The coronavirus pandemic has led to the turmoil of the world economies. The consequences are yet to be seen with some not so bright predictions that the year 2021 can even worsen. However, to the surprise of many, some of today’s financial markets are in a booming mode. That is the case with the foreign exchange market. During the pandemic crisis, the Forex market trading volume has increased by 300 percent as per the latest reports.
On the one hand, coronavirus’s impact is very real and devastating, with too high volatility due to the ambient nervousness. On the other hand, one can still see the glass half empty or half full. Many investors are already identifying real opportunities, especially in the forex market.
The factors impacting the increase in Forex trading
The first and most influential factor is unemployment. The mounting job losses are directly linked to the pandemic’s spread, and from an economic perspective, even more adverse than the recession from 2009.
The coronavirus pandemic’s impact on the big corporations is obvious. They are facing shutting down their subsidiaries in Asia, particularly in China, facing severe challenges. These events led to the deceleration of GDP.
Increased demand for the dollar due to its status as the world global reserve currency and its steady strength also impacted the currency exchange market, further connected with the soaring stock market.
The increase in trading on Forex in 2020 is particularly noticeable in developing countries such as Southeast Asia, Eastern Europe, and Africa.
After years of slowing forex volatility, the coronavirus pandemic appears to have severed the direct correlation between bonds and implied volatility in the forex market. As yields continued to decline, volatility in the forex market increased.
Suddenly, forex traders have many possibilities for speculation in front of them. Is this temporary, or have the most significant currency movements not yet taken place?
Major currency movements in the foreign exchange market
In the forex market, which is still very liquid, arbitrage tradings were emerging at the coronavirus’s evolution pace. In an almost immediate reaction, currencies considered to be safe havens rose against the dollar. That is the case with the Swiss franc and the yen in particular. Both currencies appreciate enormously over a very short period.
The Chinese currency – the yuan showed as extremely volatile against the dollar during the latest period. After a severe decline at the beginning of 2020, the USD / CNY rate then rose above 7.04 at the end of February, then descended at the beginning of March and then rose again. The evolution of this currency will depend heavily on Beijing’s decisions in the coming weeks, and Chinese leaders’ monetary policy actions.
Also, the upcoming US election should be taken into account regarding the currency movements.
If the summer of 2020 trade was once calm and dominated by tight ranges, this year is different. EURUSD topped 1.19 in July, after experiencing numerous stops throughout the month.
If what we’ve seen over the past period has nothing to do with the US election, then the EUR USD 10% move might be just a small reaction before the main event. America’s elections are even more important today than before. It influences the entire world in terms of handling the health crisis while balancing with economic measures. There is not a single nation taking leadership in times of crisis.
The bullish Forex market trend seems to continue
Coronavirus is forcing many of us to spend more time at home in the coming weeks. For traders, this is a great time to analyze the financial markets in-depth and spot opportunities. Admittedly, the economic climate is highly tense and uncertain, but those who like to navigate troubled waters and take risks will have a blast.
For investors who are not yet familiar with the Forex, this is an opportunity to find out what Forex is. The best way to do that is by following Forex trading tutorials and trying out demo accounts.
With central banks pledged to keep interest rates low and monetary policy extremely accommodating, there is a good chance bond yield will continue to fall. Investors have to seek higher returns in different areas. The forex market seems to be the first choice.
How to invest in Forex market in times of crisis?
Markets are in a panic. But you have to know how to keep your cool and try to be one step ahead. After several peaks, the coronavirus pandemic is likely to continue with ups and downs. Every country’s government handles the situation in its own way. As long as you are ready to take the risk and hold onto your positions, the opportunities are there.
Regarding the pivot points in the forex market, it is important to keep an overview of the global situation. In the United States, after the Fed’s announcement of an increase in the amounts injected into the money market led to lower its long-term interest rates. That has undoubtedly impacted the dollar and other currencies indirectly.
At this moment, all eyes are riveted towards the greenback in this context of crisis. Therefore, the American monetary policy will, in large part, lead the dance on the foreign exchange market in the coming period as well as the Sino-American economic relations.