Trading Forex The 2021 Outlook

Trading Forex The 2021 Outlook

As we head towards the middle of 2021, the Coronavirus pandemic is still prevalent globally, and Europe is experiencing third waves of the pandemic from country to country. Currencies, by nature, tend to be impacted by economic changes such as recessions, interest rate changes, and inflation. As such, the forex market continues to be a volatile zone, with each country’s battle against the Coronavirus and their vaccine programs moving at different rates, causing currencies to jump and fall at different times. As currency pairs can be even more unpredictable during these uncertain times, let’s spotlight the EUR/USD currency trading pair to see how the pandemic has impacted each currency and what this means for those who are trading forex as CFDs.

Trading Forex The 2021 Outlook
Trading Forex The 2021 Outlook

Europe’s glimpse of hope

An uptick in economic activity may impact the Euro, as the demand for the popular currency directly correlates with the region’s economies, and it seems that’s just what we’re about to expect. According to analysts at BCA Research, “COVID-19 infections are stabilizing in Germany and the Netherlands, are on a downtrend in France and Italy, and appear to be under control in Spain.” This bout of good news led to Europe stocks stabilizing as we hit May 2021, with markets across continental Europe rising by 0.6%, the German DAX increasing by 0.8%, and France’s CAC experiencing a 0.6% increase as well.

The analysts at BCA Research went on to say, “Meanwhile, vaccinations are gathering pace across the euro area. This will allow authorities to ease restrictions and economic activity to accelerate.”The vaccination programs are certainly ramping up across Europe, as Germany nearly doubles their pace and France, Italy, and Spain follow a similar path. After a slow start, this is good news for both the zone and the Euro. Once the region can handle the spread of the pandemic and slow down the rate of infection, lockdown measures can be eased, and more economic activity can begin.

The Italian parliament has recently approved the 222.1-billion-euro economic recovery plan, just before the deadline for submission to Brussels. This, along with the country’s vaccinations speeding up in a big way, and even hitting an all-time high for daily inoculations recently, bodes well for our economic recovery from the pandemic. While the virus may have started here with a bang, we finally have the glimmer of hope that we needed to continue the fight and finally begin our recovery.

The Dollar dances on

According to many economists, the US is one of the crucial countries driving the globe’s economic recovery from the pandemic. The US economy is forecasted to grow by 6.4% in 2021, a rise that is unheard of for many other countries worldwide—especially those who continue to battle the economic effects of the pandemic. The huge fiscal stimulus package has been a large driver of this economic recovery and the quick vaccination rate.

According to the International Monetary Fund, the US is even set to exceed its pre-pandemic growth rate in 2021. When it comes to the speedy vaccinations in the US, Silvia Dall’Angelo, senior economist at Federated Hermes, says that this may allow consumers to spend their additional cash sooner and effectively help the country recover economically at a speedier rate.

The EUR/USD rollercoaster

The EUR/USD pair has been at the mercy of all the ups and downs in each respective economy, having yet another very volatile year. Since January, the pair has been on a rollercoaster ride, starting at 1.22511 on the 3rd of January 2021, only to drop by 2.3%, to land at 1.19674 one month later on the 4th of February. From there, the pair declined by a further 1.2%to close on a price of 1.17242 on 30 March.

However, all was not lost, and the power pair regained 3.2% over the next few weeks, to trade at a closing price of 1.21008 on the 23rd of April. The currency pair ended April on a high note of 1.21256 on the 28th, after a much slower start to the month.

Trading forex in 2021 as CFDs

One of the key points to bear in mind when you’re forex trading as CFDs in 2021 is to stay on top of the news and any recent developments, such as the Coronavirus pandemic situation in Italy. As we can see, currencies are impacted by various factors that include a country’s current situation involving trade and foreign investment, inflation and interest rates, government debt, and recessions. Changes to any of these factors could lead to a change in the demand for a currency and a change in currency price in the markets.

These prices fluctuate under normal circumstances; however, now that we are uncertain, the forex market factors are in flux. Therefore, currencies are as unpredictable as ever, presenting those who trade forex as CFDs or Contracts for Difference with both opportunities and risks.CFDs allow you to take advantage of price movements in both directions—increases and decreases—of top currency pairs like EUR/USD without having to purchase the underlying asset (in this case, any actual currency). You’re essentially trading on volatility, so if you expect the price to go up, you’d open a ‘Buy’ deal or ‘Go long,’ whereas if you expect the price to go down, you’d open a ‘Sell’ deal or ‘Go short.’

CFD trading extends beyond the currency market to include various instruments – commodities, shares, indices, ETFs, and cryptocurrencies. At the moment, those with interest in forex trading as CFDs have plenty of financial headlines to heed to make more informed trading decisions. But before jumping into forex trading, be sure to find a reliable broker you can trust and keep your eyes on the news to get a good sense of where your currency pair may be headed next.

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