2018 was a good year in the financial markets with many investors recording two to three digits annual percentage returns on various portfolio investments with diverse asset classes.
The year was favourable for many asset classes – particularly the US dollar, as we
saw the dollar appreciate massively against its major trading currencies for the greater part of theyear.
The US dollar had a good year particularly due to the continuous heightened geopolitical and economic tensions among major global economies, with emphasis from the persistent US and China tit-for-tat trade war tariffs we saw in 2018. This created an overall risk-“off” investment sentiment, leading to massive fear and panic among investors as they run into safe haven assets like the US dollar, the Swiss Franc and the Japanese Yen. Gold which is also a safe haven asset, performed poorly, in that, in some risk-“off” events, investors tend to prefer the US Dollar over Gold.
While the US Dollar happened to have performed tremendously well in 2018, the story was different for many other major global securities. For instance, Bitcoin, which is a major global cryptocurrency asset, did poorly as it opened the year at $16,174.00, lost 75.72% of its opening price value and closed the year at $3,925.75. Additionally, high interest yielding currencies such as the Euro, Great Britain Pound, Australian Dollar, Canadian Dollar and the Kiwi Dollar, which are all classified as risk-“on” currencies suffered massive losses against the major safe haven currencies. To have an in-depth understanding of how these market dynamics work, you can check out my article on swings of mass psychology in the financial markets here .
The year 2018 also saw major global stock indexes such as the S&P 500, Dow Jones Industrial Average and the Nasdaq performed modestly well from Q1 to Q3, but losing their gains to trade lower during trading session in Q4.
As trading activities gradually picks up for the year 2019, I hope to assist traders and investorswith the following broad market analysis and forecasts for a number of currency pairs, stock indexes, Oil and Gold.
- EUR/USD – EURO VS US DOLLAR
As already stated, the Euro is one of the major currencies that performed poorly against the USDollar in 2018. The Euro opened the year trading at 1.20255, surged higher to record a high of 1.25546 and then plunged lower to close the year at 1.14506 against the US Dollar – losing 4.78% of its value, and a recorded end-of-year low of 1.12150.
2. In the absence of any external price shocks, we can expect the Euro Dollar to continue trading lower as trading activities picks up for the year 2019. The major long term swing highs for theEuro Dollar pair can be marked at 1.17617, 1.20395 and 1.24175. As a result, long term traders could anticipate going short at these event areas during the course of the year. However pretty short term and more aggressive traders may zoom unto timeframes such as the daily, four hour and one hour charts to go short on the Euro Dollar pair at valid near termresistance levels. A sustained price rally above 1.24175 during the trading year will be an indication that bulls have taken over on this pair.
To add to this, traders should consider shorting the Euro Dollar with great caution, as it appears the yearlong bearish trend has overrun its course and the pair could soon commence trading higher.
- GBP/USD – GREAT BRITAIN POUND VS US DOLLAR
The Pound sterling started the year 2018 with
a prettybullish steam, trading higher against the
US Dollar throughout the first quarter of 2018 to reach a high of 1.43758, after which price
stalled and began to plummet lower for the rest of the year. In spite of its impressive first
quarter performance, the pound sterling declined to lose a total of 6.00% of its value against the US Dollar in 2018 to trade at 1.27448 as at the close of 2018.
On the face of it, the major price directional bias of the Pound Dollar pair remains bearish and we can expect
priceto continue trading lower over the short term, barring any unexpected price shocks. Traders may thereforelook to take short positions on the Pound Dollar at various swing highs upon pullbacks to mean price levels. The two major long termswing highs of the Pound Dollar can be marked at 1.31899 and 1.42407 long termresistance levels. Traders may also consider zooming unto the daily and four hourtimeframes to look out for entry signalswith the aid of moving averages as price retrace to short term resistance levels. In
addition to this, traders should take a cue from the long bearish trend we have seen on the Pound
Dollarin 2018 and look out for early signals of price reversal in the opposite direction.
- XAU/USD – GOLD
Like the Great Britain Pound and the Euro, Gold did not record an impressive performance in
- Gold opened the year at $1,320.69, rallied high during the first quarter of 2018 to record a
yearly high of $1,366.03 and then collapsed to trade lower during the second and third quarters
of 2018, recording
itlowest yearly trading price at $1,160.13 in August. Following this, Gold has
failed to trade below $1,160 since August 2018 and has subsequently been trading higher.
