USD poised for biggest gains, GBP could be worst-performing currency on Brexit heat up

A volatile and wild 2016 is coming to an end and at FXStreet we are already looking forward to what 2017 may bring to the markets, which doesn't seem to be less interesting from a trading point of view. To get a glance on the upcoming trends and developments for the markets, we have asked our best contributors ten questions to help us understand what may be ahead. Here are the views from Matt Weller, Senior Market Analyst at Faraday Research: 

1. What will 2016 be remembered for?

While there were plenty of memorable moments this year, 2016 was the year of the populist revolt above all else. From Brexit to Trump to Italy's constitutional referendum, the masses made their distaste with the status quo establishment heard through the ballot box, regardless of the consequences. The reverberations from these decisions will be felt for years and decades to come.

2. Which were your most important achievements this year?

This one's easy: I completed the grueling Chartered Financial Analyst (CFA) program, earning my charter. After devoting about 1,000 hours to studying over the last couple years, I've been enjoying some time to rediscover old hobbies over the last couple months. That said, I'm never content to rest on my laurels, so I'm already starting to look for a new challenge for 2017.

3. What emerging trends or issues should traders prepare for in 2017?

I truly believe that we've only seen the beginning of the aforementioned "populist ballot box revolt." 2017's epicenter for political risk will clearly be Europe. The coming year will bring a presidential election in France, where the far-right National Front party has been gaining ground of late, as well as national elections in Germany and the Netherlands. These represent three of the largest and most important economies in Europe, and depending on how these votes go, political uncertainty could throw the region back into recession in 2017.

4. Which will be the best and worst performing currencies in 2017 and why?

Among the major currencies we track, the US dollar seems poised for the biggest gains in 2017. A long-awaited fiscal stimulus boost, through both tax cuts and infrastructure spending, looks likely under President Trump and the Republican-controlled Congress. With fiscal policy likely to take the pro-growth mantle from monetary policy, the Fed should (finally) be free to hike interest rates more aggressively in 2017, boosting the dollar.

As for the worst-performing currency, we're keying in on the British pound. So far, the UK economy has enjoyed the benefits of the Brexit-induced pound weakness along with legacy access to European markets. Brexit negotiations are poised to heat up later this year, and the UK's market access will be under threat, or at minimum, a massive expense for the populace, which could drag the UK economy into a recession of its own.

5. Which under-the-radar currency pair do you expect to make a big move in 2017?

Given our concerns about the political situation in Europe and generally bullish outlook for the US, we'll be keeping a close eye on EUR/CAD. The US is Canada's largest trading partner, and therefore the economy of "The Great White North" will be one of the biggest beneficiaries if US economic growth accelerates as we anticipate. The recent cuts in global oil production could be icing on the cake, supporting the price of Canada's most important export.

6. Which macroeconomic events will have the biggest impact on the FX markets in 2017?

Beyond the occasional election (noted above), the Federal Reserve's "major" quarterly meetings (when members' economic projections are released and Fed Chair Yellen gives a press conference) could all be live next year. Unlike in 2016, where the Fed's plans were already known well in advance (hold, hold, hold, and hike), an increase in inflation could leave much more optionality, and therefore market volatility, around the meetings of the world's most important central bank.

7. Which asset class will cause the next financial crisis?

I believe it is counter-productive to spend too much time devoted to predicting the timing, much less the specific causes of financial crises. Typically, the signs of stress in the market will appear long before the proximate cause can be pinpointed, so that's what I'll be watching most closely (see below).

8. What will you be focused on next year?

I’ll be focused, as always, on the cues the market gives me. I know that at least some of my predictions for 2017 will prove to be incorrect, so if I see new trends developing or key technical levels giving way, my views and positions will evolve to stay in alignment with the dominant market forces. Unlike with politicians, "flip-flopping" on previously-espoused views is  a beneficial trait, if not an outright requirement, to be a successful trader.

9. Who are the people to watch in 2017 in terms of impact on the industry?

Not to toot our own horn too loudly, but we have a tremendous team of experienced traders at Faraday Research and a couple of big new developments planned for 2017 – stay tuned!

10. What are your New Year's resolutions?

I feel that the best way to develop a deep, broad knowledge base is through long form reading. Therefore, my goal for 2017 is to read 50 books. I'm on track for about 30 books this year, despite devoting about 15 hours a week to CFA studying for the first half of the year, so the goal should be achievable, assuming I'm able to dedicate myself to it!