Partner Center Find a Broker

Can you believe we’re almost done with the first quarter of the year?

If you’re already drafting your trades for the next quarter, then you’ll want to hear about the themes that will likely affect the major currencies in Q2 2019:

End of tightening for major central banks?

Why is it important?

Currency traders pay close attention to what major central bankers have to say because their monetary policies can affect economic growth price stability.

What happened in Q1?

In a nutshell, not a lot of stability.

Recall that the Fed had penciled in TWO rate hikes in 2019 back in December. Instead, it adopted a “patient” stance that now involves NOT raising its rates further for the rest of the year. Heck, Governor Powell and his team even downgraded their growth projections!

The Fed might have caused the biggest waves, but it wasn’t the first to shift to a dovish stance. The European Central Bank (ECB), for example, not only expect its low interest rates to “remain at their present levels…through the end of 2019,” but it also downgraded its growth forecasts AND announced fresh funding for banks through its targeted longer-term refinancing operations (TLTRO).

The Bank of Canada (BOC) was in the same boat when it announced that there’s “increased uncertainty” over the timing of its future rate hikes. Oh, and don’t forget the Bank of Japan (BOJ), which has stepped up its jawboning efforts and hinted at future stimulus if inflation doesn’t pick up!

Last but not the least, the Reserve Bank of Australia (RBA), which has hinted that rate hikes can go higher or lower after the rate hike spree that we saw in their previous meetings.

What can we expect in Q2?

Q2’s top-tier economic reports could give clues on how justified the central banks are in downgrading their growth forecasts. Word around is that growth is slated to turn higher after Q1’s dip.

If we see a recovery in closely-watched reports and indices, then there might be increased pressure for central bankers to get back on the rate hike train.

For now, the end (or pause?) of the tightening trend among major central bankers should encourage a bit of risk-taking among higher-yielding bets like equities and commodities.

Brexit negotiations

Why is it important?

How orderly Britain withdraws from the EU can affect business and consumer activity in both Britain and the EU.

A clear and definite exit can help businesses and consumers plan their investments and purchases. What’s more, it would help the ECB and the Bank of England (BOE) plan their monetary policies better.

A messy and vague divorce, on the other hand, discourages risk-taking and economic activity for both parties and their major economic partners.

What happened in Q1?

In late January, PM Theresa May successfully brokered a Brexit deal with the EU. Problem is, a lot of British lawmakers didn’t like some parts of it including a backstop plan which plans to keep the border with Ireland open. The deal was rejected twice, once in January (432-202) and then again in March (242-391).

Fast forward to today and the EU has agreed to extend the March 29 exit deadline. If May’s deal passes a third round of voting, the U.K. leaves on May 22. But if the deal fails again, then the U.K. will exit without any deal on April 12.

Things got stickier for May yesterday when Parliament voted to take over the Brexit process. Instead of the government, it’s the MPs who now have first dibs on which proposals the House of Commons will vote on.

The lawmakers will then make their non-binding “indicative votes,” which could help narrow down the options for the Brexit process. Renegotiating another deal, a soft Brexit, and holding another second referendum are some of the more popular options circulating in the streets.

What can we expect in Q2?

Given that the EU is not open for re-negotiation and that May has hinted that she won’t recognize results of indicative votes, it’s likely that the PM will push for a third vote of her Brexit deal.

If May’s deal fails for a third time before April 12, then the prospect of a hard Brexit would be back on the table. What’s more, May could also lose enough support to be forced to resign!

But if a miracle happens and her deal is passed, then the government could move on to iron out the Brexit process and negotiate more specific deals that would give clarity to businesses and consumers.

U.S.-China trade negotiations

Why is it important?

Trade policies between the world’s two largest economies set the tone for their dealings with their other trading partners.

In addition to that, the positive (or negative) impacts of trade war also affects the economic activity for a lot of other economies.

What happened in Q1?

After months of increasing tariffs on each others’ exports, the U.S. and China have called a truce and initiated trade negotiations to talk issues that include trade reforms, currency manipulation, opening China’s markets, and intellectual property theft.

Increased tensions weighed on equities markets and higher-yielding assets earlier this year.

Fortunately for risk-takers, news that both parties have paused (trade) hostilities have been improving business confidence and encouraging enough risk-taking to push high-yielding assets higher.

What can we expect in Q2?

Now that the Donald has indefinitely postponed the resumption of the U.S.’ crippling trade tariffs, all eyes will be on how soon Trump and Xi Jinping could ink a trade deal together.

Once they do agree on a deal, market players can then analyze the significance of the new terms, or if both parties can even follow them forrealz.

Market bees are buzzing that it could happen as soon as the third or fourth week of May. Or when pigs fly. Whichever is sooner, namsayin’?