Four months after the confirmation of the QE programme, the pair started to struggle for direction and was no longer the high probability currency pair of choice. The lack of fresh fundamental drivers (as news quickly expires in the minds of traders) prevented a fresh break lower, whilst no sustained rallies took the price higher due to traders remaining nervy betting against the ECB.

Then came the might of ECB President Mario Draghi whose comments inflicted another bout of EUR selling when he sent a clear signal to the market (at the October 2015 ECB meeting) that it was becoming more likely that the central bank will need to add further stimulus (such as an extension to the current QE programme) in December 2015. This provided the  excuse for  traders to once again sell  the EURUSD pair with added confidence knowing that they are trading in line with the central bank, and thus the fundamentals, for the highest probability of success (see Chart 2).

Best Time, of the Year, Fundamental Outlook, Fundamental Analysis, fx trader, forex 2 EURUSDWeekly1Chart 2

Example 2 - USDCAD rose over 2200 pips. Why?

The oil industry is a major driver of Canada’s economy and so naturally the price of oil has a big bearing on the country’s prosperity and overall outlook. Oil prices, since around July 2014, have been in free fall and put significant downward pressure on Canada’s growth prospects. The main issue for oil has been the huge oversupply from the world’s top producers and this did not abate throughout the majority of 2015, especially as weekly oil inventory data (number of barrels of oil in storage each week) continually jumped above analyst expectations.

The Bank of Canada (BoC or Canadian Central Bank) were understandably aware of, and concerned about, this bleak outlook for growth. As such they decided to take action to counter balance the impact of low oil through cutting interest rates (which is currency negative as money flows out of low yielding holdings) and remaining extremely bearish in their outlook. At both their January and July central bank meetings, the BoC surprised many market participants by cutting interest rates. However, to those well aware of the fundamentals, it was widely expected and therefore able to be taken advantage of via selling the CAD (against its stronger counterparts).

Just like in the EURUSD example above, the CAD remained significantly weaker than its stronger USD counterpart, where the US central bank was much more upbeat on their economy. This allowed USDCAD to rise 2200 pips over the course of the year as the fall in oil intensified and kept the speculation around further BoC action (to weaken the CAD to assist the economy) firmly on the table (see Chart 3).

Best Time, of the Year, Fundamental Outlook, Fundamental Analysis, fx trader, forex 3 USDCAD Weekly ChartChart 3

Example 3 - GBPNZD rose over 5000 pips. Why? 

Here we have another powerful example of central bank, and therefore currency, divergence. For the majority of 2015 the UK central bank (Bank of England) was fairly upbeat with their view of the current UK economy and its outlook. Although there was no outright confirmation of a rate hike, the central bank did confirm that the next move with rates would be higher, which is GBP positive. With this overall bullish stance, the GBP was just behind the USD with regards to strength and was a fantastic currency to pair against a much weaker opponent of which we had a plethora of options. One of these options was the NZD which, although starting 2015 on the strong side (as their central bank was in a rate hiking cycle), this quickly changed as incoming data began to deteriorate (see example 4).

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