Last year was definitely a roller coaster for the Forex markets with several major changes. In the UK, they voted to leave the EU on the 23rd of June while the US had their general elections on the 8th of November. Both of these events shook the markets and their effects are still being felt to this day, but that was in the past. It’s now time to look at the 2017 political events to watch that may rock the Forex markets once again this year.
Of all the political shifts to expect this year, the largest number will come from Europe, which will cause movements in the euro and pound. The European continent is going to face several national elections, and there’s also the looming Brexit that has yet to be acted on.
Quick review of the Brexit
Before we look at the unique events of 2017, let’s revisit the Brexit for a while. As you may know, despite the referendum being months ago, the UK has still not officially left the EU. The referendum was only to get the opinion of the British people, but the actual Brexit will be done under Article 50 of the Treaty of Lisbon.
The current prime minister, Theresa May, has indicated that she would like to initiate Article 50 by the end of March this year, but it seems this may not be possible. First of all, the UK Supreme Court just made a ruling that Article 50 must go through parliament before it’s triggered. Second, there might be a case in the European courts of justice by Ireland and Scotland to try and revoke the Brexit. These member nations of the UK were not for the Brexit, and their cases might delay the action of Article 50.
Suppose all these issues were somehow overcome by April, what then? Well, it would start a series of negotiations between the UK and the EU on various issues including trade, tariffs, and free movement. This is expected to take 2 years, but some estimate it may take up to 5 years. Political analysts suspect the terms will be brutal as the EU tries to discourage other countries from leaving.
What all this means is, the ripple effects of the Brexit have not even begun, and you can expect to see a lot of movement on the sterling pound all through the next few years. It could even be advisable to set up some Google alerts because you don’t want to be caught off-guard when anything goes down.
French presidential elections
Away from the UK, other European countries will be hosting elections this year, and France is one of them. The first round of elections will be held on the 23rd of April, and a run-off on the 7th of May if there isn’t a majority. The top 3 parties are the Socialist Party who will decide on their candidate on the 29th of January, the National Front, and The Republicans. There are other minor parties in the race, but these 3 are the main contenders.
Among them, Marine Le Pen of the National Front is a reflection of Donald Trump during the US elections. This is because of her anti-establishment and nationalist remarks, even suggesting that France should leave the EU as well. Just like President Trump, she is also behind in the polls, but we have now learned not to trust pollsters after they got it wrong with the Brexit and US elections.
If she does win the elections, you can expect to see a lot of changes in France, and this will certainly rock the euro’s position on the Forex market. Even if she doesn’t, other candidates have also expressed Eurosceptic remarks, which means there is a very high probability of a Frexit in the works.
Germany federal elections
These elections will be held on the 24th of September, and the big question will be whether Angela Merkel retains her seat. She has been facing a lot of criticism over her stance on migration policies, and the general mood among the Germans is that they are not too happy about that. Again, we can’t trust the polls as much, and she just might make it back as chancellor.
However, the main effect of Germany’s elections will be on the European Central Bank’s (ECB) decision of quantitative easing. The ECB has decided to keep the interest rates unchanged for the rest of the year as it awaits Germany’s election results before making any changes, if any. Obviously, Germany is a major player in the EU and it is understandable that the ECB has to make decisions in consideration of Germany’s political environment.
In the meantime, we just have to wait and see what happens in the meantime because the French elections might spur the ECB into action. Nevertheless, you can expect a lot of movement in the euro in September, and be ready for some major moves.
Dutch general elections
The Netherlands shall be having their general elections on the 15th of March, and this too might cause an upset on the euro. In the overall picture, though, this is not expected to cause a major shift in the strength of the euro. Netherlands is not a major contributor to the general economy of the EU, but it is important to note nonetheless.
Meanwhile, in the US…
The 45th president of the US was sworn in last week, and we can only wait to see what he does now.
One thing’s for sure, though, the Federal Reserve is going to raise interest rates this year. The FED already bumped the interest rates last year a little, and clearly stated they were going to raise them even more. Coupled with Donald Trump’s plans to lower corporate interest rates and other nationalist policies, the US dollar is bound to be soaring this year. You can certainly expect that the US dollar is going to end the year on a high note.
As for the indices, the Dow Jones and S&P 500 are already trading at peak levels, with further rises expected as the year goes by. The same is true for US stocks, which were also rising, so there will be plenty of buying opportunities into American securities this year.
Around the world
Besides these 2 major economic zones, there are other areas to consider:
Iran presidential elections
Although Iran may not seem like a political giant, the results of the presidential elections are bound to cause a stir. The elections will be held on the 19th of May, and the main issue will be whether President Hassan Rouhani remains in power. Last year, a historic nuclear deal was reached that lifted most of the trade restrictions imposed on the country since 1979. This deal allowed Iran to export oil, and this contributed to the supply glut that caused oil prices to tumble to below $30 per barrel.
Now, with Donald Trump in power, he has threatened to scrap the nuclear deal. In fact, former president Barrack Obama had to pass the bill through executive order because most of the house did not support him. It is now a safe assumption to assume that Trump will reinstate the sanctions. Besides, Hassan Rouhani faces tough opposition back home by some who would also like to do away with the nuclear deal. This means that we could see Iran return to its former sanctioned state.
With reduced oil supply from the Middle East, we could see currencies of other oil exporters like Canada, Mexico and even the US itself strengthen this year. Long story short, the Iran elections and other related news are definitely something every Forex trader should keep an eye on because it could cause a stir worldwide.
Turkish constitutional referendum
Several amendments to the constitution of Turkey are expected to be decided upon on the 9th of April. The amendments will expand the powers of the president, and some say they push the country toward a dictatorship. The effects of the referendum can be useful to any trader who favors exotic currency pairs. Already, the Turkish Lira has been weakened by the political upheavals in the country after a failed coup, and there may be more to come. The economy of Turkey is not something to ignore, being the 17th largest in the world by GDP, and the effects of the referendum will be significant.
What else to look for
In times of political uncertainty, investors always look toward gold, and this could be the year when gold makes a comeback. Last year was not a good year for gold, but its demand rose toward the end. This has caused speculators to believe there is going to be even more demand for it, now that there is a lot of uncertainty in the markets. Investors are also keeping an eye on OPEC to see what measures they take to decrease or increase an output of crude oil.
All in all, there won’t be a shortage of drama in the financial markets this year, and we can expect a lot of action from these 2017 political events.