Many forex pairs and indices are ending the year where they started
At last the Federal Reserve has raised interest rates in the last meeting of the year. The widely anticipated hike has been hanging over our heads for the whole of 2015 and has been dollar-supportive of course. The other big story for financial markets this year has been the widespread collapse in commodity prices, including energies, metals and agriculture. These markets are looking likely to end near their lows for the year with only two weeks left.
This has been an excellent sector for trend followers, if they have been able to run short positions into the ground all year. This phenomenon has also dragged commodity currencies such as the Australian and Canadian dollars lower as their economies suffered reduced demand for their exports.
This story has been well covered in the financial media so I will focus on another topic. Many markets have lacked any direction whatsoever this year, including many other forex pairs which have traded in sideways trends for the whole of the year.
The USD/JPY chart below shows some volatility with the yen gaining from the financial turmoil in August when the Chinese started the devaluation of the yuan. However since then the move has been reversed and we are trading just above the highs seen back in the spring.
There was speculation the Bank of England would raise rates along with the Fed this year, leading to some strength in sterling in the first half of 2015. However weakness in the economy has seen expectations fade dragging the currency back towards spring highs. The daily chart below shows a clear sideways pattern for this year.
The EUR/USD saw a sell-off into March in anticipation of increased QE measures but this was reversed earlier this month when expectations were not matched by the ECB. As the daily chart shows, another big sideways trend for the pair this year. It is worth noting how we have held the 100 and 200-day moving averages on the recovery this month.
No surprise then that the EUR/GBP has also been pretty stable. See below.
The theme of sideways-trending markets extends to many European and US stock markets as well. The DAX rose very strongly on high hopes for QE at the start of the year and then traded sideways through spring up to the August mini-crash. We saw a good recovery but have sold off again in December.
However when you look at the daily chart for the year you can see we are trading around the same levels as mid-to-late January. A lot of stress and worry for investors but nothing in the way of gains.
The EuroStoxx 50 chart above shows a similar picture as does the E-mini S&P daily chart below.
No surprise then that the E-mini Dow Jones is hovering around the same levels we saw at the start of the year.
Even the European bond markets look likely to end the year mostly unchanged. The Bund has certainly been volatile, suffering a big sell-off from April to June, but we have spent the last six months in a recovery phase and are now trading back at the levels seen in January.
The UK 10-year Gilt has been even more stable, as we can see below.
The problem for the start of 2016 is that it will take at least a couple of months of movement in one direction before we will know if any longer-term trends are forming.
Technical Analyst & Trader
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