Caleidoscope Forex 2014: Best Moments

Various moments in 2014 are worthy of notable records in forex history. Several of them are huge enough that its influence will hold out till the upcoming year of 2015. Which moments? We personally compiled seven of the most influential moments that has and will continue to hold significant influence in forex trading.

Various moments in 2014 are worthy of notable records in forex history. Several of them are huge enough that its influence will hold out till the upcoming year of 2015. Which moments? We personally compiled seven of the most influential moments that has and will continue to hold significant influence in forex trading.

Geopolitical Conflicts in Ukraine and Iraq

Almost each year, conflicts erupted in many parts of the world. This year, the spotlight is on Ukraine and Iraq. The conflicts boosted demands toward safe havens: Japanese Yen, Swiss Franc, and Gold, for a while and provided chances for corrections on the three asset's bearish course against US Dollar in 2014. The two events has triggered surprising movements in the forex market, and although the impact did not last, they has left everlasting impressions. 

Iraq conflict is less influential now that the West and a number of Middle East countries actively in battle against ISIS, but Ukraine conflict has became the seeds of destruction for Russia. Due to the conflict, the US and its allies impose sanctions on Russia, after which Russia dropped their own sanctions against them. Mutual pains ricocheted; consequently the Euro Area stagnated economy suffers considerably, and weakened Russia fell headlong into crisis when world oil prices crushed.

The main characteristic of geopolitical conflict is its unexpected emergence that inflict temporary disruption in the market. Such disruptions is not likely to change the course of the trend, but forex traders need to apply good money management in order to pass unscathed. Before long, prices will come back to its course, but temporary volatility might wipe out an account if traders unprepared.

Scottish Independence Referendum

Pounds traders will find it difficult to forget Scottish independence referendum that was momentarily disrupted the market due to its high degree of uncertainty. The referendum that was aimed to determine whether Scotland will remain a part of teh UK or not has led to sudden capital flights from the UK a few days before D-Day due to the polls that said the Yes to independence side will win after all. In the end, the No to independece voters won by narrow margin of 55% votes, and Poundsterling skyrocketed.


For now, the issue has receded. But it needs to be noted that Scotland independence is an old issue that has been reawakened several times already. In teh future, the same issue might reemerge with even higher degree of uncertainty involved. The referendum is also potentially imitated by other regions, such as Spain's Catalonia and Canada's Quebec.

Japan Tax Hike and Thriple-Dip Recession

Japan tax hike in April 2014 from 5% to 8% did not directly impact price moevements on Yen pairs in the market. However, the move that has to be taken by the Japanese Government to mend chronic fiscal deficit has turned into economic and political nightmare.

In the first quarter of 2014, Japan GDP grew 6.7% annualized, and everything seems equally rosy. But after the tax hike, the economy nosedived, and Japan GDP in the last two quarters has been anything but good. In the second quarter it was -7.3% and in the third was -1.9%, officially entered the country into the third recession in a decade. Consequently, the Bank of Japan increased the amount of yearly monetary base (otherwise known as monetary stimulus), and Prime Minister Shinzo Abe felt the need to regroup supports for his policies by dissolving the Diet's lower house and subsequently held snap election. The string of occurences kept Japanese Yen in depreciation, thus USD/JPY consistently bullish throughout 2014 although there are corrections here and there.

Movements of USDJPY in weekly timeframe till December 23rd, 2014

World Oil Prices Fall

Apart from Japan economy, another things that nosedived in 2014 is world oil prices. Various factors contributed to the fall of oil prices, among them are US fracking boom that boosted oil shale supply, Saudi Arabia attempts to defend its market share, and the low global demands due to China and Eurozone slowdown. Crumbling oil prices has pushed a number of oil-producing countries to the brink of crisis, and especially Russia, to an actual crisis. If it goes on, then illogically low oil prices potentially trigger huge incidents next year.

Brent crude oil price 2008-2014. It could be seen that significant oil price drop preceded 2008/2009 crisis, although it does not directly triggered the crisis.

Market players might wish for oil prices to rebound soon, but analysts offer differing opinions as to how far the drop will be. Majority seems to watch for 40 USD per barrel, but there are also those who think that it might touch 20 USD per barrel. What's clear is that both the US and Saudi Arabia has unequivocally refused to cut production, and it is extremely difficult to point out where producers will start to restrain themselves.

Changes On ECB, BoE Policy Meeting Schedules

Along 2014, there are not many changes on European Central Bank (ECB) policies. Since the beginning of the year, ECB governor Mario Draghi was just repeatedly stating the obvious: that they are prepated to do more in order to put an end to disinflation and get the Eurozone out of stagnation. However, the only significant move they did was cut interest rates further and arranged ABS-buying program. Meanwhile, the much-anticipated Quantitative Easing met with oppositions from within the ECB itself.

In the circumstances, ECB seek to improve transparency by announcing that in 2015 they will start publishing policy meeting minutes every two weeks after the meeting end, just like what the Fed FOMC do. Apart from that, meeting schedules is going to be changed from once a month to once in six weeks. In the minutes, opinions from each meeting member is expected to be known by the public, thus the minutes publication might become as important as FOMC meeting minutes for forex traders.

The Bank of England (BoE) will also change its meeting minutes publication schedule. Before, the BoE hold Monetary Policy Commitee (MPC) meeting once a month and publish its minutes two weeks afterward. But according to the recent announcement, starting from August 2015, MPC meeting minutes will be published sooner, that is in the same day as inflation report, interest rate decision, and MPC member voting results.

Bullish Dollar

Standing apart from world economic figures ups-and-downs and the many geopolitical conflicts, US Dollar emerged as the best performer currency. Since the beginning of the year till today, the US Dollar has strengthened against the other major currencies.

Major currencies performance against US Dollar. As seen on the graph, worst depreciation suffered by Yen, Euro, and Swiss Franc; all of them is ruled by central banks that aim to keep exchange rate low.

The Fed FOMC meeting and publication schedule of US Nonfarm Payroll data continue to be the source of big movements in line with the rising anticipation for Fed rate hike following the end of the Fed Quantitative Easing in October 2014. After normalization, the next natural movements is to hike rates. For the time being, the Fed officials are still arguing over when is the right time to hike rates, but the common opinion after the last FOMC last week has projected Fed rate hike between April-August 2015.

In accordance with it, there three points that traders need to note:

1. Policy divergence between US the Fed with other leading central banks. While the Fed is in preparation to hike rates, other central banks tend to keep rates near record low or even increases the amount of stimulus channeled.
2. US inflation records. Interest rate hike is a policy that is commonly taken to respond to high inflation. Therefore, if inflation slumped, then there are no reason for the Fed to hike rates.
3. Job market and wages. Interest rate hike generally tend to stall the creation of new jobs as well as wages growth. Because of that, the Fed wanted to see the two reports improved consistently before lifting rates.

Those are some of the most important moments that you need to note before entering the new year. At times of low volatility right now, it is better to make use of free time to evaluate past trades and plan future trades, so that next year we could be even more successful. To that end, may this brief note contribute to the improvement of your trades.