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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Forex, Oil and Gold Market Forecasts for 2014

Stock-Markets / Financial Markets 2014 Jan 01, 2014 - 02:58 PM GMT

By: Submissions


David Parker writes:

The EURUSD started 2013 just above its major resistance at 1.3000 and managed to climb up to 1.3790 by the end of January 2013, as the Fed decided to increase its monthly asset purchases from $40 billion to $85 billion.  At the end of the first quarter, the banking crisis expanded across the European countries and the single currency tumbled down to 1.2740, which was the yearly low for the pair. For a few months, the pair swung between gains and losses and at the beginning of July hit a double bottom at 1.2740, as Ben Bernanke announced a trim to the asset purchases during September.

Despite the Fed’s announcement regarding the QE program, the US economy struggled to find a recovery plan and the pair rebounded back to gains paving the way towards higher highs. In addition, the US shutdown during October helped the euro to appreciate touching its highest level since November 2011 at 1.3838. The year ends with Fed tapering its asset purchases by 10 billion and projecting that during 2014 we may see the pair dropping down, as the US economy may find a recovery path and the European leaders continue to struggle to find the formula to bring Europe back to steady growth. 

Shinzo Abe was elected as the prime minister of Japan on 26 December 2012 and the Bank of Japan took proactive steps to control deflation in Japan. Towards the end of March, Abe appointed Haruhiko Kuroda as the new Governor of the Bank of Japan. Few weeks later, Haruhiko Kuroda announced that the BoJ would be purchasing securities and bonds in order to double Japan’s money supply in two years. The result of those actions was the depreciation of the Japanese yen. The USDJPY started the year just below the level of 86.00 and skyrocketed up to 103.72 until May 2013. On the other side of the Atlantic, the troubles within the US economy helped the Japanese yen to pare part of previous month losses and the pair dropped back to 93.75 by June 2013. The pair fluctuated for a while and after the resolution of the US shutdown and the approval of the US budget during October, the pair continued its rally towards higher highs. By the middle of December 2013, the USDJPY managed to rise up to 104.60 and recorded new highs since October 2008. The pair may continue the bullish trend during 2014, as the BoJ is expected to continue the monetary easing and on the other side the Fed might scale back its asset purchases by the end of 2014. Projections indicate a new high for the pair and we may see it climbing up by the end of 2014.

2013 has been an eventful year for energy prices with the two global oil benchmarks narrowing their spread in the late summer. West Texas Intermediate (OIL), the US benchmark, started the year trading at 92.00 dollars per barrel and followed a bullish rally until 112.20 in August. Most pressure was created from a supply glut in Oklahoma US with the pipeline infrastructure unable to process the required amounts to satisfy demand. New pipeline infrastructure deliveries since have helped ease supply considerations and at the same time, the US commitment to reduce reliance on foreign oil have helped it increase its own energy resources including shale gas and more reliance on neighbouring Canada’s tar sands. These developments will greatly reduce any future supply considerations looking into 2014. On the demand side, a healthier US economy may drive consumption of energy higher as unemployment stabilises lower and industrial production picks up. The recent decision by the Fed to taper quantitative easing by USD 10 billion per month during 2014 may have an effect on commodities and other asset classes altogether, however the initial reaction by markets pushed the US benchmark above 98.50 dollars.

Brent Crude
Brent Crude (BRT) rose to 119.00 dollars by February 2013 falling below 97.00 in April and finding again strong resistance at the 117.00 dollar range. While global demand remained relatively subdued, with sluggish growth in Europe and a slight suppression of growth rates from Asia, 2014 is expected to be a better year for the global economy, especially as key European industrial countries are slowly leaving the crisis and consumption in these countries starts to pick up. In the next year China is expected to surpass the US as the world’s largest oil consumer which could further put some demand pressure on the global benchmark. Two major events affected supply in 2013 including the death of Venezuela’s socialist President Hugo Chavez, and the election of a new Iranian President, Hassan Rouhani. Iran and Venezuela are two of the world’s seven largest oil producing nations and development in these countries during 2014 will have strong supply implications in the world’s oil prices. As the new Iran regime looks more ready to cooperate with western powers we may have an easing of supply during the year, leading to downward pressure in the price of Brent.

Gold (XAU) has had one of the worst years in its history after falling more than 500 dollars from last January. The precious metal has been on the decline since late 2012 as the American economy started growing. While for the most part of 2013, investors were expecting a statement from the Fed that would put an end to QE 3; this did not come until the end of December. As the US money supply is expected to grow at a smaller rate over the next year, with 10 billion less added liquidity per month, the dollar may appreciate, pushing asset prices lower especially on commodities like gold which are not income generating.

On the supply side, no major disruptions in mining are anticipated and even though extraction costs have grown over the past few years, these seem to have been pulled higher due to the higher price of the commodity on the open market rather than fundamental cost increases. As we enter the new year, the 1000 dollar mark will be a key psychological level for the support of gold and from then on it will again mostly depend on the dollars money supply or an external “black swan” event that may increase risk aversion in the markets.

Author: David Parker

Short bio: Marketing consultant and entrepreneurial investor.

© 2013 Copyright  David Parker - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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