US dollar set for good 2015

The US dollar dominated the currency markets in 2014 and it is set to reign supreme in 2015.

US dollar notes
Source: Bloomberg

EUR/USD set for tougher 2015

EUR/USD has lost 10% year to date, as a crumbling eurozone and a bounce back in the US ensured the currency pair felt the pressure from both sides of the Atlantic. The problems that Europe faced this year will be carried into next year, and the recovery in the US may be hindered by a global slowdown.

In January the European Central Bank meeting and the Greek election will provide volatility for EUR/USD, and both events are likely to keep the pressure on the single currency. As I previously stated, the TLTRO carried out by the ECB earlier this month wasn’t enough to quash the QE speculation, and in light of the poor Spanish CPI data yesterday deflation will be on the agenda next year.

The $1.21 level is the initial downside target, and looking to the New Year dealers will be focused on $1.20. If we see a pullback it is likely to run into resistance at the 200-hour moving average at $1.2215.

Spot FX EUR/USD chart

Sterling’s six month slide

On the last trading day of the year GBP/USD is set to post its sixth month of consecutive losses. At the halfway mark of the year the pound was in a strong position versus the US dollar. Comments from Mark Carney about the upturn in the UK property market pushed the pound through the $1.71 level. The Bank of England battled falling inflation throughout the second half of the year, and it will be continue to be a problem for the sterling next year.

This year saw the Federal Reserve wind down its stimulus package, and the US central bank appears to be in no hurry to increase interest rates. The turnaround in the US economy in 2014 compounded the downward trend in GBP/USD, but I suspect the rate of recovery in the US may slide as the slowdown in the BRIC economies will put the brakes on US growth next year.

In my view the US is still ahead of the UK in the race to increase rates, but I believe the GBP/USD decline will decelerate early next year. The $1.55 level was punctured this year and it remains my target. Sterling may creep towards $1.56 but it will be difficult to breach the 50-day moving average of $1.5685.

Spot FX GBP/USD chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts