With the novel coronavirus rapidly making its way across the globe, countries in every continent are coming to terms with taking the appropriate measures to contain the COVID-19 outbreak and protect their populations, as well as their economies.
In today’s post, we’re going to be looking at just how this global pandemic is impacting the forex markets around the world, as well as offering some helpful forex trading tips that could arm you with the right knowledge to successfully navigate trading forex in a volatile market.
Before diving into the effects COVID-19 is having on global exchange rates, it’s helpful to get a clear view of the virus outbreak timeline and the path it’s taken over the globe. Originating in Wuhan, China, where the first case was reported in December 2019, coronavirus set about spreading at a rapid rate throughout China during January and February.
On the 9th February 2020, the death rate for COVID-19 exceeded that of the SARS outbreak in 2002-2003, while cases began to appear in other Asian countries, including Japan, South Korea and Taiwan. Outside of Asia, Australia, Europe, the Middle East and North America also reported cases of the coronavirus and on 12th March 2020, the World Health Organisation (WHO) announced the COVID-19 outbreak as a global pandemic, as cases were widespread and rising at an alarming rate.
Now nearing the end of March, many of the countries who fell victim to the virus early on, such as China and Taiwan appear to be on the road to recovery, with fewer cases being reported every day and death rates slowing down.
However, Europe is still in the grips of the coronavirus crisis and is deemed as the current epicentre of the outbreak. While many countries are taking extreme measures to try and control the outbreak, in the case of Italy, this is still proving difficult as the number of deaths from COVID-19 have surpassed China’s and are still on the rise. As a result, the long-term effects of the coronavirus in Europe is still not clear, but it’s expected there will be significant recovery time needed across the continent.
Over in the United States, more cases of COVID-19 are being reported every day and with a reportedly slow reaction to the outbreak, there are predictions from WHO that the US may become the new epicentre of the virus.
Asia and Australia
With the initial outbreak occurring in China in December 2019, taking a look at the first few weeks and months of the forex market in 2020 show a clear correlation between forex exchange rate values and the virus going global.
Naturally, as the first epicentre of the virus, China bore the initial brunt of the impact on the forex market seeing a downward turn throughout January and February. Not far behind, the Australian dollar also began experiencing some volatility, largely due to China being its biggest trading partner. However, many investors also use the Australian dollar as a proxy to trade with China due to trading restrictions on the renminbi, but historically it’s viewed as a ‘risk currency’ during times of instability, resulting in many investors trading in US dollars instead.
As the cases of COVD-19 continue to rise in Europe, many countries are witnessing unprecedented strain on financial reserves and healthcare services that are understandably impacting the global forex markets.
As a result, the EUR/USD has been on a downward trend for the past few weeks. And, although the promise of a €750 billion cash injection from the European Central Bank (ECB) in a bid to help control the financial repercussions of the COVID-19 crisis has been welcomed by EU members, it still hasn’t restored full investor confidence, with many buying US dollars over the Euro.
In the UK, confidence in the sterling has also dipped, which in some part is due to the country’s seemingly slow reaction to put stringent health and safety measures in place to prevent a full-scale outbreak. However, their reduction of base interest rates to 0.1% and the continued uncertainties surrounding Brexit are also having a negative impact on the value of the pound.
Having said that, many countries within the EU are being more proactive and implementing strict preventative measures against the coronavirus early. It’s thought that this approach could help to stabilise the economy more quickly and aid the recovery process.
The United States
As we’ve already mentioned, the US has been slow to recognise the impact of COVID-19 and take appropriate measures to contain the outbreak. However, this hasn’t stopped people investing in the US dollar. This could be due to the Federal Reserve’s continued efforts to supply liquidity to the market, as well as investors typically seeing the US dollar as a ‘last resort currency’. As a result, so far the USD appears to be offering a safe haven to investors and retaining its value better than most other major currencies.
What isn’t clear is how long this stronger position will last. As the effects of the coronavirus outbreak begin to unfold over the coming weeks and months, putting strain on medical and financial resources, we may begin to see a downward turn, particularly as there is a thought process that the quicker countries are to react to COVID-19 the quicker they’ll be to recover.
Navigating the forex market today
When it comes to navigating your way through the current forex market with news of more uncertainty and volatility, it can be challenging, especially when you’re still learning the nuances of forex trading. As Greg talks about in one of his recent YouTube videos, utilising your existing knowledge and the making use of trading tools like Smart Charts could help you to be more successful with future trades. Offering expert insights and forex trading tips, this tool is designed to teach you how to read and manipulate the highs and lows of the foreign exchange market – leaving you better equipped to identify opportunities on the market that could lead to decent profits.
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