Daily trends in the forex domain point to one thing; the market is highly volatile. Some of the largest currency reserves in the world are making headwinds, with the sanctions and war imposed on Russia to blame for the chaos.
Sterling for example has had a poor run against the dollar recently, shedding critical points while gaining massively on the Euro. The euro area is grappling with a war near its borders, with a new assignment to find new energy supplies. Those learning how to trade forex in primeXBT must take note of the events, as they will have a hold on the market for a while.
The turbulence in the Euro area has destabilized the Euro for a while, with bearish sentiments dominating the EUR/USD pair. France’s elections have made the currency too hot to handle, with new energy payment demands by Russia also having a significant effect.
Covid-19 graced the world economy suddenly, exposing many currencies to risk. However, with the storm caused by the pandemic, over two years, calming, where do the forex markets stand?
Will the Cable Rally Last?
The United Kingdom is embroiled in one of the highest inflation rates ever seen in years, a tight squeeze that pushed the Bank of England to act. Current interest rates are racing toward one percent rapidly to try to reverse the spiraling inflation rates that are threatening to exist for some time.
Indications in PrimeXBT’s trading terminal show that GBP/USD might go below 1.30 due to economic pressure. However, the pair is now in a bullish run, with the majority of traders in a net-long position.
A momentum to pursue higher interest rates to tame inflation comes with extreme caution to protect other areas of the economy. British people might look forward to a shorter run of higher interests that might end somewhere before the end of the year.
Decisions taken by the Bank of England and the Fed reserve in the USA have similar intentions. However, the interest differentials currently favor USD and are key for the break below 1.30.
The French Election Risk: How Will This Affect the Euro?
Elections in France have a significant impact on the entire Eurozone and the direction taken by the EUR/USD. The Eurozone is facing an election risk premium with the French election on the horizon. However, the two-horse race between Macron and Le-Pen still sees the incumbent in a comfortable position to create the next government, a factor that has calmed the USD/EUR pair.
However, while general conclusions point towards a Macron win, elections in the USA and Britain have shown that tight polls of close to 50-50 chance usually go either way—a situation that increases the possibility of new shocks in the market.
Elections in France have multiple rounds—the winner in either will decide the volatile nature of currency pairs in the forex market. Le Pen is traditionally anti-EU, making it even probable that heightened volatility will face the markets should she win any of those rounds.
The Fed Rate Interest Hike and the Greenback
Equities in the U.S. market remain cautious with increases in interest rates that have hit the economy hard. Interest rates are now a weapon to fight inflation—and taking it down is the primary objective for now. However, moves by the Fed reserve affect interest differentials with other currencies in the world. The forex market will have to ward through a period of interest rate rises and a quantitative tightening at some point.
In a surprising turn of events, tech stocks are underperforming, a big indication that top indices are also reeling. Events in Russia have transformed policies suddenly, with more tightening expected in the short term. Such surprising turns heighten volatility in the forex market, as evidenced in PrimeXBT and other platforms.
2022 has taken an unexpected turn with markets dealing with COVID, inflation, and now the war in Eastern Europe. All the unexpected turns in 2022 have added volatility to the forex market. However, the moves taken to safeguard against the surprises will be a short-term solution. The markets will adjust at some point this year.