FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
FxPro information and reviews

Global markets set to end chaotic 2020 on optimistic note

31 December 2020

There is a feeling of sanguinity coursing through global markets as a year of absolute chaos finally draws to an end. Most stock markets suffered their briefest bear market ever only to stage a meteoric recovery and emerge much stronger, oil prices turned negative for the first time in history, and the once-beloved US dollar is now trapped in a relentless downward spiral.

If there is a lesson to be learned from all this, it is that when governments and central banks join forces to fight a crisis, the stimulus response is so overwhelmingly powerful that it eclipses everything else in financial markets. When sovereign bonds go from being a risk-free asset to becoming a return-free risk, equities and commodities are bound to shine bright. There is simply no alternative.

Will the consensus get it right in 2021?

Looking into 2021, the burning question is whether this cheerfulness will continue to dominate as vaccines are fully deployed and the global economy heals its wounds. The vast consensus within the financial community is that it will.

Equities are widely expected to continue grinding higher, powered by the improving economic environment and the aftershock effects of the tsunami of stimulus that was unleashed this year. Likewise, the dollar is anticipated to go even lower as US inflation accelerates faster than other economies, keeping real interest rates deeply negative.

While it is difficult to argue with the equity thesis, as there is no alternative to stocks that offers any decent returns, the dollar narrative doesn’t look quite as solid. It is true that fading safe-haven demand for the reserve currency coupled with deeply negative US rates seems like a recipe for disaster, but then again, much of this has already played out and most other major economies are much weaker fundamentally.

In the classic way of thinking, interest rate differentials are the single most dominant force for the FX market. However, coming out of a crisis, perhaps relative economic performance will matter even more. The euro area is still in dire straits, while the US is doing much better and is also further ahead in the vaccination race. If America once again proves to be a fundamentally stronger and more productive region, this economic divergence may dawn on investors soon. Capital is ultimately attracted to growth, not deflation.

Commodity currencies plow higher, gold shines

It was another quiet session as many traders are still away, yet the aussie and the kiwi both capitalized on the softer US dollar to reach new multi-year highs. Both Australia and New Zealand are virtually covid-free, and the recent rally in commodity prices paints a brighter picture for these export-heavy economies.

Having said that, the aussie looks riskier than the kiwi here, as Australia has diplomatic tensions with China to worry about. Beijing slapped tariffs on several Australian products this year after Canberra supported a global inquiry into the origins of the coronavirus. The aussie has been surprisingly resilient so far, but if this trade brawl escalates any further, a sharp reality check may be in order.

Gold was back in vogue too. The US dollar sinking to multi-year lows and real US yields turning back down was just what the doctor ordered for the yellow metal, which is about to end the year almost 25% higher.




Trading the SPDR S&P 500 ETF Trust
Trading the SPDR S&P 500 ETF Trust

The Standard & Poor’s (S&P) 500 Index measures the market capitalisation of the top 500 US largest corporations. Many traders and investors use the S&P 500 Index as a benchmark...

23 Sep 2022

Gold pauses as traders await Fed decision
Gold pauses as traders await Fed decision

The anticlimactic performance of gold continues as the prospect of aggressive rate hikes by central banks around the world amid heightened inflationary pressures...

21 Sep 2022

Developing a forex trading plan: All you need to know
Developing a forex trading plan: All you need to know

All forex traders have different backgrounds, market views, risk appetite, thought processes and expectations. Therefore, traders should not just blindly follow what other traders do...

20 Sep 2022

NordFX: Forex and Cryptocurrencies Forecast for September 19-23, 2022
NordFX: Forex and Cryptocurrencies Forecast for September 19-23, 2022

The World Bank said last week that risks of a recession in 2023 are growing amid simultaneous tightening of monetary policy by the world's leading Central banks and the energy crisis in Europe...

19 Sep 2022

Gold gains traction on the back of weaker dollar
Gold gains traction on the back of weaker dollar

The precious’ recent rally from its near year-to-date lows could be attributed to the broader dollar weakness observed in the past week, even though it remains elevated near its 20-year highs...

14 Sep 2022

NordFX: Forex and Cryptocurrencies Forecast for September 12 - 16, 2022
NordFX: Forex and Cryptocurrencies Forecast for September 12 - 16, 2022

The past week was marked by two significant events. First, the EUR/USD pair updated its 20-year low on Tuesday, September 06 once again, falling to 0.9863...

12 Sep 2022

Editors' Picks

HFM information and reviews
IronFX information and reviews
FXCM information and reviews
NordFX information and reviews
Vantage information and reviews
FP Markets information and reviews
FP Markets

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.