Currensee Trade Leader Alex Kazmarck of SpotEuro LLC presents predictions for 2014... and things are already moving faster than anticipated...
I expect trading ranges into the New Year and the first few days of the new calendar year since most activity will being on the 6th of January since the 2nd and 3rd fall on a Thursday and Friday, not likely to be market movers without some significant catalyst.
Going into 2014, I think traders will continue to debate the US monetary policy and how new Federal Reserve Chairwoman Janet Yellen will manage the QE exit, or perhaps even stay the course (now known as the “new normal”), continuing to support the US economy if data begins to show signs of weakness. Traders will also look closely at growth in both US and Europe, with the latter being a focus of peripheral growth outside of Germany. It’s important to add that economic divergence in Europe will also put pressure on politics as well as the ECB, possibly calling for a weaker euro or a change to ECB’s mandate. Finally, Japan will also be in focus as the BOJ’s 2% inflation target may be difficult to reach and with a looming increase in sales tax from 5% to 8%, some members of the board have expressed concern in the Q3 GDP growth figures. How will the BOJ attempt to reach its inflation target without hampering growth? These are the stories that will likely drive price action during the next 12 months.
In the next few weeks, as everyone gets back to their desks and volumes begin to pick up, there are certain levels that I will be monitoring for directional purposes. Taking a look at the EUR/USD, the pair has maintained an upwards trending channel; however, it was not able to break above the 1.3820 high set in late October just before ECB surprised the market with a reduction in the benchmark interest rate. Despite the rally that followed in November and early December, I am still looking for a move lower to 1.3500 before continuing lower to the 1.30s. This view will be negated if the pair breaks higher and closes above the 1.3800 level. To the downside, this view is supported on a close below 1.3600 with next support at 1.3500 and 1.3400. A close below 1.2750 should begin a new down trend.
On the other hand, should the pair close decisively above 1.3800, I will target 1.4250 and 1.4500 as levels of resistance where the pair will likely consolidate. I don’t see much support for this view as Europe continues to lag the US in economic growth and monetary tightening. I will also point out that the current top of 1.3833 is also the 61.8% retracement from 1.4920 high in May of 2011 to the low of 1.2043 set in July of 2012.
I expect the euro to end 2014 between 1.2500 and 1.2800 with 1.20 and 1.38 as the low and high respectively.
Keeping in line with the “new normal”, I find it difficult to believe that the US economy will be able to sustain such growth in both the labor and financial markets in 2014 as it had during 2013 without continued pressure to keep yields low with its current QE purchases and force money into riskier assets. Inflation will be an important figure to watch, especially if the Fed decides to lower interest on excess reserves below zero as this should fuel banks to lend more, fueling consumption. The themes that made headlines in 2013 will continue to be the front runners in 2014 and should be followed closely.
Short term resistance – 1.3750-1.3800
Short term support – 1.3650-1.3600