Coronavirus lockdown influence on the Forex Market

 Coronavirus lockdown influence on the Forex Market

Almost everyone around the world experienced the unprecedented effects of the coronavirus pandemic. Global economy seems to be changing day by day, from COVID-19 to outright Civil war. 

According to the World Health Organisations, there are nearly 6.5 million confirmed cases and above 380,000 deaths from covid-19 infection. As the WHO reports, there are over 100,000 new cases every day. The situation in South America and Central America is getting worse. 

These economies are stuck between the survival of a human beings or the economy. 

Due to the lockdown regulations, the millions of employees across the numerous industries suddenly became jobless. The government’s restrictions forced people to temporarily shut down their businesses. The pandemic changed the face of the economy.

Notably, Forex and Stock market were mostly influenced by the pandemic. Fear and hope are always leading factors in market price actions. First of all, it drives general social behaviours. For instance, in Italy, within one day entire supermarkets  saw their shelves emptied. Notably, this was at the beginning of the spread of COVID-19,  before any lockdowns were even mentioned. 

For those who don’t know, Forex is a decentralized financial market which has become a playground for all sorts of investors to gain profits. Anyone who wants to make some extra money will do so remotely when dealing with Forex.

So, it’s fair to think that in the forex market emotions drive people in the same way. Fears lead them to take action in their trading strategies.Generally, as people don’t like risks, they want to hold investments  which don’t have too much of a bumpy ride. 

During this lockdown period, investors have been acting in accordance with the fact that economical and financial crisis is close. Everyone tries to avoid perceived danger, and find perceived safety.

Which currencies show the COVID-19 impact on Forex Markets?

Let’s start with Japanese Yen. Over the last days, investors have seen a rush on this currency. Compared to the United States dollar, the Japanese Yen is considered a haven currency. An interesting fact is that whenever a global crisis has occurred, the Yen has usually appreciated it. The pair of U.S. dollar and the Yen will simply go south to reflect investor and market preference. 

Looking at previous months leading up to the rout of the dollar, we see a steady upward trend for USDJPY. For several years now, the Japanese economy has not at all developed very well. The latest data showed Gross Domestic Product decreased by 7% for the quarter. Meanwhile, The United States economy has been going forward.  So it’s a reasonable rally for the pair. 

Coronavirus similarly influenced the pair of Euro and United States dollar. On 20th February,  EURUSD decreased to 1.0778, then rapidly reversed and over the following 12 days it increased by 6.2%.

But, the pandemic impact on the Forex market hasn’t always been negative for U.S. dollar. As we already know, investors prefer a less risky asset to a riskier one. If we look at the COVID-19 impact on the FX markets in emerging markets, we’ll find out that the dollar also benefits from the current conditions. For example, let’s take Mexican Peso. It is a riskier asset than US dollar, so investors sell pesos and buy dollars. 

Currently, The Forex market operates with a high level of risk awareness and the numerous variables in play. Besides, there can be further volatility in the market, with areas most influenced by the outbreak seeing further pressure on currency values.

The best thing about trading in the Forex market is that anyone can gain hefty profits and once the pandemic is over, you can still enjoy the financial rewards of this style of investment. 

 

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