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Banks and Their Forex Forecasts…

By Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

While reading the news earlier today, I saw a guru at UBS make a client-directed market forecast which seemed reckless and irresponsible to me. I’ll get into the details a little further on.

This rang a bell in my head, and checking back to my post of 29thNovember, I wrote about another guru, also at UBS(!), who made a similarly ridiculous Forex forecast: that the USD/JPY currency pair would stand at 98.00 by “this time next year.

The closing value of USD/JPY on 29thNovember was 112.37. Its closing value yesterday was 117.55. So instead of having to fall by about 13%, it now needs to fall by about 19% for this guy to be right. Still, there is a little over 11 months left for the price to get to 98.00. I will be checking in on this forecast’s performance as we approach 29thNovember 2017.

If this guy is wildly wrong, maybe his bonus will suffer, but will he lose any of his net wealth? Unlike his clients, probably not.

So, getting back to today’s UBS guru, he is Adrian Zuercher, Head of Asset Allocation for Asia. His trade forecast is short the U.S. Dollar.

His reasoning? From what I read, his headline is that the dollar is “overvalued” and its rally is “unjustified”.

This is laughable. Statistical modelling shows strategies based on fair value perform poorly in Forex (except perhaps over the very short term), while trend following strategies perform well. Not only that, the U.S. Dollar is at multi-year highs!

To be fair to Mr. Zuercher, his arguments do go further: he also says that the Japanese Yen is undervalued by about 30%, and the Euro by about 15 to 20%. He sees the central banks of both currencies beginning to taper their QE (quantitative) programs. He also thinks that President Trump is going to have to spend a lot of money, which should debase the USD and make it weaker.

These are not unintelligent arguments, but every old-time trader will tell you that picking tops in strong trends is the height of trading folly.

Fundamental analysis is all very well, but it should be used as a filter to confirm an existing price movement, not to forecast the start of a move.

I would have a great deal more respect for UBS if they either waited for the price to start moving in their desired direction before giving out exact numbers like this, or if they required their gurus to remortgage their residences in the currency they are publicly tipping to fall.

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

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