Littlefish FX Analysts
Littlefish FX
As 2016 opens up I want to take this opportunity to review the major trading themes in play as we head into 2016. As we finish digesting our festive fun, now is a great time to take the pulse of the major trading themes dictating market action as we open the books for the year.
1. CHINA
As traders returned to their desks today one of the major themes from 2015 appears to be rolling over into 2016. In the late summer of 2015 concerns about the Chinese growth outlook took center stage, post the PBOC intervention in FX markets to defend the Yuan. A major PMI miss overnight has rocked risk sentiment and has traders starting the year looking for safe haven protection of the JPY.
2. FED
After the much anticipated rate hike from the FOMC at the back end of 2015, policy divergence is set to once again take center stage as trade gets under way in 2016. Attention now turns to to the rate of potential rate increases in the US, Fridays Non Farm payroll release will set the tone for expectations of the next move, a solid number will garner support for another increase an support USD
3 EU
Commodity price declines are likely frustrating the ECB Chief Draghi, the illusive 2% inflation target has the market positioned for further easing from the ECB, ahead of the Fridays Non Farm Payroll data, the market will get a raft of Eurozone inflation data this week, traders will be eyeing this data closely as sustained weakness in this data will likely see players add to EUR shorts.
4. BREXIT
One of the many political curve balls for the year ahead will be the guessing games regarding the timing and outcome of the United Kingdom referendum regarding it inclusion in the European Union, the market believe the referendum will come in the summer of 2016, with such uncertainty looming regarding the Yes/No vote on inclusion and the potential impact on UK growth prospects via trade, this dynamic likely sees the BOE sidelined until later in the year.
5. BOJ
Out of the G7 major central banks the market believes that the BOJ is the least likely to be a major actor in 2016, after leading implementing the three arrows of Abenomincs, markets sense that the BOJ are unlikely to enact further easing at this stage especially as the FED have made their initial normalization move which likely keeps the USDJPY broadly supported. The risk to this view will be an escalation in risk aversion which may concern the BOJ.
6 US PRESIDENTIAL ELECTIONS
As we finally enter the home straight on the protracted US political cycle attention will begin to shift towards serious contenders for the party nominations ahead of national Presidential Elections later in the year. This election cycle the market has to deal with the possibility of tightening monetary policy in the form of further Fed rate hikes. Since 1980, we have seen the 1984, 1988, 2000 and 2004 election years accompanied by the commencement of a rising Fed rate cycle. Interestingly, 1984, 2000 and 2004 were essentially frustrating range-trading years, while 1988 was spent recovering from the October 1987 market crash.
7 EMERGING MARKETS
While the US maintains a slow and steady rate increase policy it is likely that Emerging Market FX continues to feel the brunt of the USD bid, the challenge for Emerging Markets is servicing increasing debt levels which are principally priced in USD, this scenario would be exacerbated by G7 inflation increases that dont necessarily translate into external demand which will further undermine Emerging Markets.
8 COMMODITY CRASH
One of the major drivers of FX trends in 2015 was the precipitous decline in commodity prices from Crude to Copper the commodity sector was hammered last year and this had a direct read through to commodity currencies AUD, CAD, BRL and MXN which offered some of the best trend opportunities in 2015, with China growth concerns front and center again commodities are of to a soft start in 2016 and traders will look to reposition for trend continuation should risk aversion continue to develop.
9. GEO POLITICS
Last year markets were once again reminded of the significant Geo Political risks that are on the radar, the attacks in Paris by ISIS were a harrowing reminder of the radical undertones that persist in the Middle East. Overnight Geo politics are once again at the top of the tape with Iran and Saudi Arabia tensions heightening due to Saudi Arabia executing an Iranian cleric over the weekend has led to an uptick in regional political tensions and put a mild bid under crude.
10. JANUARY SEASONALS
As we start 2016 I always like to cast a quick eye over any seasonal trends that are worth keeping in mind as the year kicks off. For FX traders it is noteworthy that December is historically the most bullish month for the EUR since inception. With a decline this December as market digested the first rate move from the FED, the EUR has started January on the front foot although historically January has been the weakest performing month for the EUR since inception.
1. CHINA
As traders returned to their desks today one of the major themes from 2015 appears to be rolling over into 2016. In the late summer of 2015 concerns about the Chinese growth outlook took center stage, post the PBOC intervention in FX markets to defend the Yuan. A major PMI miss overnight has rocked risk sentiment and has traders starting the year looking for safe haven protection of the JPY.
2. FED
After the much anticipated rate hike from the FOMC at the back end of 2015, policy divergence is set to once again take center stage as trade gets under way in 2016. Attention now turns to to the rate of potential rate increases in the US, Fridays Non Farm payroll release will set the tone for expectations of the next move, a solid number will garner support for another increase an support USD
3 EU
Commodity price declines are likely frustrating the ECB Chief Draghi, the illusive 2% inflation target has the market positioned for further easing from the ECB, ahead of the Fridays Non Farm Payroll data, the market will get a raft of Eurozone inflation data this week, traders will be eyeing this data closely as sustained weakness in this data will likely see players add to EUR shorts.
