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I’m taking a breather from all my individual currency recaps to list down the top 5 themes that rocked the forex markets in 2016.

Which of the themes below helped you gain/lose the most pips?

1. China’s economic woes

Worries over the sustainability of China’s growth came back with a vengeance at the start of the year, enough to trigger “circuit breaker” stops in China’s equities markets just MINUTES after it opened. Of course, it didn’t help risk appetite that oil prices were also sliding at the time.

China’s woes became “whoas” for volatility-hungry forex traders. See, commodity-related currencies, whose economies depend on China’s export demand, tanked while safe-havens like the yen rocketed across the board. It wasn’t until the PBoC injected bajillions of cash in the markets and weakened the yuan aggressively when the selloff lost momentum.

2. EU referendum (Brexit)

For years, inefficiencies in the European Union’s (EU) policies have left most Britons feeling like that one classmate who has to do most of the work in a group project.

The anti-EU sentiment eventually got enough support that PM David Cameron had to pinky swear a referendum just to win an election. By February, Cameron had set the referendum on June 23.

The weeks that followed proved shaky for the pound. It found support when the “remain” camp showed a comfortable lead but soon got more volatile as polls reflected the “leave” camp gaining ground.

The “leave” camp won and mayhem (in the markets) ensued. The pound dropped like a rock and Cameron stepped down as Prime Minister.

The BOE, which had been slightly hawkish at the start of the year, had to loosen its purse strings to prevent further gloom and doom. Despite that, the pound’s gains were limited by doubts over new PM Theresa May’s capacity to execute a Brexit on a deadline.

The pound wasn’t the only casualty in the breakup. See, the unprecedented (pun intended for theme #5 below) decision to leave the EU opened the door to other countries like Italy and France the following suit. The prospect of other countries saying “I’m out” weighed on the euro especially in light of the region’s banking crisis.

3. Global oil glut

With a lot of major economies struggling to boost consumer prices, there was more pressure on major oil producers to address the global oil oversupply situation.

The road to higher oil prices was slippery, to say the least. For one, the lifting of Iran’s oil sanctions caused fears of even more oversupply earlier in the year. Fortunately, Saudi Arabia and Russia huddled together and hinted at output freezes to come. The much-awaited April meeting in Doha turned out to be a dud, but the speculations were enough to sharply push prices higher, at least for a while.

Brent and WTI Daily Charts for 2016
Brent and WTI Daily Charts for 2016

Oil hotshots promised to address the oil glut for real ahead of the official OPEC summits. However, market players, unimpressed with their previous (unproductive) meetings, waited until OPEC and its friends laid their cards on the table before extending oil’s recovery.

4. Fed rate hike expectations

Aside from raising its rates in December 2015, the Fed also set the bar pretty high by forecasting TWO rate hikes for 2016. Like Brangelina though, it just wasn’t meant to be.

Weak U.S. data and fears over China’s growth clipped the Fed’s wings in Q1 and resulted in losses for the Greenback. The tides turned for Uncle Sam in Q2 and Q3, enough to push some of the FOMC members to say “aye” to a rate hike.

Unfortunately, external factors such as Brexit, oil glut concerns, and Kim K and Taylor Swift’s feud (okay, maybe not) forced the Fed to hold its fire.

U.S. Dollar Index 2016
U.S. Dollar Index 2016

By Q4, the stars have lined up in favor of a rate hike. Analysts reckoned that the economy was healthy enough to weather a Fed rate hike, while Trump’s big plans for the economy lessened the pressure to keep an easy monetary policy.

Traders bought the dollar like there’s no tomorrow and loaded up some more when the Fed not only raised its rates but was also more hawkish than expected for 2017.

5. U.S. elections

Rounding up our list this year is a mix of comedy, suspense, drama, and a bit of reality show feels that is the U.S. elections. Much like with Brexit, a Trump win initially represented uncertainty.

Risk aversion would ensue whenever polls showed Trump’s improving numbers and calm down whenever Hillary gained ground. The battle was almost as bloody as the Battle of the Bastards but, in the end, Trump was made POTUS.

Whether it’s denial or optimism, market players chose to focus on Trump’s yuuuge plans to cut taxes and boost infrastructure spending. They actually BOUGHT the dollar and U.S. equities! They also sold U.S. bonds and effectively pushed bond yields higher.

Meanwhile, higher-yielding currencies took hits not only because Trump’s protectionist stance will make it harder to export products to the U.S., but also because their respective governments, whose debts are priced in dollars, now owe more money to their creditors. Yikes!