The year that is about to end has been largely interesting as it included economic events not anticipated by many but also largely expected ones that got priced in well before they took place. While unexpected events gave many traders the opportunity to benefit from sudden and short-term volatility outbursts, rather expected events suited traders with medium and long term investment strategies.
Just days after ensuring the markets that keeping the 1.20-EUR/CHF-floor is an integral part of its monetary policy, the Swiss National Bank (SNB) in mid-January injected the financial markets with plenty of volatility after it unexpectedly drew back from that affirmation. The euro – swiss franc currency cap had been in effect since 2011 and its termination was viewed as quite a bold and surprising move by a relatively conservative bank as the SNB.
One of the first quarter’s economic highlights was the Eurozone’s fragile future as an entity due to the uncertainty caused by the negotiations between Greece and its lenders. The risk of Greece being detached from Eurozone became widely known as Grexit. The Greek economy was – and still is – in serious financial trouble while Greek policymakers were not agreeing on suggestions to reform. Their failure to present progress and setup plans to recover the economy was not providing its creditors with any substantial reasons to proceed with further loan pay-outs.
Even until July Grexit maintained its large share of economic headlines when Greek voters took to the polls to vote on the referendum on whether to accept the EU bailout terms and ongoing austerity. The vote came in with a resounding NO with more than 60% of voters supporting the Tsipras Government’s stance. The markets reacted heavily to the result with the EURUSD moved 1.1% lower and nosedived under the 1.10-mark.
Following several months of speculation around the subject, Federal Reserve (Fed) finally decided on an interest rate increase. The decision taken by the Fed this month was for an increase of the U.S. benchmark rate – the overnight interbank lending rate – from 0.25% to 0.5%, for the first time in almost a decade. The Fed decided that the time has come to put an end to a seven-year experiment of keeping interest rates slightly above the zero level, and published its three-year plan of gradual increases back to normal levels depending on how the markets will perform. Projections by several analysts anticipate the rate to climb up to 3.5% by the end of the three-year period, however nobody can really forecast any upcoming market-shaker that could force Fed to deviate from its plans.
Judging by the Fed’s plans, subsequent Federal Open Market Committee (FOMC) meetings within 2016 will be surrounded by speculation on the U.S. Central Bank’s next interest rate hike. This will most likely inject the U.S. dollar with volatility, however it will be interesting to see whether the dollar strengthens throughout the next year or whether it might halt due to underlying global market influences. The dollar’s gain in strength could also be a reason why the euro might remain under pressure during 2016, combined with any further introductions of quantitative easing measures by the European Central Bank (ECB). The Chinese economy could also remain under the spotlight during the new year as its slowdown in growth has already had a noteworthy impact on global markets. Get ready for a really exciting year for trading.