As 2012 mercifully ends and 2013 begins, forex trading opportunities already are being shaped by a shift in the global political economy. Forex traders who take a top-down macro-economic perspective will be able to identify these significant opportunities. First, China looks like its retreat from growth is stabilizing. This will impact global growth expectations. The Eurozone sovereign debt crisis appears manageable, certainly with a degree of continuing anxiety but without a breakup of the Eurozone. The U.S. era of expanding debt and central bank easing policies appears to be on hold and may be in retreat. Let’s explore some of the opportunities these forces are set to unleash in 2013.
AUD/USD — The Australian/U.S. dollar emerges as a currency pair that will be worth trading. During 2012 the Reserve Bank of Australia cut rates by 150 basis points, yet importantly held off on cutting rates on Nov. 5, leaving the rate at 3.25%. This non-rate action has released bullish expectations for global growth. As a leading commodity producer, the Australian economy is very sensitive to global growth. If the RBA doesn’t cut rates in February 2013, it may be an omen that the global era of rate cuts is over. If China stabilizes, traders can target the AUD/USD pair with a trajectory of retesting the highs of 1.10 (see “Aussie highs”).
USD/JPY — The yen, having tested and probed the key 80 figure, is giving us a gift. Japan’s economy remains in need of stimulus. There is fear in Japan of the recession resuming. A recent coincident index that is a composite of more than 11 indicators declined to the lowest level since 2009 (excluding the outlier earthquake month of 2011). The indicator was so bad that Japan’s Economic Minister Seji Maehara is reported to have urged ignoring it. Add to this the fact that the Bank of Japan is in an easing modality as it continues to expand its asset-purchasing program. A catalyst for a weaker yen will be perceptions that the Eurozone sovereign debt problem is manageable. The level of capital flowing to the yen as a safe-haven basket as a result likely will decline, lessening demand. Given the current state of the Japanese economy, traders should realize that the era of yen strengthening as a safe haven for global fears will be over in 2013. Further weakening to 85 is a target for 2013 (see “No more carryen”).
EUR/USD — Euro currency price action has been hostage to the sovereign debt crisis. However, the really important factor for EUR/USD valuations is expected growth in the Eurozone, and expectations for growth are grim. The Eurozone Composite PMI (Purchasing Managers Index) had the worst reading since June 2009 — an indication the Eurozone could be entering a great contraction. Whether this occurs or not, it is likely that Eurozone growth will lag behind that of the United States and Asia in 2013. As a result, the EUR/USD may very well be probing 1.20 and even 1.15 in 2013 (see “Euro-trashed”).
Of course, the outcome of the fiscal cliff negotiations may create other opportunities. The U.S. dollar and gold will face a great deal of volatility depending on if the can is kicked down the road, we fall off the cliff or we reach a compromise between those extremes. In any case, 2013 will offer major trading opportunities.
Abe Cofnas is author of “Sentiment Indicators” and “Trading Binary Options: Strategies and Tactics” (Bloomberg Press). He is the editor of the “Binary Dimentions” newsletter and can be reached at firstname.lastname@example.org.