As regular readers will know, every year I write an end of year analysis, with a look forward to what the new year is likely to bring us, from both a trading and investing perspective. This is kindly taken by investing.com where you will be able to read my latest thoughts on what lies ahead as we move into 2016, with the era of ultra low interest rates perhaps finally coming to an end. Whatever 2016 has in store, rest assured I will be trading and writing about it here!
Meantime, here the full article which was published in December 2014 :
The end of 2014 has certainly been very different from the start, with markets refusing to end the year on a benign and relaxed tone, delivering instead periodic bouts of violent volatility, which at times has been off the Richter scale. In addition we have also seen a breakdown of many of the traditional and reliable relationships and correlations, thereby making any forecast of what is likely to happen next year about as easy as trying to forecast the latest lottery numbers.
However, anticipate and forecast we must, because volatility eventually dies down, and relationships reconnect and repair. But where to start? Perhaps we should scroll back to the beginning of 2014 when many analysts and commentators were declaring this to be the year of the US dollar. And indeed, after a very slow start the USD duly started to move higher in June when the Dollar Index failed to take out the strong platform of support in the 79 price region, and so began its current ascent. Since June the USD index has been on an unbroken upward trajectory as it now moves towards the key 90 price point. Only a move through this region will see the USD index re-test the 2005 high of 92.
However, any move higher for the USD has ramifications for other instruments and asset classes, not least commodities and emerging markets, and it is the latter and the events of 1998 which are likely to weigh heavily in 2015. For a view of the overall performance of emerging markets the iShares MSCI Emerging Markets ETF (ARCA:EEM) is a good chart to follow and here the technical picture looks weak longer term, with the ETF having been in congestion for the past 2 years, mirroring the USD index. Any move through the floor of support in the 36.50 could then trigger a deeper move to the lows of 2009.
The prospect for further dollar gains looks compelling. First the technical picture is now building a strong base and provided the 90 region is taken out, we can expect to see a further move to test 92 and from there on possibly even towards 94.70 by the end of the year. In this respect much will depend on the continuing positive rhetoric from the Federal Reserve. With interest rates now increasingly taking centre stage once again, the main beneficiary will be the US dollar. Indeed this could be one of the characteristics of 2015, where the fundamentals play an increasingly important role, particularly in forex markets, with central bank management of rates taking a back seat. This in turn is likely to be reflected in the major currency pairs as interest rate differentials once again become the main drivers of this market with Europe languishing in recession, if not outright depression.
Before moving to other asset classes, the US dollar’s celestial twin is, of course the Japanese yen, and here 2015 may be the year that Japan loses control of their currency. 2015 may be the year the BOJ takes a step too far in its constant round of quantitative easing. With the 120 price level having now been pierced the next significant level is 125 with 134.50 the next logical step.
Moving to commodities, here it has been a dismal year for Gold bugs with the precious metal declining steadily, punctuated with minor rallies. The outlook for next year is more of the same, with gold likely to move through $1100 per ounce and possibly to test the 2009 levels of $1000 per ounce in this period.
Furthermore, the traditional correlations for gold with the US dollar as a safe haven appear to have broken down, with the metal trading in its own unique world. Silver is likely to mirror the price action for gold.
The collapse in oil for both Brent and WTI has been dramatic and mirrors the equally dramatic fall of 2008, at the height of the financial crisis. The cause of the current fall is all to do with politics and in particular the desire of OPEC to curb the rise of alternative energy suppliers and sources. The fallout from the collapse in oil prices, particularly for the more junior members of OPEC, is already leading to social unrest and regime change. The break-even prices have already been exceeded, but we are not at the bottom yet and we can expect to see a further move lower for oil early in 2015, with a consequent bottom likely in the $40 per barrel region for WTI.
Moving to equity markets, the Philippines was once again the star performer, with the iShares MSCI Philippines ETF (NYSE:EPHE) returning 31% against the US at 17.9%. This is a perfect example of how the media fails to report wonderful trading and investing opportunities in other markets.
Other star performers in 2014 included India, Indonesia, Taiwan and Vietnam and these countries look set to deliver another strong performance in 2015 as they will benefit from cheaper energy costs. Bottom of the list is Russia – which is no great surprise – given the collapse in oil prices and the ruble.
In summary, 2015 will deliver some great trading and investing opportunities and may the year to look beyond the more traditional asset classes and instruments.
What is interesting is that many of the themes referred to in December 2014 are still centre stage in December 2015 and likely to figure even more heavily in 2016.
By Anna Coulling