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Will 2020 bring the volatility back to the Forex market?

Mar 13, 2020

This week started off with a global stock market fall that became the steepest since the 2008 financial crisis. On the so-called Black Monday stocks entered a ‘’bear market’’ when fallen more than 20% from the recent peak. The crash was largely caused by the coronavirus outbreak that was declared a pandemic combined with the ongoing oil war between Russia and Saudi Arabia.

This Thursday US stocks saw their worst day since 1987 after falling almost 10 percent. That was the market’s response to the US president’s ban on travelling from European countries and growing anxiety over the pandemic.

Black Monday and Thursday brought back volatility into the forex markets that remained at low levels for years. In 2019 majority of brokers were struggling to remain profitable in the conditions of low volatility and low trading volumes. But if the last year was quite tough for the industry then maybe 2020 will bring more trading opportunities?

Although this week’s event has raised hopes for the increased volatility and growing activity, it is arguable whether the industry should count on this for the long-term. For instance, Head of Trading Department at XTB Filip Kaczmarzyk views the situation as a “short term exception” which will return to an earlier level. He explained that volatility will likely appear among the instruments that offer better return vs risk for investors rather than forex instruments.

Some experts alternatively believe that the volatility will last at least for a few months especially if triggered by continuing challenges. Such events as coronavirus outbreak wreak havoc and make investors nervous, thereby generating the market volatility. Due to a number of factors, the year 2020 has the potential to be more beneficial for traders than 2019 providing more investing opportunities.

Moreover, there are also speculations about the possibility to avoid a summer lull. Usually, the summer months are less exciting for FX traders, however, with the virus outbreak, this summer might be very interesting from the FX market perspective. As the coronavirus hardly will vanish and no vaccine will be available in the nearest future, the panic will still be there. However, it does not necessarily mean that the volatility will be as high as not but certainly higher than in past years.

No doubt that the impact of the pandemic on the global economy will be considerable. Some experts assume that the effects will not be pleasing and the market might slump into a long downtrend. Therefore, the volatility might not be that positive and may become an adversary rather than a friend.

2020 is going to bring some surprises.Apart from the coronavirus outbreak, such events as Brexit, the Olympic Games, the United States elections and more will cause waves in the forex market. It is unknown what will be the situation with the coronavirus in a few months but there definitely will be economic and financial implications which will bring the volatility. Moreover, the presidential election in the United States usually triggers the volatility and this is something that is going to happen this November. To conclude, the year 2020 will be the year to remember.

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