Forex & CFD trading should experience a great boost in 2018 as there are many new trends and potential trading opportunities waiting for us. Forex in 2018 is traded 24 hours, five days a week anywhere in the world, except for weekends. It starts in New Zealand and Sydney, Australia, followed by Tokyo, Hong Kong, and Singapore, later continues in the European markets, and finishes in the U.S. Now, it's time for the Western Pacific countries to open their doors once again. This market never ceases during the week.
The great advantage of the Forex market in 2018 is that traders are able to trade wherever they want with MetaTrader 4 and the new revamped MetaTrader 5. Using online services and tools, they can trade from home or any other place. By using MT4 and MT5 Supreme Edition, traders will be assisted by the software in executing, managing, or terminating their positions.
Another big change in 2018 for Forex, CFD, and commodity traders is the shift to the MT5 platform.
What are the main market trends to watch for in 2018? Read on to find out!
MT5 is the Present and the Future
MetaQuotes is obviously emphasising the use of MT5, and the industry will slowly shift to the MT5 trading platform. The shift was announced in 2016, when MetaQuotes fortified its stance on the MT5 platform, which it intends to focus on more extensively. "We do not expect to see any developments to come out of MT4 ever again. Given this, MT4 is slowly dying out," Anthony Papaevagorou, Head of Sales at MetaQuotes, added.
We already covered this matter, and in 2018, we should see a major shift of focus from MT4 trading to MT5 trading.
Fed Hike and Treasuries in 2018
In 2018, we might expect two rate hikes according to Philadelphia Fed President Patrick Harker. He announced that the Central Bank should approve just two interest rate hikes in 2018, compared with the three currently forecast by the Fed. Regarding Fed Hike and Treasuries, we usually look at the 12-month Treasuries. It is the equivalent of the Fed Cash rate due to its low-risk investment being a Govt Bond. If, for example, Treasuries are 0.50% and the current cash rate is 0.25%, the market expects the cash rate to move to 0.50% for the year.
AUD Correlation with Risk-On Continues in 2018
When it's a risk-on environment, commodity prices tend to increase, and traders usually buy the AUD due to that factor. When commodity prices go up, so do stock markets, and there is demand for positive swaps on the AUD pairs as opposed to the JPY. When its a risk-off environment, usually the opposite occurs, and, as a result, the JPY appreciates as foreign flows from Japan are repatriated back to their local currency. The AJ is the top pair to trade during the bullish/bearish momentum on equities. The best correlation with the JPY pairs, as our analyst Nenad Kerkez suggests, is the USDJPY vs Nikkei; and the AUDJPY vs the ASX200.
Brent and Oil in 2018
More recently, a strong price growth has occurred due to the change in the OPEC policy. Moreover, during 2014 and 2015, the OPEC deliberately maintained their market share forcing the Oil price lower to destroy any competition, mainly from the fracking techniques that caused a rise in supply of Oil from the United States, Canada, and other countries. The intention was to force many of these privately owned oil companies into a state of insolvency, whereby the Governments would not bail them out.
On that basis, as the prices fell heavily, many companies would either go bankrupt or have to reduce their oil output to their low-cost operations; hence, total oil production in the West. By doing so, the market share of the OPEC, and especially of Saudi Arabia, would increase, or at least be sustained to the levels prior to such fracking technologies.
However, it failed mainly due the hedging plans, whereby the US and Canadian oil companies could have managed a low price. As a result of the reduced Oil prices, many of the OPEC nations had to issue bonds to finance their social programs and other state expenses. As this problem was echoed in other OPEC member states, this placed pressure on the Saudis to change policy. As a result, a change in the OPEC production policy came in 2016 – together with Russia, also an important major producer of Oil, it has been agreed that the OPEC will deliberately reduce production to create artificial shortages in the market and attain higher prices.
Following the OPEC decision to cut production, we have seen a strong rise in Oil prices through to date. I believe this price strength should continue in the near future and until the next financial crisis. It is no surprise that during the risk-on sentiment, price increases occur in Commodities such as Oil. I think that USD75-80/bbl would be likely price targets for WTI at some stage in 2018.
It is important to note that based on its historical relationship, when Oil prices rise, the USD/CAD falls and vice versa: when the price of oil goes down, the USD/CAD rises.
Canadian economy is highly dependent on its exports, as its majority goes to the United States. For this reason, the USDCAD can be greatly affected by how American consumers react to changes in Oil prices.
When the U.S. demand increases, the price of oil rises and the price of the USD/CAD goes down. When the U.S. demand falls, the price of oil decreases and the USD/CAD price rises.
