This page has been archived and commenting is disabled.

Dollar Outlook at the End of 2014

Marc To Market's picture




 

The US dollar closed higher against all the major currencies during the holiday shortened week. The lack of liquidity may have exaggerated the weakness of Swedish krona and Norwegian krone, the poorest performing major currencies.  Both lost about 1.5% against the greenback. 

 

The least weak currencies were in the dollar-bloc. The Canadian and New Zealand dollars were practically flat, and the Australian dollar slipped 0.2%.   The euro and sterling slipped about 0.5%, while the yen shed 0.7% of its recent gains. 

 

The lack of participation will continue into the last week of the year.  The general technical condition will not change.   The dollar's bull advance is not over.  Leaving aside the housing market, which has been one of the few US economic disappointments of 2014, the 5% Q3 GDP, coupled with continued improvement in the labor market keeps the Fed poised to raise rates in around the middle of 2015. The prospects of a more aggressive ECB, buying a wider range of assets, including sovereign bonds, will keep the euro on the defensive.   

 

The euro recorded a marginal new low on December 23 near $1.2165.  This is just above the 50% retracement of the euro's trading range since its launch in 1999 (~$1.2135). The bottom of the Bollinger Band (set 2 standard deviations below the 20-day moving average) is near there as well (~$1.2125).  Further out is the July 2013 low near $1.2045 and the $1.20 psychological level.  On the upside, offers in the $1.2250-75 band may contain upticks. 

 

Despite unprecedented expansion of the central bank's balance sheet, Japanese inflation fell to its slowest pace in six months (headline and core).   When adjusted for the sales tax increase, Japan's core CPI rose 0.7% year-over-year in November.  The 2% inflation target looks nearly as elusive as the ECB's.   The dollar's recent 5.5% slide in six sessions to almost JPY115.50 shook out many of the recent dollar longs.  As many of these positions are re-established, the dollar's ascent has resumed.  Initial resistance is seen in the JPY120.85-JPY121.00 area.  Above there is the high from December 8 near JPY121.85.  On the other hand, a break now of JPY119.40 will warn of a more complicated correction.  

 

Sterling was mostly confined to a $1.56-$1.58 trading range from the middle of November through the middle of December.  It has slipped from this box to a lower trading range, and spiked to $1.5485 on December 23.  It has not recovered above $1.5580 since, but this is probably more a consequence of the lack of participation than a genuine technical cap.  Stronger offers are likely in the $1.5600-35 area.  

 

The Canadian dollar is moving sideways.  The US dollar has been within the range set on December 15 (CAD1.1550-CAD1.1675) for the past nine sessions.  This renders many trend following technical tools less useful.   Over the medium term, we continue to favor a weaker Canadian dollar.    

 

The Australian dollar recorded new multi-year lows on December 23 when it slipped a little below $0.8090.  Expectations have built for not one but two rate cuts by the RBA in H115.  Many want to sell into an Aussie bounce, but in thin market conditions, the $0.8140-50 area is capping upticks.  Stronger selling interest is seen near $0.8200.  

 

The February crude oil (light-sweet) futures contract will likely spend the last week in the year in the $54-$59 a barrel that has contained prices since the middle of the month.  Barring a significant reversal, December will be the sixth consecutive monthly decline for crude prices.  The 7.27 mln barrel unexpected build of crude stocks according to the EIA in the latest week (consensus was for a 2.5 mln barrel decline) warns of the risk of additional price declines.  That said, we see many forecasts for the price to bottom in early 2015.  We are less sanguine.  Inventories are still rising, and the pace of rig shutdowns will have to accelerate.  

 

US 10-year yields have been hovering around 2.25% since that surprisingly strong Q3 GDP revision to 5.0%.  It would have to rise above 2.35% to be anything of note.  On the downside, the 2.15% area may tempt Treasury sellers.  