It began the last quarter of 2018 trading at $1,192.33, appreciated by 7% to close the year at $
1,281.50. Because Gold has failed to make new lows past the August low of $1,160.13, we
can considerthis as a valid indication that the bearish momentum has ended and thus assume a
bullish stance on gold over the short and medium term period of 2019.
- US CRUDE OIL – WTI
US Crude Oil – WTI started 2018 pretty well with an opening price of $61.65, surged higher all
the way to $74.21 in September – recording a spectacular performance in the first, second and
third quarters of 2018. US Oil – WTI was however unable to sustain its gains during the last
quarter of the year as price plummeted sharply in October, erasing all of its gains by the close of
November and closing the year at a record low of $45.57.
At the moment, the general price direction for US Oil is bearish and we can expect this bearish
bias to hold over the medium term. Traders could therefore look to go short on any price gains to
join the downward steam as trading activities picks up for the year.
- USA500 – US STOCK INDEX S&P 500
The S&P 500 stock index which measures the performance of 500 US public corporations
opened the 2018 trading year at $2,742.29, surged higher in January to record a monthly high of
$2,872.84 and subsequently plunged lower – finding support at $2,531.96. Following this, the
stock index traded within the range $2,788.63 and $2,593.02 between February and June, after
which it found a valid support within $2,738.07 – $2,696.70 support zone and rallied higher for
three consecutive months from July to September, reaching a yearly peak of $2,940.98 as the
third quarter trading session faded away.
We then saw massive panic short selling on the S&P 500 throughout in the entire trading period
of the last quarter, erasing all of its gains and closing the year at a record low of $2,500.72.
The S&P 500 stock index lost 9.66% of its value in 2018 alone which makes 2018 its second
worst performing year since 1931. Traders and investors may assume a bearish bias on the S&P
500 as we expect it to continue plunging lower for the greater part of trading sessions in 2019.
- USA30 – THE DOW JONES INDUSTRIAL AVERAGE
The Dow opened 2018 trading at $25,303.90, surged higher in January and later plunged lower
to trade within the range $25,390.30 and $23,774.30 from February to June, before it found a
valid support at $24,082.00 as trading session for the second quarter came to a close.
The Dow performed well during the third quarter of 2018 where it made a yearly high of
$26,952.40. Nevertheless, this impressive third quarter performance could not be sustained
during the last quarter of the year, as we saw price collapse sharply to register a record low of
The Dow recorded an annual loss of 8.72% to assume a downward trend as the year came to a
close. Barring any unexpected price shocks, we can expect the Dow to continue surging lower
for the greater part of 2019.
- DXY – THE DOLLAR INDEX
The Dollar Index measures the performance of the US Dollar against a basket of six major currencies, especially those of major US trading partners. It gives investors valuable information on the likely direction of the US Dollar when it is traded against other currencies. A high dollar index, implies the dollar is performing well and is likely to appreciate against other major currencies and vice versa.
The standard value of the Dollar Index is 100 and any recorded value below this would imply the Dollar index is undervalued and more likely to go up, whiles any recorded value above 100
implies the Dollar index is overvalued and more likely to fall back to its standard value of 100 over time – all other things being equal.
The Dollar Index began 2018 at 91.74, made a yearly low of 88.13 in February and then a rebound all the way up to 97.51 in November, stalled and started to
pullbackto lower levels.
Overall, the dollar index performed massively well in 2018 and this confirms the superior performance the US Dollar has witnessed against its major counter trading currencies and assets.
Apparently, the Dollar Index has assumed a bearish bias after its yearlong upward move. If this bearish stance is sustained, we could see the US Dollar lose its gains against its major counter trading currencies.
I trust that this write up will give investors a clear understanding of where we’ve come from and where we are likely to go with respect to the direction of global financial assets. I also believe this information will help investors make good investment decisions to profit massively at the various trading sessions of the 2019 investment year! I wish all a successful and fruitful trading and investing year!
BY E.O. ESSIEN, CH.FE
E.O. ESSIEN is a Chartered Financial Economist with accreditation from the Global Academy of Finance and Management (GAFM) and the Association of Certified Chartered Economist(ACCE). He is a professional currency speculator, Economic columnist and Investment Analyst
. You may reach him via email on [email protected] or on 0203656160. He will be glad to
hear from you.