Global Currency Wars: EURUSD's 2020 & What's Ahead
Dynamic Forex Solutions | Feb 25, 2021 07:04
The Euro/Dollar (EURUSD) is the most watched, most traded and most important forex market in the world.
And for good reason.
It makes up almost 30% of all forex volumes worldwide and is a key indicator of the relationship between two of the largest economies in the world - the USA and Europe.
This market remains critical for investors too, as anyone looking to diversify their assets wants to know if Euros, Dollars, Pounds etc are good hedging solutions.
The year 2020 was one of the most volatile years in history for most markets, and EURUSD was no different!
Leading into the year, we saw tensions high between the EU and US, following the previous years of trade disagreements...it never quite reached the level of the China trade war, but stirrings continued and relationships were not good.
The Dollar was on the front foot leading into the year, trading at $1.11/Euro, having strengthened for the whole of 2019. But then the new year provided a new set of challenges with ‘the pandemic’.
And through the first 6 weeks, it was all one way traffic as the global fears meant that persons kept piling into the Dollar...
Then in February, the tide turned.
The EURUSD exploded from $1.07 to nearly hit $1.15...
...only to rip back to $1.06 by late March!
Pandemic fears, travel bans and more were turning the markets into a tumult!
The EU did NOT take kindly to Trump's banning travellers to the US in March who had been in Europe, and relations broke down further.
But that was the turning point of the year for the Dollar, as we never saw it come back from those levels of strength!
The US had it’s own host of issues as the ‘pandemic’ lockdowns gave way to:
- Huge job losses, sky-rocketing unemployment rates
- Massive interest rate cuts
- Riots, looting and BLM/Antifa protests
- An uncertain and highly contested election
All the while in Europe, Brexit rolled on and Boris Johnson seemed unable to put a single step right with different restrictions, lockdowns and more.
So what a year...once again, who could have called all of these fundamental life-changing events?
Well, the fact is, no one really could have.
But the other fact is the predicting fundamentals is not enough to tell you where a market is going. Fundamentals affect the long term, but have no effect in the short and medium term.
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This is what we showed as a picture for the EURUSD back in March 2019, before all of this began.
So there we had the EURUSD trading at $1.13, and with us expecting a test between $1.08-1.05, before we would see the market break upward of $1.18 toward new target levels.
So where do we find ourselves today?
We are at $1.20/Euro at the time of writing, with the market having played out exactly over the past 2 years as forecast using our Elliott Wave based forecasting system.
And what about the year to come?
Frankly, we see some more interesting days ahead.
The US Dollar has had a rough 2020 and has taken a severe beating. Its position as king and safe-haven is always going to be challenged whenever it's value falls. But one thing to always remember is this:
Whenever a market reaches an extreme in sentiment, expect some reversal of fortunes. In currencies (and all financial markets) a one-way street doesn’t last forever.
As for the EU, it is a changing game for the currency with the EU's seemingly never-ending instability and the aftermath of the Brexit debacle still playing out too.
No doubt, this is going to once again be a market to watch in 2021.
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