The theme for 2014 is consensus. There is an overwhelming consensus of analysts looking for the same things in the year ahead. We look at four crowded trades and cast a verdict on whether the groupthink will be proven right or wrong.
#4: The euro will fall in 2014
Everyone loves to bet against the euro. When the eurozone was in crisis, the doomsday euro-breakup crowd were screaming to sell. When Draghi said he would do ‘whatever it takes’ they mocked him. As 2013 began, there was talk about a fresh recession or political upheaval. What happened? The euro was the top performer in the year.
This time, it’s a new angle. The euro has been buffered by repatriation flows and is overbought. The ECB could unleash fresh LTROs or negative deposit rates and Germany could sputter. Even if Europe grows, the US is stronger and that will pull down EUR/USD.
Bloomberg surveyed 46 analysts about the euro in 2014 and the mean estimate was for a decline to 1.28 — nearly 10 cents on the mean. Of the 46 analysts, 42 expected EUR/USD to decline next year. One outlier is Goldman Sachs.
“Tapering is in the price already, we find it difficult to see where the dollar strength would come from,” Stolper wrote in an e-mailed response to questions this week. “There is always a risk that stronger growth in the U.S. suddenly pushes rates even higher as markets anticipate a stronger Fed response. However, our base case is that we see only marginal support for the dollar from interest rates.”
Stolper is a punching bag in the FX market for some dead-wrong calls but there is almost no one to trust when it comes to the euro. The one trend that’s guaranteed is that the consensus can’t be trusted; they’ve been wrong since the euro was launched.
So on one side you have the consensus, on the other it’s Stolper. Ugh. But wait, there’s a third option – technicals. There’s a double top forming in EUR/USD and that pattern could cast the deciding vote.
The looming EUR/USD double top
In the near-term the bears have a technical catalyst to sell (BBVA is saying to do just that). The measured target of the formation is nearly 1.28 so the consensus could be proven right. The key level to watch is 1.3830, which is the double top. If that breaks, the pair will keep doing what it’s done for the past 4 years — proving analysts wrong.
