It has been a long and difficult year with many turbulences and changing conditions on the way. It was a year when the word ‘security’ meant quite a different thing to what one would expect. But here we are at the end, the last historic day of 2020 appeared in the calendar. Yes, historic – I do not hesitate to call the passing year that way.
- The Australian dollar is the undisputed winner among the major currencies.
- The euro and the franc exchange rate gains 9% to the US dollar throughout 2020.
- Silver is the leader on the market of raw materials, which have been gaining dynamically
Covid-19 brutally revised its 2020 forecasts
All the forecasts made for 2020, analyses and expectations were brutally revised as early as in the first quarter of this year, which will pass into history as the one in which humanity had to learn to live with the constraints of the covid-19 pandemic and to accept the abandonment of its previous lifestyle.
A year in which economic indicators have reached unprecedented levels, where the central banks have loosened monetary policy to its limits, often exceeding them …
Would anyone still believe, in February 2020, that the popular US Non-farm payrolls (a statistical document which shows the change in the number of employees over the last month, excluding those employed in agriculture) in May will be minus 20.5 million? Did anyone expect US GDP to hit bottom in the second quarter and fall by 31.4%?
After the February-March 35% drop in the S&P500, could we have predicted that, despite the ongoing pandemic, the stock market indices would reach their all-time highs in a few months’ time?
I am a trader who bases his trading on technical analysis, but I admit that I do not remember a year like this – where I paid so much attention to analysing the fundamentals and the news appearing on the front pages of the media before I looked at the technical charts. You only have to mention such hits as the news about the introduction of the covid-19 vaccine, the US presidential election or the never ending Brexit story … will or will not they sign and how will the British pound behave?
The vaccine was invented, the president elected, Brexit has become a fact… The worst seems to be behind us… or at least I hope so.
A new month, a new quarter, a new year and a new decade is coming, so let us look back at the past year and meet the winners, losers and surprises of the Forex market.
The Australian dollar is undoubtedly the winner of 2020.
Among the best forex instruments in 2020, the Australian dollar stands out, which this year gained over 10% against the dollar. The AUDUSD currency pair fell by more than 17% between 9 and 19 March to its lowest level of 0.5500 this year, and has since then recorded an almost continuous growth to 0.7750.
The sharp rise in iron ore prices strengthened the Australian currency, which largely ignored the escalation of tensions between Australia and China. The Chinese economy, rapidly rising from its knees, has driven demand for raw materials.
Demand, which, especially when other economies are pale due to the pandemic, has strengthened the raw material currencies of countries which have China as their main recipient.
At the end of the year, AUD/USD is rising to 0.7750 and has reached its highest level since April 2018. The 0.8000 remains another key growth target.
The euro exchange rate also deserves to be mentioned. EUR/USD up 9%
In addition to the AUD, the Euro also deserves to be distinguished in this category because it gives similar results to the Australian currency, with an increase of nearly 9% against the dollar in the last 12 months.
At the end of February and the beginning of March, when US government bond yields fell to a very low level, there was a significant weakening of the dollar, the EURUSD rate rose from 1.08 to 1.14.
The situation on this most popular, most traded pair changed diametrically when the covid-19 escalated in late February. There was a panicky sale of all instruments – the market was dominated by the “Sell all, Buy dollar” strategy.
EURUSD 2020 – opening level 2020 in June turned out to be a strong support for the euro.
The EUR/USD has fallen to its lowest levels since 2.5 years – 1.0635 in three weeks. After reaching the bottom on 20 March, the pair has started to recover and is basically moving in an upward trend to this day.
While the fundamentals of the euro are not perfect, it is difficult to argue with the technical picture on the chart. The signing of a free trade agreement with the UK has increased optimism and hope for normal trade relations between these separate economic systems after 1 January 2021. The EUR/USD now has plenty of room to move around 1.20 to 1.25.
Reaching 1.2300 at the end of the year highlighted the weakness of the dollar. Undoubtedly, it was the Euro, having a 58% share in the DXY basket (USD index), that contributed to the fact that the index fell to 88.50, last seen in February 2018. Now the “Sell dollar, Buy everything…” is still on.
When assessing the behaviour of the euro against other currencies in the coming year, it must certainly be taken into account that other large central banks do not exclude negative interest rates that could weaken these currencies in the near future.
The European Central Bank, with the introduction (in June 2014) of negative interest rates, has already quite limited room for manoeuvre to reduce the euro rate. This may be one of the reasons why it is worth betting on a rise in the exchange rate of the euro to other currencies in 2021.
The silver rate is the leader in the raw materials market
Among the raw material instruments, Silver comes first. This precious metal has opened with a price of 17.80 USD/oz and closes the year with 26.50 USD/oz. This is nearly 48% profit against the US dollar. Silver has almost doubled in comparison with gold, which this year has gained “only” 24%. This unbalanced correlation between the Ag and the Au may predict stronger increases on gold and smaller increases on silver in 2021.
An additional factor which may signal increases on gold is on the above chart. Silver has already broken out of the bullish flag in mid-December, while gold is on the flag resistance… there is not much to break out and it seems that soon the price of gold will follow the silver… and will break out of the formation upwards.
This is all for part 1. In the second part I will focus on losers and red lanterns of the forex market.
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