The FXTM Market Research team has compiled their final Market Forecast for 2017, it takes a look at how the third quarter unravelled and what it might all mean for Q4.

Download the forecast for Q4 2017 and read about:

• The ongoing battle between the bulls and bears for EURUSD.
• Brexit uncertainties to continue impacting the Pound.
• Political risk to likely remain as a key driver in USDJPY.
• Gold remaining sensitive to US interest rate expectations.
• Likelihood of the recently increased volatility in the Chinese Yuan continuing.

And much more!

FXTM Official Website

And here is the interesting introduction of the report!

Will Q4 be the most volatile quarter this year?

The USD Depreciation

Geopolitical risks, monetary policies, inflation and global growth have been the major drivers of currency markets in the third quarter of 2017. During this time, the dollar depreciated against most major currencies. It fell 3.4% against the Euro, 2.85% against Sterling, and 3.82% against the Loonie. The weak performance of the U.S. dollar materialised despite the Fed continuing to tighten monetary policy, while the European Central Bank and Bank of England stood pat. This simply tells us the Fed’s plan of raising rates twice so far in 2017 and probably a third-rate hike in December, had been priced in early this year and were not enough to provide a boost to the dollar. Tightening monetary policy did not even send long-term interest rates higher, and U.S. 10-year Treasury yields, remained well below March highs of 2.6%. Without seeing a significant widening in interest rate differentials, investors will remain reluctant to bet on the greenback.

Who will replace Janet Yellen?

Optimism over Trump’s fiscal policy reforms boosted the dollar in the last three weeks of September, due to the belief that fiscal stimulus, will lead to tighter monetary policy and further increases in interest rates in the longer run. However, investors should keep in mind that the U.S. President does not want a strong currency. Higher rates and a strong currency will likely disrupt the U.S. administration’s economic policy plans, and this will probably result in Trump selecting a dovish Chair to replace Janet Yellen at the helm of the Federal Reserve.

Geopolitical Risks

Geopolitical risks provided a boost to precious metals in Q3, sending gold prices to their highest levels since Aug 2016. However, when looking at other asset classes, equities in particular, it seems that Geopolitics were widely ignored, because the world’s central banks were ready to pump in liquidity whenever needed. With most major central banks looking to tighten policies, investors will find themselves alone in their decision making. This will drive volatility higher and any policy mistakes will lead to wide swings in equity, fixed income, and currency markets.

Investors should be more concerned about the escalation of geopolitical risks between the U.S., North Korea and now Iran. Up until now, investors have pursued the “buy the dip” strategy when there has been an escalation in the war of words between the petulant leaders. It is impossible to predict when or if, the situation will spiral out of control, and to this end, we suggest caution in the final quarter of this year.

Inflation will remain a key economic metric to monitor. There is hope that inflation will return in advanced economies, particularly in the US. Central bankers still believe the old Philips Curve Theory, which suggests that changes in the level of unemployment have a direct effect on the level of price inflation, will work again. If the theory is proven to be wrong – and central banks tighten policies, it would lead to significant risks to the global economy.