Changes In The Forex Market In 2016.
It was only a decade ago when the euro and the British pound were far ahead of the United States dollar. Indeed, countless Forex investors were taking advantage of this parity and making handsome sums of money along the way. However, what goes up can and will go down. Thanks to the recent Brexit vote and the continued geopolitical instability of the European Union as a whole, many are now beginning to view the dollar as a safe haven across the Atlantic Ocean.
Is this purely a matter of fundamentals or does psychology continue to play an important role? Let us have closer look at the answers to this important question.
Real or Perceived Weaknesses?
It is said that the markets are controlled by greed and fear. One or the other will cause massive intra-day fluctuations and should fear begin to take a firm hold, bearish territory is not far off. The recent British referendum seems to back this observation up. As a result, the value of the pound in relation to other benchmark currencies has faltered. Many are now wondering if the United Kingdom is headed into yet another recession.
In the same respect, analysts are doubting the long-term solvency of the European Union. Rumours are beginning to circulate that other countries such as Spain, Ireland, Greece and Portugal may be headed for the proverbial exit door in the years ahead. In terms of a single market currency, this would likely spell the end of the euro. Once again, a loss in confidence may replace pragmatism.
A Return to Traditional Methodologies?
Many Forex traders are choosing to mitigate this potential for volatility by diversifying their holdings back into the dollar. This is no great surprise when we consider that the majority of commodities are still backed by this currency. However, more than psychology alone has influenced this train of thought.
Surprisingly strong economic data and a rise in GDP both indicate that the United States economy may be in store for rather bullish times ahead. Not only will this bode quite well for the dollar, but Forex traders are also analysing the synergistic effects that this will have upon commodities in general. For all intents and purposes, the prospects of a strong dollar at least until the end of the 2017 financial year look very promising.
Looking at Long-Term Strategies
By their very nature, the Forex markets tend to be utilised for short-term goals. This view has been reinforced with the rise of trading platforms such as CMC Markets. Access to global indices and an ability to trade currencies nearly any time of the day or evening have opened up an entirely new demographic. Some investors are now looking for means to build sustainable wealth over time and it could very well be prudent to begin examining long-term trading methods.
However, there is no doubt that the liquidity within the Forex marketplace will remain firmly intact; regardless of what news may emerge down the line. Thus, both short- and long-term goals can be met under the assumption that investors have a working knowledge of the markets and are able to keep a keen eye on any currency fluctuations. There is also the possibility to diversify Forex-based liquidity into other sectors such as commodities and equities. This can help to provide a further level of stability during potentially troubling times.
Many feel that the first quarter of 2017 will shed some further light on the strength of the dollar. Until then, all eyes are likely to remain focused on the movements of the euro and the pound.