4. BREXIT
One of the many political curve balls for the year ahead will be the guessing games regarding the timing and outcome of the United Kingdom referendum regarding it inclusion in the European Union, the market believe the referendum will come in the summer of 2016, with such uncertainty looming regarding the Yes/No vote on inclusion and the potential impact on UK growth prospects via trade, this dynamic likely sees the BOE sidelined until later in the year.
5. BOJ
Out of the G7 major central banks the market believes that the BOJ is the least likely to be a major actor in 2016, after leading implementing the three arrows of Abenomincs, markets sense that the BOJ are unlikely to enact further easing at this stage especially as the FED have made their initial normalization move which likely keeps the USDJPY broadly supported. The risk to this view will be an escalation in risk aversion which may concern the BOJ.
6 US PRESIDENTIAL ELECTIONS
As we finally enter the home straight on the protracted US political cycle attention will begin to shift towards serious contenders for the party nominations ahead of national Presidential Elections later in the year. This election cycle the market has to deal with the possibility of tightening monetary policy in the form of further Fed rate hikes. Since 1980, we have seen the 1984, 1988, 2000 and 2004 election years accompanied by the commencement of a rising Fed rate cycle. Interestingly, 1984, 2000 and 2004 were essentially frustrating range-trading years, while 1988 was spent recovering from the October 1987 market crash.
7 EMERGING MARKETS
While the US maintains a slow and steady rate increase policy it is likely that Emerging Market FX continues to feel the brunt of the USD bid, the challenge for Emerging Markets is servicing increasing debt levels which are principally priced in USD, this scenario would be exacerbated by G7 inflation increases that dont necessarily translate into external demand which will further undermine Emerging Markets.
8 COMMODITY CRASH
One of the major drivers of FX trends in 2015 was the precipitous decline in commodity prices from Crude to Copper the commodity sector was hammered last year and this had a direct read through to commodity currencies AUD, CAD, BRL and MXN which offered some of the best trend opportunities in 2015, with China growth concerns front and center again commodities are of to a soft start in 2016 and traders will look to reposition for trend continuation should risk aversion continue to develop.
9. GEO POLITICS
Last year markets were once again reminded of the significant Geo Political risks that are on the radar, the attacks in Paris by ISIS were a harrowing reminder of the radical undertones that persist in the Middle East. Overnight Geo politics are once again at the top of the tape with Iran and Saudi Arabia tensions heightening due to Saudi Arabia executing an Iranian cleric over the weekend has led to an uptick in regional political tensions and put a mild bid under crude.
10. JANUARY SEASONALS
As we start 2016 I always like to cast a quick eye over any seasonal trends that are worth keeping in mind as the year kicks off. For FX traders it is noteworthy that December is historically the most bullish month for the EUR since inception. With a decline this December as market digested the first rate move from the FED, the EUR has started January on the front foot although historically January has been the weakest performing month for the EUR since inception.
All comments, charts and analysis on this website are purely provided to demonstrate our own personal thoughts and views of the market and should in no way be treated as recommendations or advice. Please do not trade based solely on any information provided within this site, always do your own analysis.
Editors’ Picks
EUR/USD consolidates around 1.0900, bullish bias remains ahead of key US data
The EUR/USD pair is seen consolidating its strong gains registered over the past two days and oscillating in a narrow band during the Asian session on Tuesday. Spot prices currently trade around the 1.1900 mark, just below an over one-week high touched the previous day.
GBP/USD tilts bullish as markets barrel toward mid-week NFP print
GBP/USD is holding a broader bullish structure on the daily chart, with price trading well above the 50 Exponential Moving Average at 1.3507 and the 200 EMA at 1.3310, confirming the intermediate uptrend that has been in place since the November 2025 low near 1.2300.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
AUD/USD consolidates below 0.7100 on broad US Dollar weakness
AUD/USD is consolidating below three-year highs of 0.7099 after a strong break above the 0.7000 psychological level for the first time since February 2023, supported by the Reserve Bank of Australia's hawkish monetary policy stance and broad-based US Dollar weakness.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Gold: Will US Retail Sales data propel it above $5,100?
Gold hovers below weekly highs of $5,087 early Tuesday, await US Retail Sales data. The US Dollar enters a downside consolidation phase amid persistent Japanese Yen strength and worsening labor market. Gold settled Monday above $5,000, now looks to take out $5,100 amid bullish daily RSI.
Top Crypto Gainers: World Liberty Financial, MemeCore and Quant gain momentum
World Liberty Financial, MemeCore, and Quant are leading gains over the last 24 hours as the broader cryptocurrency market stabilizes after last week’s correction. Still, the technical outlook for altcoins remains mixed due to prevailing downside pressure and vulnerable market sentiment.
The market is buying everything again but is it dancing on a borrowed floor
The market has a short memory and a fast trigger finger. Last week’s liquidation barely cooled before risk came roaring back, pushing the S&P toward record territory and reinstalling Big Tech as the engine of choice. This is not discovery. It is re exposure.
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