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Forecast for 2014 — Forex, Gold, Oil, Interest Rates

December 31, 2013 by

I would not call my forecasting abilities impressive. Although my last year’s forecast about some FX pairs was rather precise in terms of direction, my guesstimates of the particular levels were mostly incorrect. Anyway I would like to present my view of the markets for the year 2014. Before presenting my new forecast for each of the trading instruments, I will first review my previous forecast (for the year 2013), giving some commentary on the outcome.

EUR/USD

Forecast results

EUR/USD is forming a misshapen inverted head-and-shoulders pattern on its weekly chart, so I would expect it to continue rising at least for some time (or at least to 1.42) in 2013. Fundamentally, the only reason for such growth would be either some really smart solution for the financial troubles of the eurozone or a really bad situation in the United States.

The head-and-shoulders pattern failed, but the overall trend in 2013 can be called bullish. Of course, EUR/USD failed to come even close to 1.42.

Forecast for 2014

It looks like the technical analysis favors the euro in a long-term period, but from the fundamental point of view, it is USD that has to rise in 2014. I would expect a drop to at least 1.3000 with a possibility of reaching as low as 1.2300. In case of an unlikely upward thrust, the pair may go as high as 1.4350. The main reason for my bearish sentiment on EUR/USD is the upcoming series of QE tapering decisions expected from the Fed.

GBP/USD

Forecast results

GBP/USD looks to be ready to break up through a line of resistance on its W1 chart. That would be in line with the EUR/USD moving up after its inverted H&S pattern. The same fundamental triggers could play out here. Bullish targets are located at around 1.67 for GBP/USD in that case.

The currency pair only managed to break that resistance by the end of 2013. It also did not reach my 1.67 target, but is trading not too far at about 1.648 as of now.

Forecast for 2014

With no interest rates hikes on the horizon, there is little reason for GBP/USD to grow in 2014. I would expect it to revert back to about 1.5000. The bullish breakout is possible in case of some tapering delays in the USA combined with exceptionally good economic reports from the UK. This has a potential to drive the pair up to 1.75.

USD/JPY

Forecast results

Some might believe that USD/JPY has entered a sort of a long-long-term rally with its current seemingly non-stop ascent. Unfortunately, the Bank of Japan may cut that rally anytime by refusing to provide further yen-weakening measures, while there are strong resistance levels ahead of the currency pair. USD/JPY may stop near 100.00 level or even fall back to about 75.00.

Although USD/JPY has really started a correction from about 100 level (103 in reality), the overall long-term rally persisted and the rate has gone significantly above 100 by the end of the year.

Forecast for 2014

There can be corrections in the pair’s rally, but I am expecting a run to at least 110 and to 125 at maximum. Both, technical and fundamental factors point at a bullish situation in USD/JPY.

EUR/CHF

Forecast results

I expect the Swiss National Bank to refrain from removing EUR/CHF floor in 2013. They will either keep it at 1.2 or move slightly higher (for example, to 1.25) but the latter is much less probable. In case EUR/USD will be moving up because of some improvements in eurozone economy rather than weakness in the US one, EUR/CHF may enter a bullish trend even without SNB intervention.

The pair reached as high as 1.264 during the year, but it failed to fix itself above that level as the Swiss National Bank was mostly silent about any changes in its 1.2 minimum rate.

Forecast for 2014

For 2014, I expect the SNB to continue its policy of the minimum rate, but I do not believe that they will raise it. There is a slight probability of negative interest rates in Switzerland, which could possibility drive EUR/CHF up to 1.26–1.30 range if they become reality.

Oil

Forecast results

Oil is forming a sort of symmetrical triangles pattern on the weekly timeframe. There is no telling where it will go when the pattern bursts, but as this consolidation follows a minor uptrend, the chances are that crude will rally in 2013. $120-$130 per barrel look quite probable to me.

I have missed the point in my oil forecast. Although, it did rally to $112 per barrel in the first half of the year, it then fell down to as low as $92 per barrel and is ending the year near $100 level.

Forecast for 2014

I believe that the lack any significant international political conflicts related to Middle East and the moderate growth of oil consumption will keep this commodity near its current $100/barrel price. Of course, it may deviate to both sides, but I would expect it to remain in a range between about $95-$105.

Gold

Forecast results

Gold is consolidating since mid-2011. It fails to post higher highs but has no problem with higher lows. I would say it should be trading below its all-time high, awaiting a good situation to enter a new rally. It is hard for me to imagine conditions that would trigger mass-sale of this precious metal.

Although I was (and am) a gold bear, I failed to foresee the drop of the metal in 2013. Needless to say that this forecast turned out to be completely wrong.

Forecast for 2014

While I am quite bearish on gold, I recognize rather strong technical and psychological resistance levels on $1,200/ounce and then on $1,000/ounce. I would expect a drop to $1,000 in case $1,200 is broken. It will take some significant global event to drive the gold below $1,000/ounce or significantly above its current levels.

Interest rates

Forecast results

Interest rates will be completely uninteresting next year. The US Federal Reserve, the Bank of Japan along with the Swiss National Bank will have no reason to alter their rates. At the same time, European Central Bank will be tempted to cut the rate, while such step will probably remain impossible due to elevated inflation rates in the eurozone countries. Bank of England may turn out to be the only major institution raising rates next year.

I was right about Fed, BoJ and SNB (though there was nothing difficult in such estimate), but rather wrong about ECB as it had managed to cut rates twice (from 0.75% to 0.25%). BoE also had not raised its rates.

Forecast for 2014

Not much will change in 2014 in terms of interest rates. I would expect the following from the major central banks:

  • Federal Reserve — the rate will remain at 0–0.25% as there is no chance for unemployment rate to fall below 6.5% in 2014.
  • European Central Bank — the rate will be cut to 0.25% as liquidity stimulation proves to be effective.
  • Bank of England — the rate may be raised twice (to 1%) as the current inflation (2.1%) is above target (2%).
  • Bank of Japan — the rate will remain at 0.1%.
  • Bank of Canada — the rate will remain at 1% as the institution will hesitate to raise it.
  • Reserve Bank of Australia — the rate will be cut to at least 1.75% to stimulate growth, while the inflation remains within 2–3% corridor.
  • Reserve Bank of New Zealand — the rate will probably be reduced to 2% as the inflation is significantly below the bank’s maximum boundary (3%).
  • Swiss National Bank — the rate will most likely remain at 0–0.25% with an extremely small chance of negative rates being applied.

By the way, happy New Year! Let your prosperity rise irrespective of other people’s forecasts!

If you want to share your opinion on this year 2014 forecast for the major Forex related markets, please feel free to reply using the form below.

One Response to “Forecast for 2014 — Forex, Gold, Oil, Interest Rates”

  1. Walid

    One of the best yearly analysis, but i missed the charts. Keep doing great

    Reply

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