Market Trends and Opportunities in Forex Trading Expected for 2022

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Key Takeaways

• Forex markets globally endured high volatility and big moves in 2021
• More gains for major currencies are on deck as we move into 2022

Forex Markets Outlook for 2022 Looks Promising

If there’s one word to describe trading in the forex market in 2021 it has to be this: volatility. Plenty of price swings, market jitters, and developments defined forex trends in the past twelve months. Now, as we move into next year, let’s take a look at what will be hot in forex markets in 2022.

Leading economies around the world are scrambling to adjust to the fast-changing market environment. To this end, sentiment over global financial markets is shifting quickly from positive to negative and vice versa.

Still, over the year, there are trends to be seen in the movements of major currencies like the US dollar, the euro, and a few others. These forex trends, based on everything that will unfold in the year ahead, might be reinforced or invalidated. We take a look into all possibilities for forex markets ahead.

EUR/USD: A Pair Defined by USD Strength

First, we dive into the most popular currency pair – EUR/USD. Over the past year, the EUR/USD rate was under pressure mainly due to a stronger US dollar. In that context, the strength of the greenback impacted virtually all major currencies in the forex market.

The EUR/USD, in particular, is showing a loss of about 8% for the year. In other words, early in January, one euro would buy $1.2250. As the year comes to an end, the euro is trading near $1.1250.

This is due to several important factors. For example, the dollar has been gaining strength as the US economy has accelerated from its pandemic lows. Once the reopening process gained traction, businesses and consumers rushed back into the economy. As a result, the dollar became a hot commodity in the broader markets.

Looking ahead, economic reasons point to further gains for the US dollar. More precisely, the US Federal Reserve is preparing to raise interest rates. While this move is likely to dent the valuation of stocks, it could prompt traders to seek safety in the dollar.

Is the USD Positioned for More Gains in 2022?

Not only that, but the American currency serves as the reserve currency of the world. By definition, this gives it enormous buying power and geopolitical power. In short, the dollar’s reserve currency status is one of the greatest powers the US has.

This, however, does not necessarily translate to more gains for the dollar in the coming year. There are also some concerns that cast a shadow over the world’s biggest economy and the valuation of the dollar. For example, the Fed is about to withdraw its monetary support that will likely cause some disturbances over the markets.

In addition, the economic stimulus proposed by the Biden administration has already met some solid resistance. To this end, the passing of more money to boost the economy is standing on shaky grounds. In that context, the EUR/USD might decide it’s time for some euro gains. On that front, the European Central Bank is still extending monetary support to its economy.

EUR/CHF: Is the SNB Going to Intervene Again?

This leads us to the performance of the EUR/CHF. This pair has been pressured throughout 2021. More precisely, from March to the current market price, the exchange rate has lost about 7% of its valuation. Near the end of December, the EUR/CHF is trading around 1.0420.

The downside momentum has been reinforced mainly due to a strong Swiss franc. The appreciation of the Swiss currency is likely a result of traders seeking safety in an uncertain market environment. With the Covid-19 pandemic, surging inflation expectations, and supply-chain disruptions, the franc is seen as a safe haven in forex.

As we transition to 2022, the Swiss franc’s gains could actually come against the projections of the Swiss National Bank (SNB). The central bank of Switzerland has previously said it will not tolerate a franc that is too expensive. To tackle this, it has intervened in the financial markets several times in an effort to bring down the franc’s value.

In that context, watch out for announcements from the SNB in 2022 to find out if central bankers intend to step into the market.

GBP/USD: A Surprise Rate Hike Sends the Pound Higher

Moving across forex markets, another attractive pair to monitor is the GBP/USD. The British pound received a strong boost in mid-December when the Bank of England surprisingly hiked interest rates.

In more detail, the GBP/USD peaked at a December high near 1.3400. Prior to the BoE’s announcement, the pair was floating at a one-year low near 1.3160.

Still, the exchange rate is down for the year by about 3% as traders have preferred the US dollar. To this end, the sterling might see increased attention during 2022 with participants looking to gain from higher interest rates.

It’s also important to highlight that the GBP/USD reached a 2021-high of 1.4250, a level unseen since early 2018.

USD/JPY: A Winner in Forex with Over 11% Gained in 2021

The USD/JPY pair is certainly going to be on a lot of traders’ watchlists. The volatile exchange rate rose significantly throughout 2021. In practice, the USD/JPY has been in an uninterrupted upside swing since the first trading day of January.

With a few brief setbacks or mild corrections, the USD/JPY boasts an annual gain of about 11%. This makes the forex pair one of the biggest winners in terms of percentage gains in 2021.

Further, the USD/JPY peaked at a five-year high above 115.50 on Nov. 25. However, the solid gains were quick to fade as the Omicron variant was discovered the next day. As a result, the USD/JPY slipped more than 2% in a single session.

This said, the exchange rate still hasn’t recovered its losses and is looking to finish the year floating near 114.50.

Still, with all the gains during the year, traders might expect the USD/JPY pair to pull back from its multi-year highs.

Traders Looking Optimistic for New Opportunities in 2022

In that context, forex traders are heading into 2022 with high hopes for more trading opportunities. To this end, keep an eye on the pairs mentioned above to make sure you won’t miss a chance to enter the market.

It’s important to note that market movers and shakers could happen in an instant and change the course of any currency pair. With this in mind, make sure to follow market news, developments, and updates to stay ahead of the curve.