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The previous year completes a stage of the global economic recovery. This is reflected in the indicators of the stock, financial and currency markets.
For instance, the Russian stock market on the RTS Index increased by only 20%, and this is after a threefold increase over the previous two years. The Chinese stock market in the past three months fell by 20%, though its growth for the earlier mentioned two years was fivefold.
Inflation accompanying this financial growth resulted in extraordinary prices of resources. Crude oil was trading at 100 dollars per barrel. Nothing stops the gold price from reaching 1,000 dollars per troy ounce in the coming year.
This situation is most likely to continue but with the decreasing economic performance of the most developed world countries. That is inflation will be replaced by deflation.
The key events of the year are, of course, numerous problems of the American mortgage system, which influence all the spheres of economic life. Huge write-off amounts by the world major investment banks are not likely to be over, such as the bankruptcy of the Northern Rock Bank. The most interesting thing is that this problem does not have a solution as it is caused by the system, which assists in creating various "bubbles".
The currency market was concerned about the possibility of this problem being turned into a massive crisis. The Euro remains within its historic high and this situation will soon begin to have a negative impact on the European economy, which has been stated over and over by the economic authorities of France. The British pound, on the contrary, from early November indicated a turn in pair with the dollar and as the mortgage crisis is deepening, it will be losing in price following the weakening of the monetary policy of the Bank of England. In the evening of December 31st the pound strengthened significantly reaching the rate of 2.0105, and if the year would have closed at this level, it could have fundamentally changed the entire forecast for the next months. However, the information on the USA housing market supported the dollar and the pound fell again to 2.00 and closed the year at 1.9870. This confirms the forecast for the further weakening of the pound.
The Canadian dollar showed unusual volatility, especially in the fall. From September to November it strengthened its positions against the American dollar for almost 2,900 points without any significant corrections. In case the crude oil prices continue to grow, it is likely that we should forget about the significant weakening of the Canadian dollar. We shouldn expect the repetition of the active rate changes at the beginning of the present year. The most probable scenario is the rate variation within the range of 0.98-1.04.
The Japanese yen, which strengthened over the past five months for almost 17 figures, will remain in the same range. Its bottom limits will be 105 and 107.20, and the top levels 114.80 and 117.50.
Well, having seen the year of 2007 off, we are looking forward to active trading in 2008. On January 10th the decision shall be taken by the European Central Bank and the Bank of England on the rates, and in late January the resolution on the interest rate by the USA FRB. In anticipation of a possible decline in the cost of borrowings and as a result, the dollar weakening, gold has come close to 900 dollars per ounce and silver is being traded above 16 dollars per ounce.
The most important factor is the decision by the Bank of England – the rates lowering will result in breaking by the pound through the key support level of 1.9620, which has already been tested today
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Return Analysis
