At first glance, it’s easy to see why forex trading is such a popular and appealing market from the perspective of investors. After all, this entity over $6 trillion dollars traded daily, while this number is likely to increase further in the near-term.
If you do intend to enter this marketplace in 2021, however, you’ll need to have a full understanding and appreciation of its fundamentals, while also creating a viable strategy that can deliver long-term results.
In this post, we’ll offer some top tips to help guide your forex journey in 2021, with a particular focus on key markets and the most viable currency pairings.
Keep an Eye on the Big Picture
As anyone who has gained experience of forex trading can testify, it’s easy to become preoccupied with the notion of technical analysis.
While this is an important aspect of any successful forex journey, it’s also crucial that you don’t lose sight of the bigger picture and continue to understand the impact of the wider macroeconomic and geopolitical climate.
Make no mistake; the world’s socio-economic climate could well worsen before it improves in 2021, despite the likely ascension of incoming President Joe Biden and the improved global growth projections as the coronavirus vaccine is rolled out internationally.
For example, the global recovery in 2021 is projected to be led by emerging economies, just as it was in the wake of the great recession 12 years ago. This means that the markets will continue to be underpinned by volatility in the coming quarters, creating opportunities to hedge against major currencies such as the US Dollar and the pound.
Is Asia a Good Market to Target?
The rise of emerging economies is also embodied by the outstanding performance of Asian currencies, particularly trade-sensitive entities such as the Chinese yuan and the Taiwan dollar.
More specifically, the market has seen bullish bets on these currencies in recent months, with expectations of heightened exports and higher capital inflows driving this trend and suggesting that Asia will lead a vaccine-inspired economic recovery next year.
In precise terms, demand for the South Korean won reached an eight-year high during Q4, while bets on the Taiwan dollar soared to their highest level since October 2009. Investors are also taking long positions on the Chinese yuan, with this asset providing an anchor for other currencies in the region as a result of its longstanding trade ties.
With these points in mind, Asia represents an excellent market to target from the perspective of currency traders, and this trend is unlikely to change in 2021.
Consider Starting With a Single Currency Pair
Given the volatility that will continue to grip the forex market in 2021, it makes sense that any novice or aspiring trader should initially focus on a single currency pairing before scaling their efforts in line with profitability and experience.
In many ways, it would also make sense to target a pairing that features a strong Asia currency such as the Japanese yen or the Australian dollar, the latter of which has made incredibly strong gains against the greenback since its March lows.
The AUD has risen by 28% against the US Dollar during this time, with Australia’s commodity and export-led economy continuing to outperform its US equivalent.
This would make an excellent starting point for any aspiring forex trader as 2021 gets underway, with the US likely to remain under considerable pressure as Covid-19 runs rampant nationwide.