Most asset classes have been on a tumultuous ride in 2022. The currency markets are no exception, with lots of volatility in the forex news cycle and some enormous moves across the board this year.
On the Invezz podcast, I chat with Invezz’s forex specialist, Mircea Vasiu. Mircea is a professional trader specialising in forex, so the two of us chat about the wide range of happenings in the world of money this year.
What will happen the euro?
Mircea lives in Spain, while I am Irish, so the euro was heavily discussed. Mircea discusses why he believes shorting the currency as we head into the depths of winter could be a dangerous game. Any positive news on the war in Ukraine will kick the euro strongly to the upside, meaning the downside for shorters here could be stark. It is an optimistic tone on the euro currency, which has been bashed all year. The ECB has been hamstrung by the fact that it cannot hike rates as swiftly as it would like in order to reel inflation in. This is because the debt-laden nations like Italy would struggle with higher debt repayments, risking being hurled into recession.
USD dominance the big story
Of course, the US dollar’s relentless strength is a topic which can’t be avoided. I have written about why the dollar has dominated so much extensively this year, and Mircea and I recount these reasons, as well as discuss going forward where the market will go.
Mircea talks about the high correlation between the US equity markets and the USD strength this year, with both turning in the last couple of months – stocks bouncing while the dollar has given up some gains.
We discuss the reasons for this, and also look at history. One of my favourite charts is the below one, where I plotted the dollar’s strength historically against recessionary periods, showing it tends to strengthen in times of uncertainty.
Yen the big move this year
The Japanese yen is another topic covered, with Mircea declaring this the big move of the year. Yen news has been alive recently with the Japanese economy opening back up, and the Bank of Japan’s unconventional monetary policy which has supported the yen.
But are the Bank of Japan’s actions sustainable? Mircea thinks over the next 3-6 months, the EUR/JPY pair is the one to watch. The Bank of Japan cannot continue forever, whereas the euro is the currency to watch in the eyes of Mircea.
These topics – and a lot more – discussed on this week’s episode.
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