Despite misses on gold and the US Consumer, Citi's FX Technicals "12 Charts of Christmas" performed well in 2014 [7] and today they unveil the the 12 most important charts (in their view) that establish a “starting point” for their outlook on markets as we head into 2015.
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Via Citi FX Technicals,
What do we believe for 2015?
- EURUSD bearish trend remains intact and we expect to see 1.10-1.15 levels in the first half of 2015, with parity or below possible over the year. Full QE from the ECB is likely early in the New Year
- European Bank Stocks Index may be the outperformer as the ECB further expands its balance sheet, with a move to at least 163 on the Index likely and an extension to the 240 area possible
- USDJPY trend looks bullish with levels above 130 likely in 2015
- Consumer Confidence (U.S.) looks set to continue to move higher as the economy improves. A robust U.S. economy will likely propel US Equity markets to new highs in 2015. Another double digit percentage return here would not be surprising in 2015.
- We expect to see NFP numbers head towards or above 400k, the Unemployment Rate decline towards 5%, and an elevated Core PCE potentially printing near 2.5%
- 2 year yields (U.S) will break the cycle of lower lows and lower highs and the Fed will start to normalise rates by June at the latest. The 2’s versus 5’s curve will bear flatten as the market anticipates this normalisation of monetary policy
- Crude oil (WTI) should regain some of its recent losses and could quite possibly head back towards $90 or above
- USDBRL looks likely to complete the double bottom around 2.62 and target as high as 3.70
Overall: A more resilient economic/employment recovery in the US should be favourable for the USD and see US yields (in particular short end) head higher. Europe, along with the EURO, will continue to struggle. The backdrop for Equity markets overall should be positive, as a lot of liquidity remains in the system despite the withdrawal of accommodation by the Fed.
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- For only the 2nd time in the history of floating exchange rates we are looking at the potential for a bearish outside YEAR in EURUSD.
- The only other time this happened was 1980, after which the USD rallied for another 4 years. There has also only once ever been a bullish outside year in EURUSD (1985), which was followed by 2 up years and a USD bear market that lasted 7 years (EUR as it’s components).
- In 1981 (the year following the bearish outside year) EURUSD fell to a low 25% below the 1980 close. In 1986 (the year following the bullish outside year) EURUSD rallied to a high 23% above the 1985 close
- IF we were to see a dynamic similar to the above next year it would suggest that EURUSD could trade below parity before the end of 2015
- In addition, a close above 84.75 on the USD-Index, if seen, would be a bullish outside year (Not shown).
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A similar move in magnitude to the 1995-1998 period would suggest that 140 is “in the crosshairs”
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The present set-up in volatility is more like that seen in 1993/1994 than 2007. As a consequence, we suspect the trend low is in and a more normalised level of volatility can be expected in 2015 (more likely in the mid to high teens than single digits).
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A monthly close this December above 56 bps would give an outside month (arguing for higher yields). The last time this happened was at the May 2013 lows. From the close that month we went 25 bps higher in less than 4 months.
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A bounce back towards ~$90 or above looks likely over the next 12 months (WTI).
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A decisive break of 2.62 suggests much higher levels with a target as high as 3.70.
And summarizing Citi's strongest conviction 2015 views...
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