It's that time of the year again when people start to look back at the past year and forward to the next one.
What trends are to be expected? What price movements might be around the corner?
It's time to take a closer look at the financial markets in 2018.
Trend 1: US Dollar Weakness Continues
The US Central Bank of the Federal Reserve might be increasing the interest rate of the US Dollar (USD), but in my view, it will not be sufficient to stop the USD from losing ground at least to the Euro.
The EUR/USD is in an uptrend, both technically speaking and from a wave perspective. The wave analysis is showing the potential for a bullish continuation as soon as the price completes its wave 2 correction. The price is then expected to build a wave 3, which is the most impulsive part of the chart.
If the price was to build a bullish wave 3 pattern in 2018 (max 2019), the EUR/USD could offer interesting price action with strong weekly and monthly candles dominating the chart.
The target? The price could be aiming way higher at the 1.30-1.40 zone. As always, these long-term forecasts are subject to many subtrends and developments, including fundamentals. Factors that could confirm or invalidate this long-term analysis include the US tax plan, debt problems on both sides of the ocean, economic performance, geopolitical factors and tensions as well as many other factors.
Source: EUR/USD monthly chart from May 2001 to December 2017
Trend 2: Brexit Will Increase GBP Volatility Even More
The Brexit negotiations are turning out to be perhaps even more difficult than anticipated. The tensions between Ireland and the EU on one side and the United Kingdom (UK) on the other side seem difficult to resolve when it boils down to the border between Ireland and Northern Ireland.
A stagnation in the Brexit talks between the UK and the EU would put both parties under pressure, but the largest burden would fall on the shoulders of the UK and Great British Pound (GBP).
The GBP could turn out to be a very volatile currency pair during 2018 as its price movements could become even more dependent on the Brexit news and updates. The volatility of these GBP pairs could swift from day to day, but a failure to deliver on a deal could send the GBP downwards quickly.
Trend 3: Gold Rush on the XAU/USD?
The Gold chart (XAU/USD) seems to be positioning itself for a sturdy move up after a decade of consolidation. My wave analysis is indicating a potential wave 1 and wave 2. The current ABC correction within wave 2 could soon be completed.
Once the wave 2 bearish correction is over, the price could slowly but surely start its path upwards within a wave 3. Of course, these types of price movement do not occur overnight. A potential bullish wave 3 could take months or even more to fully develop and mature. But a first push up in 2018 could already send a strong signal that more upsides can be expected this decade.
Source: XAU/USD monthly chart from August 2002 to December 2017
Trend 4: Stock Markets and CFDs
The massive uptrend in the stock markets can be easily seen when reviewing a chart of stock indices like S&P 500 and the DJI (Dow Jones Index). The non-stop bullish momentum of share CFDs has hardly seen any serious retracement for the past two years.
There is no rule that would in any way limit the bullish trend to a particular number or resistance level. However, sooner or later, some type of bearish retracement would seem logical. Whether this occurs in 2018 is uncertain, but technical traders can keep an eye on price action for timing purposes.
This is my plan: I will be monitoring the weekly chart and any larger bearish weekly candles could be a first clue of a pending reversal. The second warning is when 5 to 6 weekly candles fail to confirm a new higher high, which could indicate a loss of momentum. Remember, reversals often occur quickly and unexpectedly. Until that moment, the price is most likely to slowly but surely keep heading higher.
Source: DJI30 weekly chart from May 2014 to December 2017
Trend 5: Bitcoin and Cryptocurrency Volatility
Bitcoin and other cryptocurrencies will most likely continue to show large price swings in 2018. So far, there are no significant signs of the price slowing down and if anything, price action seems to be accelerating even further (based on the price movements of Q4 2017). It seems that these financial markets will not disappear anytime soon and will be here to stay for at least one more year.
Wishing you happy trading,
Forex and CFD trading carries a high level where losses can exceed your deposits. This material is does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Please note that the trading analyses which refers to past performance, may change over time. No representation is given as to the accuracy or completeness of the information and any person acting upon it does so entirely at their own risk. Before making any investment decisions, you should seek advice from independent financial advisor to ensure you understand the risks involved.