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Here’s a contrarian forecast we should consider carefully. It is pretty obvious now that a multi-year dollar bull market, euro parity, and a yen wipeout have become consensus views. The “new American energy era” became consensus a little while ago, but it’s looking like the Saudis have blown that one up in short order.
Key points here: the dollar bull markets of the past began with higher interest rates and higher inflation expectations than we currently have. Historically, the dollar has usually fallen during Fed rate hike cycles. The dollar’s recent rise may just be an unwinding of a carry trade.
Draghi promises QE, but the ECB balance sheet is shrinking. It’s unlikely he will implement enough QE or that Germany will let him do enough to significantly devalue the euro. And what if the next ECB chairman is a German?
As for Japan, a good point is raised: why did Abe call an election last month if he was sure that “Abenomics” would improve the economy and lift the Nikkei even more this year? He could have gotten his supermajority in congress had he waited. Did that just telegraph the apex of the effectiveness of their plan? If the yen reverses, it will catch a lot of traders wrong-footed and have a screaming rally.