Filed on May 25, 2021 | Last updated on May 26, 2021 at 10.51 am
With the world ready to take the pandemic by its horns, 2021 looks like an interesting year for trading
As markets across the world set off on a rollercoaster of volatility in the wake of the Covid-19 pandemic, the forex trading market was no exception. Thanks to a variety of factors influencing the performance of currency trading pairs, this volatility has been aggravated by the still ongoing effects. Inflation, interest rates, and government debt have all been changing as a result of the events in 2020, which has caused global recessions and led to plenty of bouts of turbulence in the forex market. All hope seems to hinge on the multiple vaccine rollouts taking place across the globe, however, not all are going according to the plan. With 2020, a year characterized by unpredictability, the question is, will 2021 be a more stable year or will the uncertainty in the markets continue? Let's take a look at how the most popular currency trading pair, the EUR/USD, has been performing this year, and how the vaccine rollout has impacted forex trading in the financial markets in 2021.
The power pair - EUR/USD
The forex market runs 24 hours a day, five days a week, and has an eye-watering turnover of about $6.6 trillion per day. It is easily the most heavily traded market in the world, however, it is also heavily impacted by external economic factors. The most popular currency trading pair measures two of the biggest currencies in the world against each other, the Euro and the US Dollar. The performance of a currency in the markets is often used as an indicator of a country's economic health or strength. We can see this demonstrated clearly when we look at the pair's decline of 6.5 percent in just 10 days, from a closing price of 1.14003 on March 9, 2020, to 1.06560 on March 19, 2020, roughly the start of the pandemic. This was a rude awakening for traders as to how badly the US and EU economies had already been impacted by the pandemic, as economic activity drastically declined amidst lockdown restrictions. In Q2 2020 however, the EUR/USD pair began to recover, increasing by 4.9 percent, from a closing price of 1.16415 on November 2 to close on 1.22186 by December 31. This was largely due to the approval of the vaccine and the subsequent rollout plans announced worldwide, which left the forex trading pair poised for an interesting start in 2021.
Forex trading in 2021
This year, the EUR/USD pair slowly declined by three percent in January, falling from a price of 1.23394 on January 6 to trade at 1.19674 by February 4.
This decline came off the back of the US waiting on their stimulus package to be announced, and the EU's slow vaccine distribution. Since then, the dollar hit a four-month high in March, while the Euro hit a four-month low, which led the pair into a decline down to a closing price of 1.18139 on March 24. All in all, this year has been another volatile whirlwind for the popular pair, with a myriad of changes happening in the world as we trudge our way through the pandemic month by month. Let's take a look at what we could see next from the pair, and how forex trading is looking overall as we venture into Q2 2021.
What will the rest of 2021 bring for the currency pair? Will the vaccine rollout across both regions lead to an increase in volatility for the pair? How will the US stimulus package and the EU's recovery fund implementation impact the pair? So far, Europe's third wave is causing chaos for the zone once again, creating uncertainty as nations go back into lockdowns, and we know that uncertainty often breeds volatility in the markets. Meanwhile, the US forges ahead with its vaccine rollout and the country's economy is on the path to recovery with the new trillion-dollar stimulus package that has already taken effect. As the US economy gathers steam on its recovery and the dollar continues to inch higher, the Euro is doing the opposite thanks to the ambivalent approach to vaccine distribution, which could be causing the EUR/USD to continue on its decline. However, Europe's renewed lockdown measures may not last past April this time which could suggest that it may help the Euro to begin its recovery sooner. There are also talks of possible tax hikes in the US, which impact the pair. With all these factors at play, 2021 looks like it may continue to be an interesting year for forex trading.
The bottom line
Staying ahead of the forex market means keeping up with the latest events around the globe. If you're participating in forex trading, it's a critical step to stay in the know with things like politics, interest rates, inflation, and other factors which influence economies. These factors are a good indication as to what may happen next in the forex market and can help you make more informed trading decisions.
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