Financial issues at the beginning of 2018. Anton Hanzenko.

The 2017 year ends with a large number of open fundamental issues, among which is a tax bill in the US, questions about Brexit, the victory of the separatist party in Catalonia and the super soft policy of the Bank of Japan. These financial issues and not only had a significant impact on the financial market in late 2017 and are open. What will affect the dynamics of major currency pairs in early 2018.

Financial Issues: Tax Reform in the US

Despite the fact that the market has almost taken into account the US dollar price of the amendments to the tax reform in the US, the actual signing of this law by Trump is open and is limited to bureaucratic issues. Not to mention the fact that during the voting and amendments the US tax reform itself underwent significant changes. Despite the fact that Trump’s administration managed to adopt this bill.

Also, do not forget that even the adopted bill retains significant risks caused by the growth of the US national debt And, if at the beginning, in the US tax reform was seen as a positive factor for the US currency, then with the growth of the national debt, tax breaks could increase pressure on the American, which also implies the policy of the Trump administration.

Due to the Political risks in the US, which had a significant impact on the market in almost all of 2017, the dollar index finished the year near the low of 2016, thereby completely closing the dollar’s strengthening since May 2016. The further decline of the American is limited to 92,000, which can act as the main support since February 2015. Such support points to the possibility of recovery and shaping the resemblance of the second arm of the figure “head and shoulders” or some kind of expanding formation.

On the other hand, if the downward dynamics of the US currency remains, it will be supported by a zone of 92.000-90.000. This is due to the general downward trend of the US dollar index since July 2007.

Financial issues: Geopolitical risks in Europe

The second open question of 2018 is the geopolitical issue in Europe. This issue is much more acute and difficult, because in addition to the Brexit itself contains the risks associated with Catalonia and Ireland.

Speaking of Brexit, it will more influence the dynamics of the British pound than the euro. But any progress and problems will affect both currencies, thereby causing a flow of assets from the pound to the euro, and vice versa.

Also in the UK there is a problem of trust in the government, and more specifically, in British Prime Minister Therese May. A certain political crisis is brewing. May, in the light of recent events, noticeably lost in popularity and support. This threatens with a new parliamentary election in the case of May’s resignation. A catalyst for this event may be negotiations on Brexit.

Another issue for the UK is the “Irish issue”, which can get unexpected development due to the long-term solution.

In the euro area, everything is not so smooth. In the elections in Catalonia, a separatist-minded party won, which advocates the expansion of autonomy and complete secession from Spain. This is unlikely to cause the semblance of Brexit, but exerts pressure on the single currency, and strengthens separatist sentiment in the euro area.

The euro index in recent years has maintained positive dynamics, and in the second consecutive year is closing with growth. At the same time, it maintains a downward trend, which has been traced since July 2008. A significant resistance level for the euro index is 96.00, from this level one should expect a repulsion due to the maintainance of a downtrend.

Of course, this is only a small list of risks, the solution of which the market expects in 2018. A very important aspect was omitted. In particular, the monetary policy of the world’s Central Banks. But, in the light of the latest events of 2017, it is geopolitics and political risks that cause financial issues on the global market.

Anton Hanzenko