The Oil price has dropped a lot in the past years, but the recent price spike due to the US vs Russia conflict strengthened the price.
The Yen as a Risk Gauge Should Continue in 2018
The Japanese do massive carry trades, by borrowing cheaper and investing abroad in other markets for returns during the risk-on sentiment. During the risk-off environments, when stock markets are starting to drop, they sell risky assets abroad, and return foreign monies into the JPY, creating demand and strength. They also pay off the JPY loans, reducing the money supply of the JPY. In turn, this causes further appreciation in the JPY.
The Yen strength can be measured by the intermarket correlation:100% risk-off sentiment; Gold up; Commodity prices down; Equities down; The Yen strengthens as a result.
More Regulations on Bitcoin and Cryptocurrency Markets in 2018
Bitcoin needs to be treated as a currency. We might expect more regulation on this subject. It is a defensive asset, but it has been rising in a rising stock market. People are investing in it, which is a bit speculative. The other problem with Bitcoin concerns those using it as a trade/service currency. When the price of Bitcoin is rising, it's harder to get paid in fractional units of a Bitcoin. This, in turn, creates forks. Forks are like a two-sided coin. On the one hand, they increase the number of available coins, which depresses the price since price = market cap/number of coins.. At the same time, for Bitcoin to replace the USD as a global currency, we would need to look at the value of Money Supply M2 just by way of example, which is valued around USD13.8Trn (as of Jan 2018). This would mean that Bitcoin, at its current circulation of 16.8Mn Bitcoins, would need to rise to a price of USD816,968 per Bitcoin if it was to overtake USD M2 Money Supply in value terms.
Brexit Negotiations 2018
A lot of things may happen. A shift in the public mood regarding Brexit? Another general election? So far, the government has insisted that the UK might leave the EU on March 29 2019, and it seems we might be riding some great trends in the GBP currency basket in 2018 as well. If the deal is struck between the EU and the GBP, the GBP will probably be bought on dips.
Presidential Elections in Russia 2018
Vladimir Putin is expected to win yet another round of presidential elections. A full, six-year term until 2024 would make his 24-year tenure (including his years as Prime Minister) the longest by a Russian leader since Joseph Stalin, who ruled the country for 29 years.
If sanctions against Russia hadn't been lifted, it could've been bad for the rouble, and the USD/RUB could've appreciate. The slowest inflation in Russia's modern history has put its real rates among the highest in developing nations no matter the rate cuts in 2017. But Putin is not a fool and might surprise the market with the cryptorouble. The goal with the official Russian cryptopolicy is to stamp out the illegal activities , such as money laundering, terrorism financing, human trafficking, while simultaneously using the technology to modernise Russia's internal capital handling capabilities. According to the source, the Financial Times already reported Moscow officials saying that Putin "has commissioned work on establishing a cryptocurrency."
NIKKEI (JP225) and the GBPJPY in 2018
As the Nikkei has a number of companies that export all over the world, it is positively correlated to the JPY crosses; this is because of their unhedged exporters. It is likely to increase the company earnings of unhedged Japanese exporters if the JPY becomes cheaper, as the Japanese exports become cheaper for foreign customers. This is also why over the several past decades, Japan's balance of trade is positive, meaning its a net exporter.
Bank of Japan's massive quantitative easing programme has had an adverse effect on Japan's debt/GDP ratio, near a whopping 250%, being by far the largest in the World. Given the fact that Japan has an ageing population that is expected to shrink by one third by 2065, the future generations will be expected to work longer and retire later, as they have to finance the massive debt incurred by the Governments and the BoJ. This might easily introduce downside risks for the Nikkei and cause problems with the JPY. Considering the excessive money printing by the BoJ, this can cause a devaluation of the JPY, but in the case of bad loans, this may also destroy the money supply, and, conversely, strengthen its currency at the same time.
The US and China Trade War in 2018
According to express.co.uk, the US and Chinese relations are on the brink of a disastrous trade conflict as a series of explosive documents were delivered to the White House. But will it happen? Will the US impose sanctions on China? To operationalise it, one would have to screen every entity in a banking trade when a loan is a foreign currency or has a foreign entity using a sanction checker for sanction entities. It creates so much overhead and processing. You get every entity name in the loan deal, third-party entities, all of them. The Banks usually have a database for all trades and those entities listed for each trade are scanned overnight against the global sanctions lists. The Yuan is pegged to the USD, and the Chinese still have plenty of foreign reserves. The U.S. import too much from China plus China owns the US debt. It means that the latter will get sold. China fixes the rate and has been doing it for ages. It is called a dirty float, i.e., when a Central Bank intervenes to protect the currency.
