As the markets start to wind down into the festive end of year period, I just wanted to give you a few thoughts for 2015. Santa Claus is coming, but he may well have already delivered an early Christmas present for equity investors with a huge rally in the past few days. It also looks as though at this stage, the scene is set for this rally to continue into the new year.
Well, it has been a year where the volatility has gradually returned to the forex markets, certainly into the second half of the year at least. With major central banks expected to continue to diverge in monetary policy in 2015, expect the volatility to continue well into the new year. I continue to therefore anticipate that the dollar will be strengthening (especially against the euro and the yen). Also I expect that volatility in sterling will become elevate as the UK approaches the General Election in May. The winner and subsequent formation of the next government anybody’s guess at this stage. All manner of coalitions are possible, whilst the UK’s stance on Europe could therefore be critically impacted by the result.
As for gold, the fact that the marginal cost of production comes in around $1100 should mean that there is a natural floor and support between $1100 and $1200. This could mean that we have already seen the bottom, however, it could also mean that 2015 proves to be volatile year for the yellow metal. Oil is a difficult one though. Clearly the glut of supply is an issue, whilst OPEC (30% of the market) is not scheduled to meet again to discuss production levels until June. However the oil price around $60 could mean that demand picks up as a consequence and this could mean more volatility through 2015.
Could 2015 finally be the year of full blown quantitative easing in the Eurozone (more than 6 years after the US first engaged QE1)? Well, if the yields on government debt in the Eurozone is anything to go by then markets continue to price it in. If the ECB does finally fire the big bazooka then it could be the driver of further declines on Eurozone debt yields and gains in the European equity indices. It will also be interesting to see whether investors focus on the US economic recovery (a positive) or the beginning of a Federal Reserve tightening cycle (historically a negative).
It certainly all looks as though next year is set up to be another action packed, roller coaster for traders and investors.
This will be my last update of 2014, however I will be back in the new year to provide further trading analysis and ideas. Good luck for 2015 to everyone who reads my blog and I hope that the new year will be a happy and prosperous one.
PS. For the avoidance of any doubt, I just wanted to clear up that Mario Draghi is not firing his bazooka at Santa Claus, or at least I hope not…