Currencies, Energy, Metals, and Cryptocurrencies Forecast for 2018
Another day of red for the cryptocurrencies, with Ethereum the only major to buck the trend as investors tread cautiously through the early part of the day. ·FX Empire
Colin First
Updated
The star of the markets over the last year has undoubtedly been the cryptocurrencies, though the risks and the returns involved in that industry may not be to the liking of many. It also remains to be seen whether we will see more of the same in the following year or whether the traditional financial instruments would get a chance to hit back in 2018.
Currencies – More of the Same?
The currency market did see its share of upheavals during the course of 2017. The euro continued to toss and turn but never toppled. The first half of the year was marked by the strength in the dollar which threatened to sink the euro to parity and below but it managed to rise back and looks as it will close the year pretty strongly near the 1.20 region. The pound struggled through the Brexit process and it still is not over as yet. The commodity currencies like the Aussie and the Kiwi have had their share of difficult times as the demand for commodities has reduced over the last few months and there are fears of a slowdown in China. The yen has been doing what it usually does, which is nothing much to write about.
Looking ahead to 2018, the currency market is likely to be dominated by the rate hikes from different central banks and the pace of each. The market expects 3 rate hikes from the Fed in 2018 and any number that is equal or more than that is likely to spur the dollar higher. The ECB has made it clear that QE would continue which should keep the euro under pressure, especially in the second half of 2018 as the dollar ticks higher. The pound is likely to get a lifeline towards the middle of 2018 as Brexit negotiations draw to a close and we get towards a deal. The pound is likely to be one of the strongest currencies around if the deal goes according to plan. We do not expect the yen or the commodity currencies to show too much of a strength in 2018 and we should see more of the same from them.
Energy Markets Get a Lifeline
The oil markets were thrown a lifeline in 2017 as oil producers made a decision to cut production as a means of pushing oil prices higher and for once, showed some unity and solidity in sticking to the decision. Though they have been divided politically, the threat of their economy falling apart as oil prices fall, had helped them to stick together during the crisis and they have been well rewarded as oil prices recovered from the low $40s during the middle of 2017 to reach close to $60 by the end of the year. Gas prices, though, seem to continue to struggle and even though the winter season is upon us, we are seeing that the demand for gas has not picked up by much while production continues to increase and place pressure on prices.
The outlook for 2018 does not seem to be too rosy though. Though oil prices are likely to be buoyed by the fact that producers have agreed to cut production until at least the middle of 2018, we are seeing the demand for oil becoming lesser. The production has been staying at the current levels but the demand has been becoming lesser and lesser as oil and gas are being replaced by alternate sources of fuel. This is likely to place pressure on prices. We do not expect oil prices to push much beyond the $60-$65 region and when the crack begins to appear among producers, then the production cuts are likely to give way and this is going to push prices lower during the latter half of 2018.
Metals – Future Doesn’t Look Too Shiny
The metals shone brightly during the first half of the year as the dollar was steady and the demand for metals was also higher than expected. This helped metals prices to go higher but by the events that happened in the second half of the year, it can be gathered that the move higher was more a reason for the big investors to dump their large holdings before the bearish fundamentals took over towards the end of the year. Those bearish fundamentals were in the form of interest rate hikes from several central banks around the world. The US, Canada, and the UK hiked rates and with the possibility of them hiking them again in 2018 very bright, the demand for gold and other precious metals became lesser. Bonds became more attractive and this placed a lot of pressure on metals.
We are likely to see more of this pressure in 2018 as the Fed is expected to hike at least 3 more times in 2018. This should lend a lot of support for the dollar and this has led to a fundamental change in the way that gold and other metals are viewed. There has also been a lot of talk about the economic slowdown in China which is likely to affect the demand of various metals and commodities and with several such fundamental challenges set to dominate the coming months, we do not see any major bullish run in the metals market in 2018.
2017 has been a landmark and breakthrough year of sorts for the crypto industry as a combination of rising prices and growing awareness has made a lot of people, right from the common man to the central bank leaders to sit up and take notice of them. This has had a snowball effect on the market leading to a flurry of activity with rising prices, more coins, more schemes, more exchanges, more blockchain based industries, more banning, more regulation and even more projects in the pipeline. It would not suffice this space to detail all the activities that have happened in this industry during 2017 but it can be summarised that there have been good and bad developments in this industry and it is here to stay for the long term.
2018 is likely to test the resilience of this market as it is easy to sustain interest when prices are rising and traders and others are being drawn in due to that. But as the market matures and prices rise, the growth will not be as easy and common as it has have been, that is when the real strength of the industry is going to be tested. We are unlikely to see bitcoins rise by several times as they did in 2017 and we believe that the market is only going to become bigger and more diversified and mature. That is when central banks and big funds begin to step in and lay down their rules. 2018 is likely to become a key period in that aspect. We will have to wait and see how the market, speculators, and traders cope with that.
