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Wednesday, 20 March 20:05 (GMT -05:00)



Foreign exchange market

NordFX Sums Up On 2018 and Makes Predictions About 2019


Summing up and making predictions for the next year has become a good tradition at the end of each year. According to NordFX expert John Gordon, Deutsche Bank summed up on the results of its work in 2018. The actual result turned out to be a loss. In particular, it turned out that around 93% of all the assets owned by the bank have depreciated as opposed to that value in January 2018. This is the worst financial performance in 118 years! 2018 beat even 1920 when 84% of the assets decreased in value.
 
International experts say that the key reason for this poor financial performance was an extremely easy monetary policy, which then was changed for a very tough one. The thing is, the U.S. Federal Reserve raised the interest rates 4 times last year. This was more than enough to devalue most of the assets out there and even trigger a prolonged recession.
 
President Trump openly says that the Fed and its Chairman Jerome Powell are insane. He urges the American financial regulator to stop those interest rate hikes but those calls remain unnoticed. In December 2018, the FOMC raised the key interest rate by 0,25%. In 2019, only 2 FOMC members expect the rate to be increased up to 2,5%. The other members expect a much bigger rate hike. December's intrest rate decision triggered a wave of crashes in financial markets. For example, for Dow Jones, this was th worst month since the Great Depression in the 1930s. According to Bloomberg, this market crash resulted from the fact that the world's 500 richest people had lost 511 billion dollars. Founder of Facebook Mark Zukerberg turned out to be the biggest loser in this crash, losing 23 billion dollars.
 
When it comes to Forex, the common European currency surprisingly managed to get much stronger against the U.S. Dollar in February. EURUSD peaked at 1.2555. But then the situation changed, being influenced by the difference between the monetary policies pursued by the ECB and the Fed, as well as the issues with Italy, an overall economic slowdown in Italy, and the difficulties with the Brexit agreement. Later on, in mid-November, the currency pair dropped all the way down to 1.1215.
 
A similar picture was seen in the GBPUSD market. First the currency pair peaked at 1.4375 in mid-April but found the bottom at 1.2475 in December. All in all, GBPUSD lost 1900 points in 8 months.
 
The Japanese Yen was seen by investors mostly as a safe-haven asset within the context of a possible escalation of the trade conflict between the United States and China. Since the conflict never escalated in late 2018, USDJPY found itself around 111.00, which is the pivot point of the last 2 years. All in all, the currency pair lost some 200 points in 2018.
 

2019 Forecast

 

Some analysts treat the events of 2018 as the start of a prolonged depression. The doomsday forecast is intended for the USa in the first place. The 2-year U.S. T-bond yield has already dropped. At the same time, the 10-year U.S. T-bond yield has crashed all the way down to the 7-month low, which is seen by international experts as a sign of a economic depression coming.  
 
There is another story with Europe, despite the fact that the ECB cut downgraded their forecasts on inflation and economic growth. The year of 2018 showed everyone that the trade wars started by Donald Trump are not as scary for Europe as one might think. Still, the common European currency and the British Pound are still pressed by the challenges related to th Brexit.
 
However, we should keep in mind that the 90 days of peace in the trade war between the USA and China will be over soon, which brings an extra layer of uncertainy to all financial predictions in general and those related to USd in particular. Still, the forecast given by the world's leading banks and financial agencies look pretty similar. 
 
Bloomberg expects positive dynamics in the EU exports. They also expects a improvement in the German motor industry as well as higher salaries. As a result, the Eurozone's money and credit policy may normalize and bring EURUSD up to 1.2 by the end of 2019.
 
Morgan Stanley also think that 2019 is probably going to be a difficult year for the U.S. Dollar and recommend that their clients should buy EUR amid the forecast of a stronger inflation in the Eurozone. They expect EURUSD to reach 1.18 in 2019.
 
As for the near-term forecast (the first 3 months of the year), the experts are mostly optimistic about the Euro. Societe Generale and CIBC Capital Markets expect a move up to 1.17. TD Securities names 1.19. Lloyds Bank think the Euro may well increase up to 1.24.
 
Other experts, including Citi and Barclays Capital, are more cautious about making predictions for EURUSD. Some of them don't deny the scenario when EURUSD goes down to 1.13 and 1.12 but then may reverse to reach 1.18. The lowest point stated in various forecasts is 1.11.
 
JPMorgan Chase experts anticipate a recession in the American economy because Trump's financial stimulation will definitely end at some point while the Fed's policies are definitely not expected to back the economy with cheap money. The Eurozone economy will probably take the lead. While expecting an interest rate hike from the ECB, the market players will probably start pushing the Euro higher against the U.S. Dollar. However, this hike is expected to take place in the second half of the year, which is probably why most experts say EURUSd may plunge down to 1.11 in the first half of 2019 and then move all the way up to 1.18 in the second part of 2019.
 
As for GBPUSD, JPMorgan Chase anticipates the currency pair to move up to 1.3 in Q1 2019, with a further rally up to 1,37 by the end of the year. However, this scenario holds true only if the Brexit goes smoothly (the likelihood is 40%). If the UK quits the EU without a major agreement, this will drop the British Pound at least 10% down against the U.S. Dollar. If the Brexit is canceled, the currency pair is expected to gain 10%.
 
The Japanese Yen is expected to weaken against the U.S. Dollar in the first half of the year. USDJPY is expected to increase up to 112 and may be even further up to 118. This may happen due to the bigger foreign investments in Japanese companies and worse trade balance.

 

 

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