It seems like it was only yesterday that we were ushering in the first month of the Year of the Dragon.
Now, January is completely behind us! How did the forex markets fare last month?
Below, you’ll find a chart illustrating how our favorite currencies performed against the U.S. dollar in January.
As you can see, the Japanese yen was the top dog last month, followed by the New Zealand and Australian dollars. And believe it or not, only two currencies, the euro, and the Canadian dollar were weaker than the U.S. dollar in January. So can we expect more of the same over the next couple of months?
Feel free to conduct your own analysis, folks! But based on a Bloomberg survey, it looks like the world’s top banks (the big boys!) are expecting the U.S. dollar to regain control of the markets.
It’s quite interesting to see how the U.S. dollar is forecasted to strengthen from its current levels, considering that the latest FOMC statement was quite dovish (e.g. talks of extending the period of extremely low rates and the Fed’s openness to more bond buying).
One thing in particular that caught my attention is that the EUR/USD median forecast is 1.2700, and only 11 out of the 49 surveyed banks see the pair staying above 1.3000.Perhaps this means that most of the big boys are expecting things to get worse before they get better for the euro?
In any case, it really makes you wonder if the euro’s current levels are sustainable given that majority of the big banks’ forecasts for EUR/USD are actually hundreds of pips below the pair’s current price!
As for the yen, it seems like they pretty much believe the Bank of Japan will be able to keep its currency’s rally in check since median forecasts predict USD/JPY to finish at 77.00 this quarter.
Now, I know how tempting it is to enter trades based on these forecasts, but it’s important to remember that even the world’s top financial institutions can’t read the future.
A million different things can happen over the next couple of months, and we all know that top banks aren’t immune to messing up forecasts… Lehman Brothers are proof of that! So we shouldn’t base our trades solely on these predictions.
But this does give us key insight as to what the big boys are thinking, at least from a long-term perspective. Remember, these banks and financial institutions make up a big part of the forex market, so it’s also good to know what’s on their minds!