An Early Look At The Best Currency Trade For 2015
The currency markets have seen some big moves in 2014 and in many ways they have provided better opportunities for forex traders than stock markets have.
While the S&P 500 is currently up around 13% year-to-date, volatility has been low for most of that time and most shorter term traders have struggled to make profits in individual equities this year.
In contrast, the currency markets have seen some spectacular moves and trend followers have been handsomely rewarded for sticking to their trades:
- We have seen USDJPY soar past the 120 level under the Bank of Japan’s aggressive monetary easing policy, the highest level in five years.
- We have watched GBPUSD climb to 1.70 in the first half of the year (when analysts were predicting end-of-year rate hikes from the BOE), only to see it reverse twice as fast and drop through 1.55.
- And we have seen the greenback rally against the majority of its peers as markets began to price in the possibility of 2015 rate hikes from the Fed.
Without doubt it has been a good year to be long the dollar.
However, with the greenback having come such a long way in such a short space of time, one of the key questions for 2015 will be whether the dollar has any more upside left to go.
A useful method for analyzing the longer term direction of currency markets is to first consider the fundamental indicators for each market at the present time. After this is done we can then begin to analyse future trends to decide where markets might head.
One way to do this is to look at country specific economic data. The next table is derived from stats from tradingeconomics.com:
When will the Fed raise rates?
A common belief among traders at present is that the Federal Reserve will likely move to raise interest rates some time in 2015, and markets currently expect this to occur in July.
On some levels this makes sense. The Federal Reserve have already stopped their program of monthly asset purchases and the US economy now appears strong enough to withstand a gradual increase in rates. (more…)