If you're white-knuckling it while watching the stock market lately, you're not alone. Volatility due to uncertainty about jobless rates and continued shutdowns is becoming the new normal on Wall Street and international markets.
However, we have some good news for FOREX traders.
Markets are being cautiously optimistic despite continuing concerns about the impact of COVID-19 on economies around the world.
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What are the reasons for this nearly rosy outlook?
Signs of Improvement
While most traditional indicators show that consumer confidence remains skeptical at best, there are signs that the tide may be turning in foreign exchange investing. For one thing, the EURUSD reached a two-day high due to stronger US data. Second, both US industrial production and utilization forecasts failed to match actual performance. Both are slightly higher than the previous predictions.
But, before you jump full-steam into your favorite trading platform, consider the reasons for this level of optimism.
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Reasons for Optimism
Evidence suggests that the new outlook for investing is buoyed more by facts on the ground rather than dire speculation and doomsday forecasts from talking heads. Are there really signs that the economy has bottomed out and prosperity will soon return?
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Here are the three primary concrete reasons for the current surge in optimism.
World Economies are Opening Up
As soon as investors got word that restrictions are easing around the world, their enthusiasm caused a ripple effect on world markets. This is because the previous uncertainty has been stalled to some extent by the promise of a definite end point.
California, which is the world's fifth largest economy, is leading the way with a definite recovery plan that will roll out in phases, In the EuroZone, Germany is setting the pace in a similar manner. News of progress on vaccines, further reopenings, and a more positive forecast by stalwarts like Goldman Sachs and Morgan have also led to a stronger USD. In response to news from Germany, markets in Frankfurt and Paris rose by 0.2 percent, and the Stoxx 600 gained 0.6 percent.
Restrictions in most localities are slated to be lifted over the next few weeks, just in time for summer tourist season in many locations. Although the hospitality and service industries have been hard hit, lower travel and lodging costs may mean revenues will be higher than predicted. That's good for small, local businesses and bodes well for unemployment rates.
Companies Are Able to Pivot Business Models
Innovation is the mother of progress. The ability of some sectors to pivot production to answer a growing need for items like consumer electronics and personal health and safety equipment mean neutralizing, if not fully mitigating, some production losses.
Although demand shrank, especially in Asian markets, gradual recovery is expected to paint a much more favorable long-term forecast than previously expected. The expansion of remote workers is likely to become permanent in many cases, meaning lower overhead for business owners and fewer expenses for workers due to reductions in communing and other work-related costs. This will improve cash flow and increase consumer spending.
Money Markets Are Stabilizing
Currency rates are greatly affected by trade and economic stability. As we see fewer dire predictions and more concrete decisions regarding a reopening timeline, stability will return to all markets.
Cryptocurrencies are also seeing a rebound after a having event from Bitcoin, which is now trading at around $9,000. As Bitcoin (BITCOMP) goes up, other cryptocurrencies will follow.
Investing Wisely in a Post-COVID World
As long as you don't allow emotion to affect your decisions, speculation is only as risky as your tolerance and investment strategy.
If you want to keep your investments growing in good times and lower your exposure to loss in the face of instability, follow a few of these investment best practices.
* Ignore daily fluctuations in favor of weekly or monthly trends. Although FOREX markets are associated with daily trades, focus on money market trends and activity week-to-week. All markets are skittish right now, to be sure, and any negative press is bound to have an impact on day-to-day market valuations.
* Keep an eye on your cash flow. In the best of circumstances, it's smart to have a minimum of three months wages as a cushion. In tough economic times, it's more desirable to have at least six to nine months wages put away to cover expenses and emergency spending.
Keep in mind that it's harder to liquidate assets when markets are in a constant state of flux and hold onto any cash you have in reserve. This also means to avoid unnecessary purchases and hoarding. We are facing a temporary reduction in economic growth, not an end-of-the-world scenario.
Will there be shortages and business failures? Sure. But, these will not reach zombie apocalypse levels any time soon. Keep things in perspective.
* Take care of your bills. Although many governments and financial institutions are creating emergency forgiveness programs, those who can pay their mortgages and other bills should continue to do so. This will help maintain reserve levels and reduce financial sector losses.
* Avoid Risky Brokers. With the proliferation of online forex trading a number of companies have set up public facing entities owned by shell companies. These companies operate with impunity creating a timebomb for investors. A slew of recent Forex scams involve offshore domiciled entities stealing user funds. When looking for recommendations for quality forex brokers it’s important to thoroughly investigate broker country of incorporation to avoid sending money to jurisdictions that don’t comply with international bank regulations.
* Pay attention to fact-based information rather than relying on internet memes and doomsayers for economic news. Many of the market reactions are spurred by fear and uncertainty in business and industrial sectors. Rumor and false information only increase fear and uncertainty.
* Consider the importance of wealth versus income. Almost all of us are reducing wealth during the current crisis. That doesn't mean it's time to panic. If you still have income during this time, consider yourself lucky, hunker down, and sacrifice a few luxuries for the short term. Values nearly always trend upwards, and the wealth and prosperity will return.
Final Thoughts
Trading on the foreign exchange can be exciting and lucrative as long as you know what you're doing. Armed with the right information about market trends, you should have no trouble working with a FOREX broker to leverage your trades with confidence.
Tell us about your trading strategy and success stories.
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