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Forex Monthly Outlook – December 2017

Colin First

The pound had a generally positive month and it closed the month of November near the highs of its range which should open up even higher prices in the coming month. The fact that the last couple of months have had similar lows should be a positive technical sign for those who trade based on technicals and that adds to our belief that the GBPUSD pair would move higher in the coming month. There were a couple of important events that dominated the prices of the pound during the month of November. The first was the hike in the rates by the BOE which was quite expected but this led to the pound moving lower after the announcement as the forecast for the future rate hikes were not very hawkish. There were concerns over the inflation and this led to the belief that future rate hikes would be delayed to a great extent.

GBPUSD Moves Higher on Deal Hopes

This led the prices lower but the pound recovered as the incoming data  continued to show some strength. As we entered into the middle of the month, we also got reports of some significant progress being made in the Brexit talks and the chances for a deal there improved. The pound had been under pressure due to reports that said that the UK could walk out of the talks with no deal but as the month rolled on, reports said that a deal is almost confirmed with the announcement of the same expected in a week or two. This helped the pair to push through the 1.35 region.

GBPUSD Weekly

Looking ahead to the month of December, we expect this bullishness to continue in the short term as the details of the deal are revealed. The signs are clearly bullish in the short term but the drying up of liquidity as we enter the second half of the month could turn out to be a dampener. We will also be seeing a rate hike from the Fed during the month but that is already priced into the market and hence we believe that the GBPUSD pair is likely to target 1.38 and further in the coming month.

USDJPY Continues in Range

The USDJPY pair closed the month slightly lower as the pair went into a consolidation mode and ranged between the 110 and 115 regions. This is the range that we have been seeing in the pair for the past couple of months and with the focus shifting away from Japan and the yen during the month of November, there was all the more reason for the pair to consolidate. We also did not seen too much or strength or weakness in the dollar which helped it to hold steady. One of the reasons for that was the lack of fundamentals and much of data during the month and this led to the dollar to trade in a steady manner during the course of the month and this was reflected in the USDJPY pair as well.

USDJPY Weekly

Looking ahead to the month of December, we do not expect too much of a change in this price pattern. The dollar is likely to remain buoyed during the month as the Fed is likely to hike rates during this month. This is already priced into the markets and hence, except for a small reaction which is likely to last for the short term, we do not expect the dollar to gain too much from this news. Also, with the liquidity drying up towards the end of the month of account of holidays, we expect the volatility to also become low during this period which should ensure that the pair continues to trade within the range set over the last couple of months.

AUDUSD Under Pressure Due to Falling Commodity Prices

The AUDUSD pair closed the month lower and this is something that we had pointed out in our previous monthly forecast as well. With the fundamentals over the interest rates getting changed, we expect the commodity prices to be under pressure in the medium term and this is likely to affect the Aussie and keep it under pressure during this period. Over the last month, we saw the same situation as gold and other commodities continued to remain under pressure due to lack of demand this pushed the Aussie lower during this period though the move stopped just short of the strong support at the 0.75 region.

AUDUSD Weekly

Looking ahead to the coming month of December, we expect more of the same as we do not expect the commodity prices to pick up too much in the following months. This is likely to affect the Aussie and we should see the 0.75 region coming under pressure once again. The fact that we are heading to the end of the year could act as the saving grace for the Aussie in the short term but it should be a matter of concern for the RBA and they would like to do something quickly to ensure that the fall in the Aussie is arrested in the coming months.

This article was originally posted on FX Empire

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