As with 2020, trading professionals believe that the US dollar will continue to play a pivotal role in markets in 2021. According to Monte Safieddine, a Market Analyst at IG, “When it comes to the FX majors in 2020, the US dollar is the reserve currency that was most sought after at the start of the pandemic as liquidity concerns surged, only to retrace and go into retreat thanks to central bank policies and a strategic goal of a more accessible greenback.
Safieddine also says that the Australian and Canadian dollars performed well at the end of last year. “A recovery in commodity prices on expectations of growth and increased risk appetite gave the Australian dollar – a high-beta and commodity currency – a higher finish for the year, while oil prices clawing back lost territory aided the Canadian dollar’s energy underlying.
Safieddine says that the recent change of American government will continue to focus attention on the US dollar. “With a big stimulus package promised by the new administration in the US, focus will remain on where the dollar will go from here, while vaccine roll-out and effectiveness will be a factor in general appetite for risk and commodities, and in turn risk and commodity-related currencies.”
Raed Alkhedr, Equiti’s Head of Market Research & Analysis, also says that the commodities market may attract investor attention in 2021. “Commodities are likely to have the most opportunities for investors in 2021, especially gold, with global decision makers debating the implementation of strong stimulus policies in an attempt to stimulate the economy and minimise the risks posed by another Covid-19 outbreak.
“US President Joe Biden and US Treasury secretary Janet Yellen intend to implement a Covid-19 relief plan amounting to $1.9 trillion, and this could increase demand for gold in the coming period as it would be used as an inflation hedge.”
He also believes that Covid-19 vaccines will be beneficial to other markets. “The distribution of vaccines plays a reassuring role for the financial markets, especially for forex trading since any advances to overcome the pandemic, besides government and central bank interventions, could encourage investors to seek trading opportunities in the forex markets as a result of increased trading volumes, and with it increased volatility. A successful vaccine roll-out should stabilise currency and reduce volatility as we have recently seen.”
Uncertainties and Brexit
Michael Stark, Market Analyst at Exness, says that knowing where to invest in 2021 is difficult to predict, particularly following Brexit and with the continuing issues countries face with the pandemic. In the case of Brexit’s impact on the UAE forex market, he says, “It’s difficult to say for sure, but for the moment, nothing much. Covid is obviously a much more immediate concern, but equally the last-minute agreement between the UK and EU effectively means no change from the transition period in terms of regulatory alignment and so trade.
As more details become clear on the recovery or lack thereof in UK - EU trade this year, logically one would expect that the pound has limited room for gains but considerable space to move down against most other majors.”
A cautious approach
Stark says that a cautious approach should be taken with all investments and especially with cryptocurrencies such as Bitcoin. “People should never jump into any investment without any caution whatsoever. That said, cryptocurrencies and particularly Bitcoin merit especially high caution because of their extremely strong gains since December of last year and the impossibility of valuing them objectively. The comparison of fundamentals and charts of various shares is also confused, with many having appreciated sharply in price since last summer while not showing clear potential for growth in income or EPS.”