US Dollar rose to new high against the Euro, reaffirming its resilience amidst global slowdown. However, will it persist in overpowering the Euro and other currencies throughout 2015?

US Dollar yesterday (29/12) arrived at a new high against Euro, once again proved its strength amid global slowdown. However, will it continue to drown the Euro and other currencies in 2015? Ahead of the New Year, a number of global analysts have released their predictions on forex major pairs in 2015. Here is a selection of them.

Prediksi

Bearish EURUSD Bearish Except If Fed Cancels Rate Hike

Among major pairs, EURUSD is the pair with the most bearish outlook in 2015 due to the high possibility of US the Fed to hike rates before mid-year and market pessimism of a Eurozone comeback although European Central Bank might launch large scale Quantitative Easing (QE).

Greg Michalowski from ForexLive projected EURUSD will be bearish in 2015, both from fundamental and technical perspective. Trading range for the pair next year is between 1400 pips (within 1.1350-1.2750) or at a minimum 1000 pip (within 1.1600-1.2750). But Michalowski added that the unexpected might happen if US the Fed cancels rate hike or if Eurozone suddenly revives after stimulus.

Axel Merk from Merk Hard Currency Fund warned that volatility in the money and commodity market might extends to equity. When it happens, then long overdue correction might take place. The longer the correction, the higher the possibility of a crash. While the rise in equity this year is linked to stronger Dollar, the greenback could not play safe haven if equity market tumbles.  Meanwhile, Merk doubts that inflation will go up although ECB might actually buy Eurozone sovereign bonds. What the ECB under Mario Draghi needs, he wrote, is to have fewer geopolitical headwinds; notably in regard of Ukraine. 

GBPUSD Hesitates Ahead of Election

GBPUSD pair has turned into a disaster for many traders in 2014, in its relation to the Bank of England deliberation on the topic of rate hike, Scottish independence referendum, lackluster job market, and side effects of Eurozone slowdown.

Poundsterling
Forecast by Barclays predicted GBPUSD to drop to 1.43 by the end of 2015. In clients briefing last month, Barclays said that they anticipate lower GBPUSD next year. Although UK economy prospect is still positive and there are indication that wage growth will accelerate, but BoE lately have became more dovish. The UK central bank have revised down its inflation expectation and seems much more hesitant to talk about interest rate hike. Consequenlty, economists from Barclays shifts expectation of BoE rate hike from first quarter to third quarter of 2015 and estimates GBPUSD to depreciate in the next 12 months. Slowdown in the Eurozone as UK main trade partner will be risky for Poundsterling as well.

In line with Barclays, another leading bank, Morgan Stanley, also forecast Poundsterling weakness. They saw the possibility for GBPUSD to drop up to 1.45 in 2015 due to a number of challenges like moderated growth, rising uncertainties ahead of election, and the prospect of fiscal consolidation. Bearish GBPUSD is said to be one of their main trading idea, as political and fiscal risk abound.

Even so, Greg Michalowski from ForexLive tended to be neutral on the pair. The reason is because although tightening has been pushed back, that if wages start to rise, core inflation may also follow and the BOE may play follow the Fed. Trading range on a minimum of 1000 pips is expected between 1.5346-1.5435. Meanwhile, if cable moves up to 1500 pips, then the upper limit is 1.6400 and the lower limit is 1.4900.

Uncertain USDJPY Bulls

John Kicklighter from DailyFX believed that in the next year or so, Yen will continue underpressure, and Yen crosses will move higher on that premise. However, in lower timeframe, Kicklighter urged caution as he considers the risk to maintain buy is too high. As we know,  economic and financial changes raises the likelihood of risk aversion that might trigger investors to seek Japanese Yen as safe haven.

Ekonomi
Other analysts are also uncertain on the pair's bullish prospect. Michalowski in his technical projection mentioned that USDJPY has reached 2007 highs, and it has huge implication for importers and exporters in Japan and the US. Therefore, it will be too easy to say whether the direction of trend movement will be up or down. Although fundamental and technical bias for USDJPY is bullish, he warned that movements under level 112 will have different meaning.

On the other hand, an article on Reuters yesterday alluded to the existence of a mysterious 8-year cycle on USDJPY that has proven to be quite accurate in the last 40 years. The cycle indicate that USDJPY will reach its peak in 2015, but no more than that. 8-year peaks followed by significant decline on the pair has came into effect since the application of floating exchange rate system in 1973, more precisely at 1974, 1982, 1990, 1998, and 2007, although there are no relevant fundamental to explain what's behind the phenomenon. Junichi Ishikawa from IG Market and Daisaku Ueno from Mitsubishi UFJ Morgan Stanley agreed on the existence of the phenomenon, but the two consider it likely that the cycle will not be repeated in 2015 because Japan currently is embroiled in trade deficit instead of surplus as it was.

 

Wild Card

Overall, 2015 seems to be a cheerful era for US Dollar bulls to play. Beside of the promising fundamental economic forecasts, there is also the tendencies of other leading central banks to maintain low exchange rate. Reserve Bank of Australia (RBA), for example, have repeatedly jawboning the Aussie all year long. How far will the market respond if it goes on? According to Axel Merk, Aussie will depend on China more than the words of policy makers. As we know, China has undergo slowdown this year, with GDP growth and PMI Index slowly slipped.

Furthermore, China economy slowdown is just one of several wild card that has the potential to make or break the forex market in 2015. Other factor that needs to be observed is oil price decline. In 2013, almost no one guessed that oil price will nosedive from 100 USD to 60 USD per barrel. Oil price decline nowadays is no longer make any fundamental sense, so much so that if it goes on for longer, the unexpected might breaks among oil-producing countries that has received backlash from the drop. Oil price comeback, on the other hand, has the potential to push the rising USDCAD down as Canadian Dollar is well-known as commodity currency with to oil price.

Apart from that though, some things remain unchanged. The first is the function of gold as safe haven, particularly if the Fed failed to raise rates as expected while real rates in Europe and Japan stay negative. And the second, money management as a vital part of forex trading, especially because risks on the market next year might rise unexpectedly.