Forex Monthly Outlook – January 2018

The GBPUSD pair spent most of the month of December in a tight range as the prices consolidated between 1.3200 and 1.3500 for much of the month. The Brexit process continued to twist and turn but the fact that the Phase 1 of the talks has been concluded helped the leaders to look forward to Phase 2, where they are likely to discuss about the trade access that would be given to the UK. This is expected to be the most crucial part of the talks as the UK needs the trade access to the Eurozone to ensure that its economy is not cripped. The successful completion of Phase 1 of the talks helped the pair to finish close to the highs of its range for the month, which should give a boost for the bulls.

GBPUSD Caught in Range

Looking ahead to the coming month of January, the first couple of weeks would be crucial to determine the short term trend for the pair. The dollar has been on the backfoot to close the previous month but the data from the US would determine whether this trend would continue. The move higher towards the 1.35 region and beyond has happened on a low volume and it remains to be seen whether this would continue in the coming weeks. Normally, the moves made on low volume are reversed but this time, the dollar appears to be very weak even though the Fed could be heading towards 3 rate hikes for the year. Only some strong economic data is likely to assuage the feelings of the dollar bulls and they would hope that it would come soon. If the dollar strength picks up pace, then we should see the pair below 1.35 in no time and heading towards 1.32.

USDJPY

We are seeing the range tightening in this pair over the last couple of months. The worser situation was over the last month as the range for the entire month was less than 250 pips. For a pair where the daily range is around 100 pips usually, it is a big climbdown to see the pair have a 250 pip range over the course of a month. A major part of this could be the fact that it was the end of the year and with many of the traders going off on their holidays, the liquidity had dried up and with the lack of fundamentals to drive the prices, the pair settled down into a consolidation phase. The Fed hiked the rates at the beginning of the month but the bearish outlook that they presented negated the effects of the rate hike and kept the dollar under check during the course of the month.

For the following month of January, we are likely to see even more ranging as the markets turn choppy during the first couple of weeks of the month. This is the time that the traders return back from their holidays and this helps the liquidity to pick up. As they try to establish their short and medium term positions, the market is likely to get pulled this way and that and this causes choppiness and uncertainty. We believe that the pair is in a bigger range between the 115 and the 110 levels and unless these levels are broken, we are unlikely to see any major moves in this pair.

AUDUSD Tears Higher

The AUDUSD pair has a tendency to be influenced to a large extent by the prices of commodity like gold, silver, iron ore etc. The reason for that is a large amount of experts of these commodities happen from Australia and it is very important for the Aussie economy that these commodities continue to be in demand across the world so that it would be helpful for their economy. True to this line of action, we saw the Aussie pick up pace towards the end of December as it woke up from its slumber and used the weakness in the dollar to move higher during the last half of the month. We saw the prices of various commodities like gold, iron and copper also move higher during this period and a combination of this, along with the weak dollar, helped the AUDUSD pair to move higher and close the month near the highs of its range.

This closure at the highs of the range helped to fuel the strength of the bulls who would be looking forward to continuing this in January as well. As mentioned above, the first couple of weeks of the coming month would be important to see how the traders and the market react to the weakness of the dollar and whether the trend of weakness continues in the coming month or whether there would be a reversal. The data in the first week of January would largely determine this and set the tone for the rest of the month.