'Monetary policy divergence to be the source of volatility in 2016' - Yohay Elam, Forex Crunch

YOHAY ELAM
PROFILE
• Current Job: Analyst at Forex Crunch
• Career: Founded Forex Crunch. Has been in the FX markets since 2005. Speaker and host at FXStreet Live Video channel.

View profile at FXStreet

Yohay Elam has been into forex trading since 2005, and shares the experience and the knowledge that has accumulated. Like many forex traders, Elam has earned the significant share of knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always been of interest to him.

He founded Forex Crunch and is now one of the main speakers on our Live Video channel, hosting "Europe Live Market Open"every day from 8:00 to 9:00 GMT.

1. What will 2015 be remembered for?

2015 was a very exciting year with a common motive of "nothing lasts forever". This applies to the SNB's peg break early in the year, the lower bound of the ECB's rates, China's blockbuster growth and finally ultra-low US interest rates. It will also be remembered for the dollar's strength and higher volatility than previous years.

2. Which were your most important achievements this year?

My most important achievement as an analyst was regarding the persistent USD strength: I beat on this drum regarding the greenback's strength not only against the euro but also highlighted its strength against commodity currencies. However, I take more pride in providing readers with information about the SNB peg breakdown which not only rocked currencies but also the forex industry. I received many kind words for the coverage there.

3. What emerging issues or trends should traders prepare for in 2016?

The biggest trend could be a reversal of the dollar's strength once there is more certainty, but timing is everything and it could be very tricky. In this context, also a reversal in the fate of the euro could come to light and also here it could take time, probably much longer than for the dollar. The collapse in oil prices could certainly affect the world not only in a weaker Canadian dollar but perhaps with more changes in the Middle East.

4. Which will be the best and worst performing currencies in 2016 and why? 

The British pound could be the best performing currency due to rate hikes and currently these expectations are diminished. The New Zealand dollar could also stand out with stability in milk prices supporting a recovery. On the other end, we could see the Canadian dollar continue struggling on oil prices and the USD end the year lower than where it will start it.

5. Which under-the-radar currency pair do you expect to make a big move in 2016?

Following the previous point, GBP/CAD could be a big winner and also the Saudi Riyal, currently pegged to the US dollar, could experience a shock move down. The Argentinian peso has potential to move to the upside on political stability and the country's soft commodity exports while the Israeli Shekel could change direction and drift lower after many strong years.

6. Which macroeconomic events will have the biggest impact on the FX markets in 2016?

The pace of the US tightening cycle is the main source of speculation and impact: it is the world's most important central bank and it has already explained that this cycle is different. Also the ECB's policy, which could still see further easing, is still an unknown and a source of speculation, especially as the governing council seems more and more divided. Every rate decision is going to be a Draghi Drama. And while oil prices are not expected to move as much as in 2014, the ongoing situation of low prices is a macroeconomic event of its own.

7. Which asset class will cause the next financial crisis?

Elevated bond prices could be the source of the next financial crisis, once inflation begins rising. The pricing of low inflation / deflation forever, especially in the euro-zone, could result in a run to the exits and cause a crisis for money markets. I don't think this will happen in 2016, but too many negative yields for a long time could result in a negative outcome in 2017 or 2018.

8. What will you be focused on next year?

I will be focused on monetary policy divergence, the source of volatility and a main feature for 2015 as well as 2016. I will also keep an open eye for crises brewing under the radar: the Greek crisis is far from over as well as other sorts of discontent in the old continent. And as aforementioned, the persistently low oil prices are also a source of volatility.

9. Who are the people to watch in 2016 in terms of impact on the industry?

I'll name three: Michael Greenberg of Finance Magnates for answers to where the forex industry is going with all the hurdles it had to pass, such as the SNB. Francesc Riverola of FXStreet to lead on innovation in news services, advertising and mobile devices. And the trader: everybody in the industry will need to listen to the traders which are becoming more and more sophisticated.

10. What are your New Year's resolutions?

1) Writing more in-depth, researched articles and less quick news. 2) Getting to the not-so-urgent tasks and not only the most important one 3) Listening more to my readers.