Looking back to the year 2014, it has been one of surprises with the markets being driven foremost by interest rate speculations, regardless of the short term swings in the markets and the ever changing views of the major economies. The year 2014 has definitely taught us traders some very good lessons, some of them as listed below:
Always take the economists’ view with a pinch of salt
The first quarter of the year started on a doubtful note for the US Dollar. Subsequent economic data on all fronts continued to be weaker but most economists shrugged off the weaker fundamentals on account of the ‘Polar Vortex’ that engulfed North America. It wasn’t surprising to see that during this time, the Dollar bears and doomsday analysts continued to mock the US economic recovery by calling it just the economist’s views of finding reasons for weak growth.
Soon enough, at the turn of the first quarter, the US economy rebounded with a vengeance which at that point in time still saw many question the rebound. It only took another quarter (Q3) to confirm that the US economy was indeed on the path to recovery. However, it was a bit too late to act leaving many to miss the boat.
Never question a Central Banker
The year 2014 saw the rise of the Central Banker. Be it via monetary policy meetings or rising to the occasion at any and every possible event to verbally talk down their respective currencies. Perhaps the biggest example we saw this year has been the Australian Dollar, where the RBA managed to keep downward pressure on the currency without having to do much in terms of physical selling. The RBNZ was on the other hand a bit more aggressive, following up on its talk by physically selling the Kiwi dollars in the markets at many occasions.
Those who doubted the Central Bank’s views on currency rates were left with a large hole in their pockets no doubt.
Politics do play a role
Who would have thought that we would get to see Crude Oil trade at an almost 50% discount just within a few months. The commodity which has at least in the past years enjoyed trading at levels of $100 and more plummeted sharply and took many by surprise as OPEC simply opted to sit on its hands while watching prices continuing to head south. It would be hard to put a finger on a single event or reason, but the fall of Crude Oil has brought to the front, the fact that at times it’s not just market speculation or technical analysis but also the larger role of the geo-politics needs to be considered, although thankfully, such occasions are usually far and wide between.
Speculators can get it wrong!
Think GBPUSD during the start of 2014 and look at the current levels where it is trading now. What seemed back then as an almost done deal in regards to the UK interest rate hike, saw a complete reversal of fortunes for the currency. This is perhaps an important lesson to bear in mind as we head into 2015 where speculators are broadly bullish on the US interest rate hikes. Will we see history repeating itself, this time the other side of the pond?