Article / 27 December 2017 at 8:00 GMT

Five things to know about 2017: Forex

Your Next Trade
  • EUR, MXN exceeded expectations in 2017
  • Yuan 'far and away' the most overvalued currency
  • US bond market in focus for January

Five things
What were the year's key FX events? Photo: Shutterstock What was the biggest event of 2017?

John J. Hardy: It was a rather quiet year in overall FX volatility terms, but the EURUSD rally from early January through mid-September was the most notable trend of the year – most of it resulting from a strong euro rather than an especially weak US dollar. 

The key event within that trend was the result of the first round of the French presidential election in April, which saw a big gap higher of around 2% once it became clear that Marine Le Pen had no chance of becoming France’s next president – thus avoiding another existential crisis for the European Union.

TF: What was the biggest non-event?

JH: That’s a tough one, but certainly the greatest non-event in forex relative to expectations or fears was the MXN implications of President Trump assuming office. After all, Mexico's currency had devalued for much of 2016 and took a steep dive after the Trump victory. 

Traders taking a long MXN position on the day of Trump’s inauguration were rewarded with enormous gains in the ensuing months, as USDMXN dropped from around 22 to as low as 17.50 over the summer.

TF: What was the year’s most overvalued asset?

JH: The USD was overvalued coming into the year, but was relatively unchanged against a number of currencies by late in the year. Far and away the most overvalued currency remains the Chinese yuan, but it appears that China is not interested in allowing it to devalue. How will Beijing tackle its deleveraging needs without weakening its currency in 2018 and beyond?

TF: What was the year’s most undervalued asset?

JH: We already have talked about the Mexican peso, which started the year at very cheap levels and returned closer to fair value by mid-year. If we want to talk about what currencies are nearing the end of the year at very undervalued levels, we would have to point to the Japanese yen, though it was even cheaper back in 2014 and 2015 due to Bank of Japan policy radicalism. 

More undervalued relative to so-called fair value metrics and recent price history are the two Scandies, the Norwegian krone and the Swedish krona, both of which are at extremely cheap levels relative to historic norms.

TF: What’s the next major thing on the calendar? 

JH: The first of the year often sees the unleashing of big new moves as investors put their ideas to work with a clean profit and loss statement. So regardless of events, the rolling of the calendar can often be interesting in and of itself. But one of the most interesting things for me will be how the US bond market behaves early in the new year. 

There is the argument that US long government bonds have been artificially supported by the anticipation of US tax reform as corporations moved forward tax deductible contributions to their pension plans in order to take advantage of the higher old rate of 35%, which would be chopped to as low as 20% starting in 2018. 

If this argument has any merit, then US long yields risk jumping higher after the calendar rolls into January as pension flows slow dramatically.

Other events I will watch for early in the New Year include whether China sends any strong new policy signals after the February 16 Chinese New Year. Then we have incoming Federal Reserve chair Jerome Powell’s first Humphrey Hawkins semi-annual testimony sometime in February.

Emmanuel Macron
Emmanuel Macron's victory in April bucked the populist trend and led the EU away from an existential challenge. Photo: Frederic Legrand, COMEO /

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

27 December
Loonie Watcher Loonie Watcher
What’s your prediction for 2018 loonie? We were expecting your 1.48 by year end but instead got this! Poloz is obsessed with the exchange rate and is manipulating so what’s your prediction on loonie ?
28 December
Dance like nobody's watching Dance like nobody's watching
This comment has been redacted
Relevant articles for you


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail