2021, a Fresh Start for the Markets or More of the Same?

February 1, 2021 at 01:54 PM

It’s been a roller coaster ride of a year for the financial markets, with crashes, losses, and unprecedented volatility. 

West Texas Intermediate (WTI) crude oil prices went negative at one point and still trail below 50 USD. The USD took a big hit, along with the GBP and EUR. The Forex market remained uncertain for most of the year, mainly due to the pandemic and the US presidential elections. 

However, market analysts are saying there’s a good indication that the wild ride may be over. The world has a COVD-19 vaccine now, as well as a new US president.

All of these events bring new hope for 2021 markets. However, if 2020 taught us anything, it’s that unpredicted events can happen, and when they do, they send massive shockwaves across financial markets. So what can we expect in 2021? New beginnings or more of 2020’s volatility?

Will the stock markets continue rising?

The stock market crashed in February 2020, the most significant drop since the Great Depression of 1929. Still, by November, Moderna and Pfizer had announced promising Covid vaccines, and the Dow Jones Industrial Average hit a record high of 30,000 for the first time in history.  

That’s the beauty of the stock market. It’s resilient and bounces back.

Analysts predict it will continue its rise through 2021. After an almost unprecedented fiscal and monetary response coordinated globally, interest rates have been historically low. These conditions have supported stock market gains in the past, and there’s no reason to suspect they won’t have the same effect in the new year. Interest rates are likely to stay low until the world has moved past the pandemic. 

How will the EURUSD perform? 

Most analysts predict the USD will decline. There are two significant reasons for the USD weakening.  The Trump administration poured USD into the market to stimulate growth when the lockdown began in March 2020. The U.S. Federal Reserve’s pledge piled on further pressure to keep rates at their record low. 

The European Central Bank (ECB) doesn’t like the idea of a rising EUR because it negatively impacts exports.  However, a weaker USD may cause a hike in the price of EUR. So if the trend continues, EUR/USD could jump to 1.24 in 2021. 

Will the GBP remain uncertain?

The British pound is the fourth most frequently traded currency on the global market. With the USD expected to weaken under the new US administration, analysts are focused on the performance of the GBP against a weak USD. 

Widespread distribution of a vaccine, a weaker USD, and an agreement on a Brexit deal support the GBPUSD pair in 2021. 

However, a lot is riding on the Brexit deal, with many analysts agreeing that the sterling could potentially reach an all-time low if there’s no deal and pressure for negative rates to grow. 

There’s a lot of volatility in the pairing heading into 2021. If you’re interested in making the most of it, trading CFDs offers an opportunity to profit from both bullish and bearish price action potentially. You can either hold a long position, speculating that the GBPUSD rate will rise, or a short position, speculating that the rate will fall.

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