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My Forex Forecast for 2012

December 31, 2011 by

First, I’d like to wish everyone a happy New Year. Today is December 31st and the trading of the year 2011 has already ended, so it’s time to wish successful trading to all Forex traders in the next year.

My forecasts for 2011 were a complete failure. Mainly due to the worsening of the eurozone debt situation and partly due to the slow pace of the global economic recovery. Let’s look at the individual trading instruments forecasts and the real outcomes:

EUR/USD — looking at the weekly chart of this currency pair makes me think that we are currently at the beginning of the next bullish wave that will mark the next year. Unless some highly improbable long-term bearish breakout occurs. we’ll see the EUR/USD pair heading to the levels above 1.43.

The pair ended up somewhat lower than where it had started the year. 1.43 was reached during the first four months of the year. A big miss here.

GBP/USD — although the pound was an outsider among the major currencies in 2010 and despite the high probability for it to continue going down in the first half of 2011, overall, the next year may turn out to be positive for this pair. I see a close of the year 2011 above level 1.66 for GBP/USD.

The pound has tried to rise, but its attempts turned out futile. Like the euro, it has fallen a victim to risk-aversion. Another big miss here.

USD/JPY, like all the yen-based pairs, suffered a deep drawdown this year. 2011 will be either very positive for this currency pair or the Japanese economy will take a lot of damage from such a strong national currency. The Bank of Japan will have to take some measures to weaken the yen and USD/JPY will benefit from it. I expect to see this currency pair between 90 and 95 by the end of 2011.

Although the Bank of Japan has really taken yen-weakening measures, which have even worked near the end of the year, the pair declined even more in 2011.

EUR/JPY will rise in 2011 even faster, as the EUR/USD is going to be up (unless some really bad thing happens to one of the Eurozone countries). A jump back to 128–135 range looks like a probable target for the euro-yen pair.

The situation with EUR/JPY was even worse as the pair has also suffered from the euro weakness.

Oil may experience another bullish bubble growth next year. The dynamics of this commodity during the last weeks of 2010 suggest that scenario. If that happens, oil will probably race to its record high near $140 before falling back to its more natural $60–80 range. If we won’t see a new bubble in crude, then I expect a higher range for 2011 — $80-$110.

Oil didn’t enter another bubble, but the year’s range was significantly higher than my forecast. So another miss here.

Gold has found its natural balance level, in my opinion. It will continue rising in 2011 but the process will be much slower than before. To me, it looks like all the big buyers already hold enough gold.

Not only did gold rise extremely higher than it had ended 2010, it also managed to fall significantly afterwards.

My forecasts on the interest rates weren’t very successful. Influenced by the lack of changes this year, for the year 2011 I also expect almost no rate hikes from the four most important global central banks. There is a small probability that near the end of the next year, the Federal Reserve will raise the rate slightly. Bank of England can also decide to shift the rates up and even do it earlier than the US regulator. ECB and the Bank of Japan will stay with their current rates next year.

I was right only regarding the BoJ rate — they’ve left it unchanged through 2011. I was also partly right about ECB — their rate ended 2011 where it’s started, but they managed to hike and cut it two times by 25 basis points.

OK, now to my 2012 Forex forecast. I remind you that you shouldn’t consider this forecast as a serious call to action or something worthy of using in your trading. Just look at my previous forecasts to see that I am not Nostradamus :). This year, I won’t provide a forecast for EUR/JPY since it’s repeating EUR/USD + USD/JPY analysis, but will add USD/CHF — another major currency pair to pay attention to.

EUR/USD — I believe that it will fall to about 1.25 in 2012 due the lack of fast and effective solution for the eurozone debt crisis. If the situation worsens there, the pair might even break down below that level. In case the fiscal problems will get solved (highly unlikely), I expect EUR/USD to end the year between 1.35 and 1.40.

GBP/USD screams for a strong bearish wave — both from the technical analysis and from the macroeconomics points of view. The problems of the eurozone will also be negatively affecting the pound next year. The pair can go below 1.40 and end the next year there.

USD/JPY will finally enter a bullish albeit very weak trend. The pair has little place to go down without turning Japanese exports into a joke. In my opinion, this pair has a strong chance of ending the year 2012 above 80.00.

USD/CHF will remain under influence of the EUR/CHF floor set and maintained by SNB at 1.2, which I expect to persist through 2012. The second strong factor will the euro’s performance. With stronger euro, USD/CHF may stagnate near the current levels. In case of a further euro decline, USD/CHF may surge to as high as parity.

Oil is in a long-term downtrend, but has a strong support level near $100/barrel. I believe that the price for this commodity will depend mainly on the geopolitical factors in 2012. War conflicts and political instability in the oil-producing regions will drive the price up. If the next year is going to be calmer than this one, oil may reach $100 and, if that level is broken, it may go down to about $90/barrel.

Gold is currently trading near a very important support zone. If it breaks down, there’s a plenty of space for a bearish action for this precious metal, with $1,000/ounce looking like a probable year end target. If gold manages to bounce off, it may test $2,000 psychological resistance during 2012 and probably go even beyond that level.

As for the interest rates, I choose to expect no changes both from the Federal Reserve and the Bank of Japan in 2012. The European Central Bank will be tempted to cut its main rate next year. I expect it to go down from the current 1% to 0.5% or even 0.25%. The Bank of England will probably have to do the opposite — hike the interest rate to curb the inflation. The bank rate may go up from the current 0.5% to about 1% in 2012.

Happy New Year! Let the 2012 be much better for you than all the previous years!

If you want to share your opinion on this year 2012 forecast for the major Forex related markets, please feel free to reply using the form below.

One Response to “My Forex Forecast for 2012”

  1. John

    I wish all traders make money in the new 2012 a 1 million dollar


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