The IMF might put pressure on China to slowly make it a clean/free float against the USD. China artificially keeps its currency low for trade, but they will allow it to go "free". When they turn to the consumption model, it might appreciate rapidly and suddenly. China might become the major economy of the world. Will it happen in 2018? We'll see. At this point, it's just a probability.
In terms of trading, you should definitely pay attention to the HSI50 index available on the trading platforms.
Trading Strategies in 2018
The expected additional volatility in the financial markets in 2018 might be beneficial if we are on the right side of the trade.
Markets to trade: the EURUSD, the GBPUSD, the USDJPY, the GBPJPY, the JP225 (Nikkei)
Time frame: Daily
Indicators:Volumes SMA 5 overlayed on the top of volumes on MT4 Parabolic Sar (PSAR) Admiral Pivot indicator set on Weekly
Source: EUR/USD Daily Chart, Jul 2017 - Jan 2018, Admiral Markets MT5 platform
Buy trade: The candle goes up, above the PSAR dot while the volume is above the 5 SMA
Sell trade: The candle goes down, below the PSAR while the volume is above the 5 SMA
Source: EUR/USD Daily Chart, Jul 2017 - Jan 2018, Admiral Markets MT5 platform
Stop-loss: 15 pips below the PSAR for long trades and 15 pips above the PSAR for short trades
Target: Admiral Weekly Pivot and Trailing stop after 50 pips of profit. The Admiral Pivot indicator is a part of the Supreme Edition add-on and can be activated both on MT4 and MT5 accounts.
How to Set Up MetaTrader Supreme Edition The first step is to download MT4/5 Supreme Edition and install it on your platform. The second step is to use the indicators provided by the MT4SE or MT5SE package on your trading platform and place it on your charts.
After completing these simple steps, your screen should look similar to this:
Source: EUR/USD H1 chart, Admiral Markets MT5SE with Admiral Pivot Indicator, Jan 2018
This means you have a proper MetaTrader setup for major events and the template has been installed correctly.
Trading Strategy for Important Events in 2018
As with the Brexit and US elections in 2017, trading during important events in 2018 requires a specific strategy and mindset, as the sentiment may change with order flows.
Check the economic calendar for the fundamental news and world events that you want to trade.
When you choose the news/events that you're going to trade, all you need to check is:
Each of the three aspects is important. Before the important news hits, you are advised to monitor the price. Follow these steps for chart setup:
Once we determine the setup candle, we place Buy and Sell-Stops.
Source: EUR/USD H4 chart, Admiral Markets MT5SE with Admiral Pivot Indicator, Jan 2018
Source: EUR/USD M15 chart, Admiral Markets MT5SE with Admiral Pivot Indicator, Jan 2018
Once the entry has been triggered, we zoom in to a 15-minute time frame to effectively manage the trade.
Don't Forget the Volatility Protection Settings in 2018
Volatility is a measure of speed and magnitude of price changes that can witness unpredictable movements during events and economic data releases. We expect high volatility in 2018.
Traders need to be prepared to face periods of high market volatility when important political, economic, or financial events take place in 2018. Why?
Major events, such as the Brexit referendum vote or the US Presidential Elections, always have the potential to create a paradigm shift in the way traders view and analyse the world. The uncertainty surrounding whether the world makes a fundamental shift or stays the same is one of the main reasons that market volatility exists in the first place.
The Volatility Protection Settings (VPS) offer a wide and more sophisticated range of trading orders and settings.
Source: Admiral Markets
The key features of the VPS help traders in various ways:
One of the options that could help during extreme volatility is cancellation of pending orders on price gaps.
Sources:https://www.metatrader5.com/en/news https://www.financemagnates.com/forex/technology/metaquotes-emphasizing-mt5-development-as-mt4-slowly-dying-out/ https://www.cnbc.com/2018/01/05/feds-harker-pushes-for-only-two-rate-hikes-in-2018.html http://www.dailymail.co.uk/news/article-5068373/Brexit-date-set-leave-hour-early.html https://news.bitcoin.com/putin-cryptoruble-sanctions-bank-of-russia-skeptical/ https://tradingeconomics.com/japan/government-debt-to-gdp http://www.telegraph.co.uk/news/2017/04/11/japans-population-shrink-third-2065/ https://www.express.co.uk/news/world/904984/us-china-trade-war-tensions-explosive-documents https://www.thebalance.com/yen-carry-trade-explained-pros-cons-how-it-is-today-3305971 http://lexicon.ft.com/Term?term=carry-trade https://tradingeconomics.com/united-states/money-supply-m2 https://coinmarketcap.com/all/views/all/