2014 Could Be the Year of the U.S. Dollar

The United States dollar (USD) recently posted gains against the euro and the yen after minutes from the December meeting of the Federal Open Market Committee (FOMC) were released.
The minutes indicate two major developments: First, the U.S. Federal Reserve is on track to reduce its bond purchase program at a gradual pace. Second, the Fed's outlook for the U.S. economy is positive.

The FOMC minutes were released on Wednesday, January 8th. Earlier that day, the closely-watched National Employment Report from payroll technology firm ADP was also positive as it indicated that the private sector closed 2013 by adding 238,000 jobs in December. Forex traders responded quickly to the news, which caused the USD to rise against the euro and the yen by 0.3 percent.

Quite a few forex market analysts believe that scenarios similar to the one above will be more common in the year ahead. As the world's largest economy recovers from the Great American Recession and the global financial crisis, investing in the USD is expected to be a bullish move for the first half of the year.

USD Consensus for 2014
Trading the greenback is something that just about all forex traders get into in their lifetimes. The USD is part of the currency pairs known as the forex majors, which include the EUR/USD and the USD/JPY. The forecast for the euro and the yen in 2014 is not the brightest. In fact, many analysts believe that both the euro and the yen will perform very poorly from January to June.  The EUR/USD seems to even be on a downtrend from the year 2008, continually slipping lower in price than previous years.

The European Union economies are expected to languish over the next few months. The Bank of Japan is expected to flood the market with cash for the purpose of offsetting the immediate effects of a sales tax increase. The U.S. economy, on the other hand is expected to experience a gradual recovery in terms of employment, real estate and consumer spending.

The consensus on the USD index, which is currently at about 81.14, is that it will reach 85 by December 2014. The euro, however, could drop to $1.27 by the end of the year. This is not the first time that analysts are forecasting a significant fall of the euro, but they seem to be a bit more certain this time around.

Coaching Tip Of The Week: Keep Trading Simple

Do you find yourself moving from strategy to strategy? If so, then maybe you are caught in the cycle of doom that so many traders are caught in. Many traders who are beginners in Forex constantly try new things that they read on the internet, books, Youtube, and magazines. There are searching for that “new thing” that will give them an edge on the market. Many of these traders believe that the more complex a strategy is the more pips they will be able to gain. However, in actual practice, successful Forex trading is relatively simple.

Trading is as much about money management as it is about a particular strategy or set of rules you follow. Bottom line:  A strategy is only as good as its trader.

In order to consistently win, you need to know your system, but more importantly – know yourself. The simpler your strategy is, the more likely you will be to make money with it. Your strategy should have detailed and definite rules for entry and exit. It should also include what pair(s) you will trade, what time of day you will trade, and what profit and draw down you expect.

Trading the USD/JPY this past month.

If you went long USD/JPY last month this is probably how you feel.

Happy Holidays and get out there and do some trading!

-From your friends at FXC