In what can be considered one of the most volatile years of the last ten years, it has been hard to find currencies that have had steady trends over the last year as the debt crisis in Europe has pushed currencies with ferocity in a similar manner to the issues in 2008, albeit in a less dramatic fashion. In this piece, we look at five major currencies against the US dollar to measure the strength and weaknesses of these currencies.
In the past twelve months, the Euro has been at the epicenter of the financial problems that have been moving markets. Initially, the Euro was rising with great strength against the Dollar, but as early as May the surge began to fade. The European debt problems began to come to the forefront, and the Euro declined as a result.
The Euro started the year just below the 1.29 handle. During the ascension, it went as high as the 1.4850 area, and looked primed to keep the long-term uptrend intact. The pair started to drift lower, and has become a news-driven pair towards the later weeks of the year. The pair is starting to show signs of strength though, and is currently looking primed for a bounce. At the time of writing, this pair sits at 1.3750, which is considerably lower than its highs.
Performance for the year: 6.55%
The Canadian dollar has been particularly whippy against the Dollar over the course of the year as the two currencies and economies are so interconnected. The pair serves as a proxy for the oil markets which have behaved in a very similar manner. The pair has visited the 0.9450 area twice during the last 12 months, but managed a bounce as high as the 1.0650 area as well. This was a significant move as the economic fears over sovereign debt heated up, but over the last couple of weeks we have seen this pair fall quite rapidly as the oil markets heat up, and the Europeans look like they are making progress on the debt issues. Until the crisis is over in Europe, this risk currency will more than likely continue to be flat overall, but with massive moves for short bursts of time.
Performance for the year: -1.95%
Being one of the most popular “risk” currencies, the Australian dollar has had a rough year as a result. The Aussie started the year just below the parity level against the Dollar, and even ascended to the 1.10 level at the peak. The pair has mirrored the global risk appetite, and as such saw a massive fall in July that actually pushed the pair into negative territory in the late summer months. The pair as skyrocketed over the last several weeks, and has managed to push into positive territory.
The Australian economy is highly sensitive to global risk, Chinese economics, and hard futures such as gold, copper, and other mined commodities. The pair should continue to be volatile as the world tries to emerge from several headwinds in the outlook of the global markets. The pair has retested the parity level recently, and it does look to be supportive which would be a positive sign. However, for traders that went long at the start of the year, the performance has been quite a rollercoaster.
Performance for the year: 3.33%
The Japanese Yen has been an interesting currency to trade over the last year. The Bank of Japan has intervened at least three times, and even had a coordinated action with several other central banks after the tsunami that hit the island in the spring. The Yen has been a safety currency to traders as the trend continued to be downward.
The Yen has gradually appreciated against the Dollar, and while it started above 81, the ending months of the year sees the USD/JPY heading back down towards the 76 handle again. The pair has only managed to stay above that level because of the above mentioned interventions. Without them, the pair would undoubtedly be much, much lower. While the BoJ looks set to intervene on sharp downward moves again in this pair, the writing is on the wall, and the trend is most decidedly down.
Performance for the year: 4.94%
The British Pound has had the misfortune of being tied into the European debt issues this past year. The British banks are exposed to the poor debt, and the Pound has suffered. The UK is presently going through massive austerity which can slow down an economy as well, and unemployment remains high. However, as the Parliament continues to do what it takes to cut the budget, traders have rewarded the UK by pushing the Pound higher. The 1.60 level against the Dollar has recently seen supportive action, and the pair currently looks like it might the first one to completely retrace the fall from the summer, if it gets a bit of traction. As a result, the performance of the Pound has been one of the best this year.
Performance for the year: 3.45%
As you can see, all of these currencies appreciated against the Dollar with the exception of the Canadian dollar. This is perhaps because of Canada’s dependence on the US as an export market. The oil markets have been down for some time, only to bounce recently – which could possibly reflect well on the Loonie toward the last weeks of the year.
The selling of the US dollar continues as it has for years, but this previous year has been interrupted by massive spikes in the demand for the Dollar, and financial issues continue to be at the forefront. Because of this, the Dollar will have sudden and aggressive moves to the upside. However, the trend is clearly to sell the Dollar overall, and there is nothing in the charts that suggests that the trend will change for the long run.