 

Technically, price gaps are often important.  We identified the significance of two S&P gaps in Q4.  The first was the sharply higher opening on October 21.  It boosted our confidence that the correction that had seen the S&P 500 lose nearly 10% between September 19 and October 15 was over.  The S&P 500 gapped higher again on December 18.    It confirmed our suspicions that the S&P 500 5.5% week-long downdraft ended on December 15 and that the index was on its way to new highs.  While the gains scored in the extremely light volume may be tested, technically there is little reason not to expect more life in the bull.  

 

 

Due to the holiday, the Commitment of Traders report was delayed. 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 12/28/2014 - 21:35 | 5600338 remain calm
remain calm's picture

This guy is an ass clown. ZH why do you post this garbage? The FX markets are manipulated by the bankers. All currencies throughout history have been and will be worth ZERO, except GOLD, douchebag

Sun, 12/28/2014 - 13:05 | 5598923 starman
starman's picture

Inflation killed the dollar in the mid 80's! 

 

Sun, 12/28/2014 - 04:08 | 5598301 HYMN
HYMN's picture

The truth in the dollar being "Strong" is as likely as the 5% GDP #. 

Sun, 12/28/2014 - 12:18 | 5598797 covert
covert's picture

the bilderberg's killed the dollar.

http://covert.co.nr

 

Sat, 12/27/2014 - 21:06 | 5597514 Ewtman
Ewtman's picture

A dollar bull market is underway, but the first leg of the rally is almost over which means a pull back is necessary before the next leg gets underway...

 

http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-update-f...

Sat, 12/27/2014 - 22:24 | 5597712 Spitzer
Spitzer's picture

Just like the sea receding on the shores of SE Asia in 2004.

Dollar bull my ass.

 

There.

 

I said it.

 

My lone self on this side of the boat.

Mon, 12/29/2014 - 03:28 | 5600843 OldPhart
OldPhart's picture

Rowing...

 

Sat, 12/27/2014 - 20:30 | 5597436 didthatreallyhappen
didthatreallyhappen's picture

all the people with variable rate mtgs will get hit hard by rising rates.  can the economy afford it?

Sat, 12/27/2014 - 18:15 | 5597188 realWhiteNight123129
realWhiteNight123129's picture

A few things against mythology:

1. Currency can be created against money (you deposit FRN , i.e. M0 and get a currency deposit at the bank.

2. You are plumber and get a receivable to be discounted by the bank which creates a currency deposit for you. 

 

So the currency is only as good as the credit backing it, how is the credit quality within the US in aggregate? Very poor because there is way too much credit to GDP, and external debt is horrendous. A couple of ways to restore credit to GDP.

a) Genuine Growth, U.S. having too much consumption and not enough production (trade deficit is ugly), the way to solve it is massive productivity gains, however those are lagging in the last decade.

b) Inflation (that is inflate the nominal GDP -- even if real GDP is flat--, while nominal debt stays constant). The consumption of electricity in the US is still below the 2007-2008 in Gigawatts, while people on foodstamps way higher than 2007, labor participation is dismal. Those numbers contradict the notion that the US is doing anything else than inflating with almost no growth. The story of growth does not hold water against those simple data points. The US is already in stagflation. The cheating on inflaiton is probably not more than 2% (that is real inflation is probably 4%, not below 2%).

c) Bank failures.

 

d) Taxes and wealth transfer.

 

There are only two things explaining a currency relative position

A) Trade, which is ugly for the US and which is the main driver long term

B) Capital flows which explain short-term hiccups.

 

For B, we would need real interest to become positive to have something genuinely bullish long term for USD (at least against gold).  This is not probable because it would increase the debt burden of teh Government. The US Government needs negative real rates for a long time to decrease its debt to GDP ratio.

If rates move up 2% and inflation 4%, this is bullish for Gold because inflation moves faster than nominal rates, in other words, you typícally have real rates getting more negative when inflation picks up and the rates lag behind (voluntarily, in order to reduce Gov debt burden).

 

 

Sat, 12/27/2014 - 18:01 | 5597167 Al Tinfoil
Al Tinfoil's picture

This reads like a cheap horoscope.

