'Fed to rein back on expectations of tightening, could constrain USD strength in 2016' - Richard Perry, Hantec Markets

RICHARD PERRY
PROFILE
• Current Job: Market Analyst at Hantec Markets
• Career: Graduated from Reading University. Has worked in the city of London for 13 years. Can regularly be seen commentating on CNBC and various news websites such as Reuters and Market Watch.

View profile at FXStreet

Richard Perry has worked in the city of London for 13 years. Originally trained in the art of technical analysis, he has since developed to become a strategist with great experience of FX majors and equity markets.

Richard now provides research and strategy on Foreign Exchange, CFDs and Bullion for Hantec Markets’ clients. He is a graduate from Reading University, and has a distinction in the Society of Technical Analysts diploma and is also an MCSI.

There are clearly so many major market moving impacts that have happened over the past 12 months. Factors such as the historic introduction of QE by the ECB, the perpetual kicking the can down the road on a Grexit and of course the migrant crisis in the EU. However, undoubtedly the history books will look at the first rate hike in 9 years by the Fed as the big event that 2015 will be remembered for. The game of “will they, won’t they” has dominated the thoughts of traders throughout the second half of the year, with significant implications for emerging market currencies and economies. Without doubt the early part of 2016 will be dominated by how fast the tightening cycle will be.

From a work perspective, I have been proud of my public appearances at trade shows, and also my webinars as it is always enjoyable to interact with the individual traders who are genuinely impacted by my analysis. I am also planning some university seminars in 2016 which I am very excited about.

The issue of how traders are positioned as the major central banks diverge on monetary policy. The positioning in emerging markets will be crucial as the volatility is elevated.

The trouble with this question is that a pick for the best performing currency could easily end up becoming the worst, and vice versa. The BRICs have had a terrible 2015 and due to the dramatic fall in the oil price and continued economic contraction, the Russian Rouble has depreciated over 20% in (against the US dollar). However, if Russia can steady the ship then coming back from a low base, the Rouble could bounce considerably next year, especially if this is timed with a rebound in oil.

In a similar story to the Rouble, if the oil price can stage a recovery, then talk about future rate cuts from the Norges Bank will fade and the Norwegian Krone could be set up for a significant recovery.

For the Dollar, I feel that the Fed is going to have to rein back on expectations of the tightening and this could constrain the dollar’s strength in 2016. Away from the headline labor market improvements, with the US economic data underwhelming somewhat it will be interesting to see how this plays out for the Fed. Furthermore it will also be interesting to see how markets react to the decision by the PBoC to peg to a basket rather than the dollar. This is tantamount to a policy of tacit depreciation and is deflationary.

As we move towards the end of 2016 and the Fed has begun to hike rates, High Yielding debt is ringing some alarm bells. It is very early to be genuinely comparing this to the Asset Backed Securities meltdown of 2007/2008, but the recent spate of redemptions are a significant warning.

I will be monitoring the impact that the industrial sector recession in the US will have as a spill over into the wider economy. In the past 35 years Industrial Production has never gone negative without an accompanying recession in the US. Will this be the case again in 2016 and will this have an impact not only on Fed monetary policy but also the global economy? This is definitely something to focus on.

Central Bankers are still flying high in the charts of people to watch for the impact on the forex industry. Janet Yellen and Mario Draghi are obvious, whilst Mark Carney will impact too as the Bank of England toys with a rate hike. Furthermore, Thomas Jordan of the SNB has a habit of popping up when you least want him too as well. Perhaps a bit off-piste will be British Prime Minister David Cameron who could inadvertently induce a calamitous Brexit. 

I don’t do New Year’s resolutions, because they last about as long as a real Christmas tree in my centrally heated living room… However, for the sake of festivities I will say eat more, drink more, and work less. Oh no, hang on, whoops…