Ahead of Janet Yellen becoming FED chair focus has turned to the USD dollar and whether it is now set for a period of sustained strength, and one reason offered by dollar bulls as to why it still hasn’t taken off is because the euro is even stronger!
Two potential drivers for dollar strength are: a stronger US economy & an earlier than expected interest rate rise. To date fed fund futures are pricing a rise in interest rates no sooner than 2015. However, if unemployment in the US were to fall below the new target of 6.5% – then this could precipitate a rise in rates.
Then there is the renminbi – will 2014 be the year it finally emerges as a credible alternative to the US dollar? As traders we should always have China on our radar, but maybe this year a little more so than usual.
The outlier is, of course, bitcoin – will it go away or sit alongside the existing system?
Finally, gold & its future role – given that two reasons for its meteoric rise have (more or less) evaporated. The first was the imminent collapse of the US dollar & and the second being rampant inflation. The technical picture for the precious metal has certainly improved, to the extent that the gold price seems to have found a degree of stability around the $1200 per ounce level. From a fundamental perspective, again we need to turn to China & India, but more on this later.
So Happy Trading & lots to think about in the coming weeks!!
By Anna Coulling