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Question marks for traders in uncertain forex environment

Chris Lee

Question marks for traders in uncertain forex environment (1)

Uncertainty seemed to be the main item on the agenda in the foreign exchange markets on Tuesday and into Wednesday.

The ongoing coronavirus pandemic continued to play a major role in shaping the attitudes of investors, with many worrying that the surging of the virus in the US in particular could limit the prospects of economic recovery.

There are fears that in the US, the pandemic remains largely out of control in some areas, including some of those that are densely populated.

Overall fears about a global second resurgence were intensified after officials in Melbourne in Australia re-imposed a lockdown set to last until mid-August.

However, the day was unusual in that, on the whole, it appeared to come down on neither the risk-on nor risk-off side.

The dollar, for example, was down after a global reduction in oil prices occurred amid a perception that the supply of the key commodity could be too high.

That currency tends to be treated as a safe haven during times of uncertainty due to the fact that there is such high demand for the dollar in cash, and hence can easily be converted from an investment holding into money to spend.

It was spotted down in various pairs, including against the Swiss franc.

In that pair, it was down by 0.13%, reaching 0.9414 at one stage.

However, riskier currencies also seemed to be off the agenda, including the Australian dollar.

That did not drop significantly, but it did remain in the doldrums, and was revealed at $0.6944 at one stage.

This may have been due in part to overall global economic uncertainty, but it also appeared to be related to the lockdown developments in Melbourne.

According to analysts, the key reason for the lack of clear direction in the markets as a whole was uncertainty.

In the UK, the pound continued the trend of negligible moves and rose by 0.14% against the dollar.

It reached $1.2560 at one point over the course of the day, down in large part to specific favourable conditions in the UK.

The country and the EU appeared to re-engage on the key question of what will happen to their trading relationship after this year.

The deadline for the two to agree a new trading situation is the end of this year – a deadline that even the coronavirus seems unable to shift.

The currency also rode high on the back of an impending speech by Chancellor of the Exchequer Rishi Sunak, who will detail on Wednesday what further pro-job steps the government will take.

In China, meanwhile, the onshore version of the yuan, which is the aspect of the currency that is traded in China alone rather than around the world, was holding relatively firm at 7.0176.

However, this ended a run of unbridled positive performance in the past two sessions.

This appeared to be attributed to a decision by the central bank to control the currency in a way that deviated from what had been predicted.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Chris Lee
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