5 Currencies to Watch in 2014

1. Brazilian Real
The currency was down by 13 percent over the last year against the US dollar and currently trades at 2.3501 reals. The Brazilian real has shown volatility in recent sessions while the market awaits the US Federal Reserve’s decision on whether to renew its $85 billion per month bond purchasing programme. The Brazilian real, after failing to break through the key level of the real at 2.30 per dollar, slid 1.2 percent against the US currency.

Technically, the Brazilian real looks to be in a weak trend. The real has a strong support at 2.2919. Any break below this will take the currency towards 2.2632 against the dollar. However, if the currency consistently sustains above 2.2919, there is room for further upside towards 2.3-2.45 levels.

Image: Getty Images
2. Japanese Yen
Since the time Shinzo Abe came to power in December 2012, he has talked about a weaker yen and how it will drive exports for Japan. Over the last year the yen has depreciated by 20 percent to 103.85 yen.

The yen is seen under pressure against the US dollar. The yen is weakening as investors eye additional stimulus from the Bank of Japan. The consumption tax factor is being watched cautiously by investors as that will ascertain the quantum of additional easing required for offsetting the impact of the same. Technically, the dollar-yen pair is in a clear uptrend.

 After breaching the symmetrical triangle on the upside, the pair has been consistently moving northwards. A sustained closing above 103.70 will lead the pair higher towards 105 levels.


3. Euro
Over the last year the euro appreciated against the US dollar by 2.6 percent. However, this is seen as short-lived, as the fundamentals are back to the worry zone of the European Central Bank. The bank has an eagle eye over the improvement in the periphery, and is not getting carried away by the short-term recovery. A sustainable recovery is being watched by the bank, which is making the stance ‘dovish’. The divergence in the monetary policies of Europe and the US can resume if the US Fed decides to taper [quantitative easing] sooner than expected. Technically, the euro is seen moving in an uptrend. On the weekly chart, it has surpassed all the important moving averages. However, the pair has an immediate resistance at 1.3820 levels. Only a consistent break above this level will confirm the bullish trend ahead for the pair.

Image: Kim Hong-ji
4. Korean Won
The Korean won (KRW) is seen getting strong against the US dollar amid signs that the economy is gaining momentum. A recent report showed that Korea recorded its largest-ever monthly trade surplus of $9.51 billion in October.

Societe Generale’s Suktae Oh has written a report where he wonders if the won has become the new safe haven currency. Typically, safe haven currencies are less volatile and used by traders and investors to hedge their positions against other currencies. These are hard currencies of countries that run very high trade account surpluses. Before the financial crisis, the Swiss franc was considered to be a safe haven for a long time.

Recently the won touched a two-year high against the US dollar at 1,052.62 per dollar. Many associated this growth with the Chinese recovery, where exports have surged by 12.7 percent over the last one year; the country also happens to be Korea’s major trading partner. Since July 2013, the currency has appreciated by 8 percent.

South Korea reduced its foreign debt load by 41 percent to $111 billion in the third quarter of this year from a peak of $190 billion five years earlier. Technically, the dollar-won pair is seen finding a strong support near KRW 1,051 levels. This is the third time that the pair is testing this level. If at all this level is breached on the downside, it will result in further downside.

Image: Reuters

5. Chinese Yuan
Over the last one year, the yuan has moved up by 2.54 percent. The Chinese yuan is seen appreciating against the US dollar amid strong Chinese exports data and the weakness in the dollar. The upward trend of the Chinese currency remains intact, however, given China’s good economic fundamentals and trade surplus. Technically, 6.1080 is a strong resistance for the yuan. The sustained break below 6.0660 will lead to further appreciation in the yuan.