FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
FxPro information and reviews
HFM 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.


Share: Tweet this or Share on Facebook


USD & Yields higher, Yen, Stocks & Gold sink
USD & Yields higher, Yen, Stocks & Gold sink

A blockbuster NFP on Friday (571k new jobs vs 185k) & strong Services PMI (55.2 vs 50.5) has lifted the Dollar and Yields, sinking Stocks and Gold (the 3 mth Gold rally is over)...

7 Feb 2023

Gold traders appear hesitant
Gold traders appear hesitant

Gold finally broke out of the consolidation after being range bound for nearly 11 days. The correction to the downside was expected as gold traded in the overbought territory...

3 Feb 2023

Do safe haven currencies still exist?
Do safe haven currencies still exist?

At the end of last year, Swiss National Bank (SNB) President Thomas Jordan told news media that both the Swiss franc and the US dollar could be considered safe havens...

3 Feb 2023

USD Index appears bid and approaches 102.00 ahead of Payrolls
USD Index appears bid and approaches 102.00 ahead of Payrolls

The index looks to extend the post-ECB rebound. January Nonfarm Payrolls will take centre stage later. Other key data includes the ISM Non-Manufacturing...

3 Feb 2023

USD Index appears depressed post-Fed, breaches 101.00
USD Index appears depressed post-Fed, breaches 101.00

The index drops to 10-month lows near 100.80. The dollar remains on the defensive post-FOMC event. Initial Claims, Factory Orders next of note in the docket...

2 Feb 2023

Can The GER40 Keep Its Strength?
Can The GER40 Keep Its Strength?

As attention turns to the approaching Fed and ECB announcements, the GER40 index maintains stability near its best level since September last year...

2 Feb 2023

Editors' Picks

FXCM information and reviews
ActivTrades information and reviews
RoboForex information and reviews
MultiBank Group information and reviews
MultiBank Group
Libertex information and reviews
Vantage information and reviews

© 2006-2023 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.