Sat, 12/27/2014 - 15:56 | 5596883 Consuelo
Consuelo's picture

What - no smarmy, arrogant tag lines this week, Marc...?

'I am gravely disappointed...'

'Tis the end of the year and you can't even muster a good tin-foil hat slap...?

Here - I saved a few 'cause I felt sorta bad that your gift basket this week - what being the Holidays & all, was kinda empty - barren even...

"When the dollar falls, we are told it is logical.  The empire is crashing and burning.  When the dollar rises, the markets, we are told are manipulated.    Well, the dollar is back, and the technical correction ended, near we told you it would."

Or how 'bout this one -

"Unvarnished analysis as if people were not stupid, easily manipulated, or subject to false consciousness."

No...?   How about this one:

 

"A look at the global capital markets as if analysis matters."

 

Really?   Ok, I know this one is a true crowd pleaser:

"The look at the drivers of next week, without using the word manipulation or conspiracy, or referring to how stupid or evil some people may or may not be."

 

Oh C'mon man...   One of these must be good enough...?   Here:

"Contrary to the death of the dollar chatter, the US currency continues to appreciate.  Here's why there is still punch left in the bowl."

 

Argghhh...   You're making it really hard...   Ok - last try:

"If there were no puppet masters in Washington DC or the Kremlin, what would happen next week?"

 

Is there not an ounce of arrogance left within the cockles of your heart to spare some loyal followers of Marc-to-Market a little Holiday 'cheer', with an appropriate conspiratorial bitch-slap tag-line - at least by New Years Eve...?

 

 

 


Sat, 12/27/2014 - 18:20 | 5597207 Marc To Market
Marc To Market's picture

Consuelo, are you coming on to me ?  Sorry, man.  

Sat, 12/27/2014 - 15:24 | 5596802 Juno Rock
Juno Rock's picture

"5% Q3 GDP" ??

"continued improvement in the labor market" ??

 

You have got to be kidding me, right? You're pulling my leg, right? It's a sick joke, right? 

If not - just keep on believeing that Unicorn's shit skittles and government ALWAYS tells the truth! lmao

Sun, 12/28/2014 - 03:00 | 5598244 Bay of Pigs
Bay of Pigs's picture

Hard to believe ZH would let someone post this kind of blatant propaganda.

This guys analysis is a joke.

Sat, 12/27/2014 - 21:15 | 5597539 Bighorn_100b
Bighorn_100b's picture

I'll make it easy to understand. This is what I am starting to do today. Buy a 1 oz Gold Eagle Coin every two week till 2016. Don't care about price. Just have to have it in your hand. How hard is that?

DCA, dollar cost averaging. Same with Silver Eagles. It's a no brainer.

Sun, 12/28/2014 - 17:20 | 5599562 SuperRay
SuperRay's picture

This guy is a moron who hasn't got a clue that his audience knows that charts are bullshit in a rigged market.  He talks like a technical anal ist from last century.   Particularly annoying or humorous, depending on your alcohol intake at the time of reading, is his comment that the Fed will raise rates in mid 2015.   It's like he actually believes the toxic exudate flowing from Yellen's orifice.  Doh!

Mon, 12/29/2014 - 04:20 | 5600880 exonomic halfbreed
exonomic halfbreed's picture

Even if the rates were raised, the resultant effects in the market would leave them to abruptly change course to introduce massive QE to save the system or usher in the totel collapse depending on their goal.  Inflating the currency while simultaneously buying up real productive assets and hard assets stolen fron the people brings us to a situation not much different than Marxs goal of the means of production being held by the state.  However in this case the state is not the government but is instead the small group that owns and controls the government.  Oy Vey.......... How could this happen?    

Mon, 12/29/2014 - 05:21 | 5600902 Self-enslavement
Self-enslavement's picture

The Dollar is a weapon used to steal wealth and enslave the entire world.
http://www.realjewnews.com/?p=670

Do NOT follow this link or you will be banned from the site!