The New Normal - Trader's reality
Information is not investment advice.
When Aldous Huxley was writing his famous dystopia, little did he know that 90 years from the publication of his novel, there will be so many parallels in the actual society with the world he described. The virus brought a lot of changes to the way things get done: economic, industrial, procedural, etc. While these changes increasingly attract media discussion, new terms get coined – such as “New World 2.0”. Leaving the broader social and other aspects aside, let’s see what this new reality may bring to a trader.
As many observers noticed, one of the main consequences of the virus is the expansion of the wealth gap between the strong economies and the weak economies. This is logical enough: robust and powerful economies survive better, recover faster, re-take and conquer more, while those on the other side of the spectrum get hit harder, recover slower, and cannot keep the pace of the developed economies. For the currencies, it means that the main currencies will get stronger in relation to the weaker ones. That is, powered by the further tilt in economic balance, most exotic pairs such as the USD/MXN, USD/TRY, USD/RUB will get more dented into long-term bullish trends powered with increased volatility.
A day doesn’t pass without another deep crack appearing on the face of the European Union. Polarity just got stronger across the old continent, and one cannot blame wealthy European states that they refuse to pay for their bankrupt counterparts across the border, while the latter ones refuse to cooperate under the aegis of the Union. When all go their own directions, the euro gets torn apart. At least, it’s definitely not getting any stronger. Take that as a strategic guideline when trading the European currency.
The tip of the pyramid
The American economy is hit hard anyway. 10% of population unemployed, lower production, slower recovery, cautious moods, quieter economic activity, lower inflation, weaker investments – all of that will surely work like a swamp which the US economy will have to traverse in the course of the coming 12-24 months before getting to full capacity. Nonetheless, the US dollar will stay the strongest world currency, which has no rival. In fact, it will unilaterally grow stronger as the European Union – which is collectively the only true economic rival to the US economic power – gets increasingly undermined by internal fragmentation processes shaking the stability of the union and questioning it as such. That’s why, strategically, the USD will be seen as the only pillar of stability in the Forex market.
Since the dissolution of the British Empire 100 years ago, the UK has been enjoying the status of a separate, strong, and unique economic power, with the GBP being next only to the USD and EUR. That may also see some questions throughout 2020 as the Brexit is far from being “successfully resolved” while the deadlines are nearing. At the same time, the fundamentals of the UK economy are far from pushed by the tailwind. That implies increased volatility for the GBP at least until the end of 2020.
The oil price slump was unexpected as the virus-hit global slowdown pressing on the demand was unexpected. At the same time, it was partly a direct consequence of the actions of Saudi Arabia and Russia, and inaction of the US. Now, however, as all countries are interested to see higher oil prices, the glut is disappearing, and the price is rising back. That, if there is no geostrategic obstacle such as the US-China tension, will be the case throughout the year. As oil is predicted to eventually come to the range of $50-60, that may serve as a “guaranteed” target for the black gold to pursue throughout the coming months. Hence, oil bulls may take it as a unique opportunity.
During this crisis, humanity’s favorite metal proved two things. First, sometimes it acts in a completely inadequate manner in relation to the news coming out. Which means, it is unreliable in the short-term. Second, it still follows strategic impulses such as investor uncertainty – and since February, 2020 is definitely nominated as the “Year of uncertainty”. That’s why long-term players may bet on gold rising to $1,800 and beyond.