The year in review: What can 2023’s market events tell us about the outlook for 2024?

As the end of the year approaches, it is time to look back over a turbulent and unpredictable 2023 in the financial markets and see if we can learn anything about 2024 in the process. The Forex market was dominated by the interplay between inflation and central bank decisions on interest rates, with the Federal Reserve and the USD firmly in the spotlight. Commodity markets were also interesting, with crude oil and gold prices both heavily impacted by geopolitical events. Finally, the cryptocurrency market finally got its groove back after a difficult period marred by scandal and trader pessimism.

Forex

The year 2023 was a tumultuous one in the Forex markets. Central banks across the world were engaged in a running battle against rampant inflation, triggered by a post-pandemic surge in demand and Russia’s invasion of Ukraine. Both the US Federal Reserve (the Fed) and the European Central Bank (ECB) were in full reactionary mode, with decisions on interest rates often being made at the last minute and only after the latest economic data could be processed. This meant that traders were kept on their toes, and volatility in the major pairs, notably the EUR/USD, was extreme.

As the year progressed, a clear picture emerged. The US economy remained remarkably resilient despite higher borrowing costs, while the eurozone and UK economies succumbed to the relentless schedule of interest rate hikes. Expectations of higher-for-longer interest rates in the US buoyed the USD against all other major currencies. The EUR/USD suffered a long slide between the summer and October, dropping below 1.05 before recovering later in the year. Central banks across the globe were forced to keep pace with the US Federal Reserve’s aggressive monetary stance, and over the same period, the DXY went on an extraordinary bull run, topping out over 107 in early October.

As it became clear that the fight against inflation was being won, at least for now, markets began to look forward again. The big question is which central bank would be the first to lower interest rates in 2024. Current expectations are that the eurozone and the UK will need to keep rates higher for longer in the new year. At the same time, the Fed has already signalled that it will revert to loosening monetary policy quickly, possibly as early as Q1 2024. These expectations have supported the EUR/USD in recent weeks, though recessionary concerns in the eurozone may hamper any serious upside.

Commodities

In the commodities market, the big stories were crude oil and gold, and both were heavily impacted by geopolitical events. Crude oil prices have been particularly volatile. After peaking in 2022, following Russia’s invasion of Ukraine, crude prices started the year in the doldrums as investors fretted over China’s poor economic performance and the possibility of a global slowdown due to high inflation and high borrowing costs. News of OPEC+ production cuts and a resilient US economy provided support for crude through the summer, but prices began to tumble again in the Autumn as it became clear that the outlook for oil demand in 2024 looked weak.

A brief spike caused by Hamas’ invasion of Israel was not enough to change the overall narrative and a very public disagreement over cuts by OPEC members put further downward pressure on prices. OPEC (as one would expect) recently published a remarkably bullish forecast for 2024, but this is at odds with the IEA’s own demand forecast. Much hinges on growth prospects in the EU and China’s long-awaited economic recovery, but there is a real danger of continued weak demand keeping downward pressure on prices.

Gold was also in the spotlight for much of the year. Despite high demand for the precious metal from central banks and retail purchases, the strong dollar kept prices subdued for most of the year. Hamas’ invasion of Israel in early October coincided with a sustained fall in the USD, and this combination provided a huge and sudden demand for gold. With the floodgates open, a remarkable bull run saw XAU/USD prices climb by over 200 dollars before evening out at the beginning of December.

With 2024 looking to be a precarious year geopolitically, gold’s safe haven status will probably serve it well. But with prices recently touching all-time highs, it may be difficult to sustain any kind of bull run – that is, of course, unless things really go off the rails geopolitically.

Cryptocurrencies

Finally, a quick look over a good year for the cryptocurrency markets. After a frankly awful two years, crypto traders finally got a run of good news, and investor demand has been reignited. With the FTX debacle fading from view and the US government’s case against Binance seemingly settled, cryptocurrency traders have focussed on a slew of Bitcoin ETFs that are awaiting SEC approval.

With some of the largest financial institutions in the world, including Blackrock and Franklin Templeton, waiting for the SEC’s decision, the potential upside for Bitcoin, and crypto in general, is huge. With such huge pressure from leaders in the financial world, many commentators think that the question isn’t “if” the SEC will approve the ETFs, but “when”.

Starting the year at around 16,000 USD per Bitcoin, prices surged to over 44,000 USD earlier in December. With a decision from the SEC expected as soon as next month, traders are on tenterhooks and expect huge volatility whatever the SEC decides to do.

So, 2024 is already shaping up to be another interesting and unpredictable year in the markets, with many factors at play that will shape supply and demand over the coming 12 months. Whatever markets you trade, remember to use a stop-loss and always keep one eye on the economic weather.

Technical Analysis

EUR/USD

Having extended its advance over the last week, the EUR/USD appears to be consolidating around the Fibonacci 61.8% resistance level (of the 2023 July to October downtrend). The resistance band of the 1.1000 to 1.1070 level was only breached once this year, on 12 July 2023, following news of lower-than-expected inflation data out of the US, but remained above this level for only two weeks. On July 27^th, 2023, it swiftly nosedived on the back of news of a 25bp hike by the Fed, bringing US interest rates to their highest levels in 22 years. Adding pressure to the EUR were comments by economists and policymakers that the ECB monetary response had been too aggressive.

EUR/USD Daily Chart by XTB, prepared by Alison Heyerdahl

Currently, the RSI shows that further upside moves are possible, and it appears as if a crossover of the 200-day (orange) and 50-day EMA (pink) is about to occur. If the pair breaches the 1.1000 level, it could see the pair heading towards the 1.1100 psychological handle, while any downside moves may see the 1.0830 level (the 200-day MA support level) come into sharp focus.

Gold

With signs of the US economy slowing down and Fed rate cut expectations, the dollar could be under pressure as we enter 2024, making gold an attractive investment option. Although the precious metal has been consolidating for the past 6 days, any data out of the US (such as the PCE data due to be released tomorrow), could provide a jolt of volatility which could spur a big move.

XAU/USD Daily Chart by XTB, prepared by Alison Heyerdahl

The 50-day EMA (blue) provides support at the $2018/oz level, while recent resistance remains at its current level - $2043/oz. The RSI remains above 50, which means that further bullish moves are possible, and any upside moves open the way to $2070/oz, while a break lower may see the $2009/oz level breached.

Bitcoin

Following a turbulent year, with a low of $16,438 in early January, Bitcoin now sits just below its highest level of the year at $43,371, its highest level since April last year. As mentioned, the SEC spot Bitcoin narrative seems to be fuelling the upward momentum, as is the Bitcoin halving event, expected to occur in April 2024.

BTC/USD Daily Chart by XTB, prepared by Alison Heyerdahl

The technical outlook for the digital currency is still positive, with what appears to be the breakout of a bullish flag formation and an RSI above 50, having recently come out of oversold territory. Resistance remains elusive – at the $48,000 level (last seen in April 2022), if/when Bitcoin breaks above $44,700.