Oil price fall, close to major falls historically, coming to end. Can we expect another great year for USD? Sniffing the bottoms…
Markets don’t recognize the calendar year: trends have been carried over to 2015. Oil prices just went on hitting new lows. But the annual change in the oil prices is now close to historic extremes, and the gold has turned up (Mind you, gold was the first to turn in 2008).
Figure 1. Enough is enough?
2014 was a great year for the USD. Will it be repeated in 2015? If you look at the USD index, the DXY (EUR heavy), the 12% gain recorded last year is exceptional. Over the past half century, the DXY showed double digit annual gains only 7 times, of which 4 were in the chaotic early 80s. Statistically, the chance of DXY getting the double digit gain in the following year is 8.5%, and the chance of getting a matching, or larger double digit gain is… just 4%. Your call!
Many trends started in mid-2014, including the USD, started with worsening global growth prospects, and therefore could be reversed with it changing. Those turns, in global PMIs (notably in the euro area), and the fall in China’s house prices, were the key developments in mid-2014. But there are early signs of things changing in the positive direction: the euro area PMIs to turn up within 2-3 months, the decline in home prices in China is narrowing, and at least stabilization is likely in 2015.
Figure 2. Worst is behind…
The trends include the interest rates. In particular. The longer core yields, Treasury, Bunds… the downtrend of which coincided with the strengthening USD. There are two things than could bring a turn: 1) the US wage growth: Friday’s disappointment will likely be reversed by the fixed-weight Employment Cost Index on January 30th, or next payrolls report on February 6th (revisions); 2) ECB’s QE, which could act like “buy on rumor, sell on fact” on January 22nd.
Figure 3. Waiting for ECB’s QE
The turn would be very positive for commodity currencies, in particular AUD and NOK, and, frankly, I can’t wait to change forecasts…even NZD (which I always disliked). If AUDUSD seems too aggressive long for you, consider AUDCHF, an attractive buy on a pullback (toward 0.90, for starters).
The EURUSD near term? Show me who is not saying the 2005 low of 1.1640 is the next stop, and parity is to be reached sooner rather than later. Me? I just wonder if EURUSD will be patient enough to wait for January 22nd?!
Nordea