2015 started with a big bang on the previous Friday as the US dollar made a nasty run to the highs against most of the other majors: GBP, EUR, CAD, AUD…
The reason for that is related to positioning for the new year and, most importantly, the fact that the US dollar index broke out of a multi-year consolidation pattern and now it seems that the path of least resistance is only to the upside, but, as always this remains to be seen and we encourage caution.
Being at the beginning of a new year, let’s try to imagine what are the most probable scenarios the US dollar might have against different major currencies and also try to take into account the most important fundamental events to come:
EURUSD: it is most likely that this pair is going to trade with a negative tone, at least for the start of the year. We have two major events ahead of us: the ECB (European Central Bank) meeting on the 22nd of January and the Greek elections on the 25th of January. The ECB meeting is expected to announce the eagerly anticipated quantitative easing program, and the Greek elections should reveal if the Greeks will stay with the Euro.
These two events are critical as any negative outcome out of the ECB meeting can be easily offset in the next three days as the Greek elections are kicking in. Normally, the ECB will try to do anything in its power to bring EURUSD rates lower, but Greek elections have the potential to turn things around.
USDCHF: whether a coincidence or not (we say NOT), the negative interest rates in Switzerland are entering into full effect on the 22nd of January, the same day the ECB is holding its all-important press conference. While it may seem a non-event for the USDCHF, the reason why the SNB (Swiss National Bank) goes to negative rates the same day the ECB is supposed to make an important announcement regarding the QE (Quantitative Easing) program, only shows that the two central banks are actually committed to the same EURCHF 1.20 target.
USDCAD: this pair is going to be the most affected by lower oil prices. When the 1.20 level is going to be broken (and it will…), we should look for a couple of months, maybe even more, of consolidation.
GBPUSD: this is an important pair to observe for 2015 as the US dollar should gain the most against the pound this year. Reasons are plentiful: a bigger deficit in the UK, and, why not, a Brexit (British Exit from the EU). A referendum may take place and would hardly be a surprise.
At this point, it’s worth noting that all of the above are only forecasts or predictions of course. As traders, this is what we do: we take into account events to come, combine them with technical analysis, and make a forecast for the period to come.
Let’s see how the NFP (Non-Farm Payrolls) numbers are next Friday (as the most important event scheduled to be released at the end of the week). Together with the unemployment rate, this may give the US dollar a boost or, even a much-needed pullback from current levels.
Why not use the start of the year to explore some new currency brokers. If you feel that Forex is a little too technical right now, try trading currency pairs with binary options. Happy new year from the TradersAsset team!
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
