ethereum, even though Google shows that Bitcoin seems to surpass both Ethereum and Ripple for global searches in the last 30 days and the picture is about the same over the past 12 months. Some postulate that Google Trends is actually a pretty good indicator of market sentiment. 

BTC - yellow
ETH - red
Ripple - blue
USD, GBP, EUR - the main currencies will probably never leave traders' terminals, but 2019 may prove to be a dynamic year with new protagonist from emerging markets. Luckily most brokers offer an extensive suite of analytical tools - some that are even integrated into the trading terminal like easyMarket's platform which can help you keep a finger on the pulse of markets.

No comments:

Post a Comment

Get Ready for Cryptocurrency Market Volatility

Volatility is back in the crypto market Bitcoin and other cryptocurrencies plummeted once again on Monday. Bitcoin has dropped throug...