At a webinar hosted by Refinitiv in late March, Wilson Leung, chief market strategist at currency trading advisory firm TrendsetterFX, analyzed the impact of COVID-19 on forex trading and demand for the U.S. dollar.
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In a webinar hosted by Refinitiv, Wilson Leung outlined why this crisis caused by the COVID-19 pandemic will continue to have a huge impact on forex trading and financial markets for a long time.
To illustrate his analysis, he used a range of market data points to explain why he was taking a “cautious, bullish tone”, and that he expects global demand for dollars to continue.
In normal times, a forex analyst can rely on market charts and interest-rate scenarios to predict trends. In this fast-changing situation, however, Leung has had to go beyond his usual data points to understand what is driving major currency pairs.
Access the webinar: Impact of COVID-19 on foreign exchange market and future outlook
Rising unemployment
Other, broader factors of the COVID-19 pandemic need to be analyzed to assess the current state of forex trading and that these factors go beyond simply crunching the data.
One of the biggest factors is unemployment, which is skyrocketing around the world as a result of lockdowns in fear of the coronavirus. The mounting job losses are what make COVID-19 as bad as — and potentially worse than — previous crises such as the 2008 global financial crisis or the Great Depression.
Leung puts the current situation into perspective. He noted that at the outset of the Great Depression in 1929, U.S. unemployment stood at 3.2 percent. A decade later, by 1938, it had risen to 19 percent.
Unemployment was not as badly affected during the global financial crisis; peaking in early 2009 at 9.9 percent in the U.S., and then steadily improving to a low of 3.5 percent in 2019 and into earlier this year.
No longer.
In just a five-week period, more than 26 million Americans applied for unemployment benefits. Some economists, such as Justin Wolfers at the University of Michigan, calculate current unemployment may be as high as 13 percent, and still rising sharply.
Stock markets and forex trading
Another lead indicator of currency is the stock market.
Leung says the crisis has been marked by fear driving ‘risk-off’ trading patterns, which has seen demand for the dollar soar as a safe haven, because of its status as the global reserve currency.
Amid the market volatility, there have been moments of optimism. These were first reflected in stock indices such as the S&P 500 and the Dow Jones Industrial Average, […]
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