Let’s face facts; the forex market remains one of the biggest entities of its type anywhere in the world, with a total value that’s estimated to be 2.5-times larger than the global GDP.
Whilst the large and lucrative nature of the forex market may shine like a beacon to aspiring traders, it’s important to note that this is also a complex and volatile entity which sees significant price shifts on a daily basis.
The market is also impacted by geopolitical concerns and the macroeconomic climate, and these factors will undoubtedly impact on currencies in 2020. So, how will the major pairings perform this year, and is it an advantageous time to enter the forex market?
1. The EUR/USD – Will it Continue to Decline in 2020?
This remains one of the most popular and widely traded pairings, and one that has declined steadily over the course of the last two years.
This is thanks largely to the ongoing spectre of Brexit, and the uncertainty created by this geopolitical issue is likely to continue as the UK and the EU set about negotiating a future trade agreement.
Even though the Euro rebounded slightly last September and returned to the 50-week simple moving average of $1.119, the single currency continues to trade within a narrow range and further declines against the greenback are expected in the next 11 months or so.
As a result, hedging against the Euro and selling the EUR/USD seems to offer the most value in 2020, although you should continually refer to reputable brokerage sites like Oanda to analyze the prevailing real-time trends.
2. The GPB/USD – The Continuation of a Five-year Downtrend?
Arguably, the UK and the GBP has been even more adversely impacted by Brexit, with the pound having sunk to 31-year lows twice the EU referendum result was announced in June 2016.
However, it’s also interesting to note that the GBP/USD pairing remains in the grip of a five-year downtrend, and it’s uncertain whether this will end in 2020.
There was certainly cause for optimism in Q4 2019, with the GBP/USD regularly closing above the SMA ($1.3039) and making regular, incremental gains. However, a rally back above $1.35 will reinforce the perception of trendline break, and seems unlikely in the near-term.
In fact, the pound remains under pressure in Q1 2020, with EU trade negotiations set to start and a dovish Bank of England environment. Currently trading between $1.2961 and $1.3045, the safe bet is to hedge against the pound and back the greenback for the foreseeable future.
3. The EUR/GBP – Will we See Gains for the Euro in 2020?
Most experts believe that the Euro has a brighter outlook than the pound in 2020, particularly with the pound under increased pressure and the single currency continuing to make genuine gains.
While the GBP topped out at 1.2081 against the Euro in December, the exchange rate has since fallen to just 1.1643 and showcased a 2.80% over the course of the last four weeks.
Clearly, short-term momentum is now favoring the Euro, with continued no-deal speculation seemingly harming the pound more than the single currency.
We’d argue that this represents the beginning of an uptrend rather than a temporary weakness, although the potential volatility and uncertainty surrounding this currency pairing may deter risk-averse investors in the short-term.