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Mid & Long Term

2014 ...US dollar year !

Monday, December 30, 2013 9:46 AM GMT

  

Another interesting year for FX markets has kicked off coupled with a lot of different opinions regarding currency trends in 2014.

 The major interest is once again focused on the rate of EUR/USD. The single currency was strengthened in the course of 2013, as the continuation of fiscal consolidation and structural reforms in the Euro zone vanished the concerns about the future of the common currency. In addition to the above, the sustained growth of the power horse of Euro land  i.e. Germany, assisted in the improvement of the Euro zone economic environment, leading to new euro buying  positions.

 Nevertheless, the above depicted uptrend momentum is expected to fade away. To elaborate on, when Euro zone significant problems such as high unemployment and sluggish growth come to the forefront, the single currency will get inevitably under high selling pressure.

 What’s more, market participants should not be taken aback if the occasional statements made by the European officials suggesting possible further rate cuts, even to negative levels, come in the ''spotlight of the news'', fueling further the interest for dollar buying positions.

At the other side of the spectrum, the continued economic recovery of the US economy, might ultimately lead to ‘bets’ about the timing the Fed decides to raise the rates; even if the fiscal tightening by the Fed does not take place in the 2014, the ‘discounting game’ of such a Fed movement will be enough to boost even more the American dollar.

I do consider that the cross will test the level of 1.3000 in the course of 2014 with a potential break out at the 1.2500-1.2700 levels.

Market participants should be vastly aware by the market pitfalls. More precisely, one of these market traps would be a temporary upwards movement near the 1.4000 area; while lots of retail traders would have already opened short positions in the cross, it will be more than sure, that a violent, abrupt upwards movement of 100-200 pips near 1.4100-1.4200 area, will hit many ‘stop-loss’.

Pertaining to ‘exotic currencies’, such as the Asian ones, I anticipate that they will limit part of their losses in comparison with the 2013 ones. Regarding the Turkish currency, also due to the recent turbulent political environment, I anticipate that the Turkish pound will be caught under high volatility, strengthened by a 5-10% versus the single currency (i.e. by the levels of 3 Turkish lira per euro that was found some days ago).

Finally, while most investment houses and many analysts suggest that we will witness another good, “green” year in stock markets (with estimations that suggest that S&P500  will easily overcome the handle of 1900, even the 2000 points), I am much more skeptical and cautious; I do consider that such a position is extremely risky to take over, thus I would rather recommend a much more neutral position and a revaluation after a possible 10%-15% correction of the main indices. 


Tsaprounis Vassilis -  Chief Economist / Zulutrade

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