Reviewing the Q2 2014 Big Banks’ Forex Forecasts

Now that the second quarter of 2014 has come to a close, it’s about time we review how hotshot financial institutions were able to predict price action. Were their forecasts spot on or totally off?

Q2 Forex Forecasts

Not even close! Most of the Q2 forex forecasts were off by nearly a couple hundred pips, as almost everyone and his momma were strongly bullish on the dollar and bearish on the yen back then.

Recall that risk aversion was still in play around the time these estimates were published and that markets were pricing in potential easing from the BOJ after the sales tax hike. Back in April, the FOMC was notably more hawkish with their economic assessment and outlook compared to their recent cautious policy stance. That was around the time Yellen said that the Fed might start hiking rates “something on the order of around six months” after asset purchases end!

Other fundamental factors that shook up the forex market in the past few months include the ECB rate cut extravaganza and the BOE’s rate hike expectations for 2014, which explains the huge 615-pip difference between the median forecast for GBP/USD and the Q2 2014 closing price for the pair. Take note though that while euro weakness was mostly responsible for the lower closing prices of EUR/JPY and EUR/GBP, dollar weakness played a greater role in pushing EUR/USD higher than projected.

As with the Q1 2014 Big Banks’ Forex Forecasts, this review of price estimates from top financial firms suggests that even those with all the resources and analytical tools cannot accurately predict how currency pairs will trade three months from now. Nothing is ever set in stone in the market and it is always important to be aware of the changes in sentiment or biases. Even more important in actual trading is the ability to adjust to these changes. Stay flexible, fellas!

  • ForExchange

    Hi!

    Thanks for the interesting results! It is great to compare the forecasts and see the results. As you say, even the major players cannot see what happens. I made the mistake earlier to trade the predictions of the large ones and after some loss I realized there is just no reason to look at their numbers.

    Do you have also other forecast results or only Bloomberg? It would be even moreinteresting to compare the results of 3-4 key players!

    Have a nice week

    • Forex Ninja

      Thanks for checking out my blog! Yeah I used to keep track of those forecasts too, a couple of years back those were somewhat closer to the mark. This time though, unprecedented events tend to pop up every now and then! I mostly just check out Bloomberg, but I will look into other data from more sources and keep y’all posted. Have a nice week, too!

  • told you the yen wasnt ready for 105 until at least q3, looks like its gonna be 2015, which is just fine because ranging means doing the same trade twenty times if the trend in the long term is a given fact … chine will be overtaking a lot of japan by 2017, the monetary base is still being increased, as long as the US doesnt crash, what can go wrong long term 🙂 overconfidence maybe

    • Forex Ninja

      Let’s see about that! Looks like USD/JPY ain’t gonna reach that 105 area until the BOJ does start easing, but now they’re not ready to admit that Japan is weakening. Gonna keep taking advantage of these ranges for now then. Thanks for sharing your thoughts!