5th March 2019
2018 saw the return of volatility to the global asset markets, so what type of currency market will we see through the remainder of 2019? This year the markets may well be driven by news and events rather than economic data. There is just too much going on for markets to focus on the data.
This article takes a look at what could potentially be the best foreign exchange trading strategies for 2019. The following are trading strategies for beginners and seasoned traders alike and will be worth watching in the year ahead.
While news trading can be challenging, 2019 promises plenty of opportunity for those prepared to take on risk around news events. There are several major ongoing stories that are likely to come to a head in the next 12 months.
First amongst these must surely be Brexit. The UK’s withdrawal from the EU is scheduled to take place at the end of March, but at this stage, no deal has been reached. There are at least four scenarios, all of which could play out;The UK could leave with a “hard” or “soft” Brexit, the withdrawal from the EU could be postponed, or there may be a second referendum. Since the probability of all these outcomes is unknown, none of these scenarios are priced into currency prices. As developments unfold one way or another, strong trends are almost certain to develop, along with volatility and opportunity.
Beyond Europe and the UK, there is the trade war between the US and China, which could soon be resolved or escalate even more, leading to further USD strength and increasing risk across Asia. Also in Asia, talks between North Korea, South Korea, and the US are always something traders watch closely.
US political strife could escalate on several fronts. The Trump-Russia investigation, the national emergency called to fund the wall, and the beginning of election season, could all create new chaos for markets. In addition, a battle is looming between President Trump and the Federal Reserve over interest rate policy.
All of these narratives could make 2019 a great year for news traders.
Markets don’t always move in a straight line. Prices need to consolidate from time to time, and a year of volatility will create even more trading opportunities for those who know when to switch to a range trading strategy.
After a period of intense volatility, when news flow begins to slow, it’s time to add Bollinger Bands to your chart and look for opportunities to fade the extreme moves. Volatility attracts overeager traders who create opportunities when they buy and sell breakouts.
Emerging markets had a terrible year in 2018, most notably Argentina and Turkey. Adding to emerging market concerns, was the US-China trade war which affected commodity producing nations. There is no guarantee that 2019 will be the year they recover, but a major trade deal between the US and China could be the catalyst to start a rally in emerging market currencies.
The currencies to watch are the Turkish Lira, Indian Rupee, Chinese Renminbi and the Brazilian Real. If there are signs of a recovery, long-term trend following may be the best way to capitalise.
Quite a few analysts are calling for a weaker USD, and you are likely to hear plenty of recommendations to short the USD. Donald Trump would probably like the USD to be weaker, and if he gets his way and stops the Federal Reserve raising rates, it probably will weaken. However, this is a trade to be cautious about. The USD has proved time and time again to be more resilient than expected.
Very often too many people short the USD and get caught on the wrong side of the trade, which of course causes it to rise again. This may be the trade to look for. If everyone seems to be shorting the greenback and it doesn’t fall, the opportunity may be on the long side.
The news cycle doesn’t mean there won’t be a place for forex trading strategies based on technical analysis. The technical forex strategies that work in event-driven markets will all work in 2019. Scalping always offers opportunities for those that have the time to watch the market closely — but be aware that there may be some big swings in 2019, so stop losses will be as important as ever.
Trend following on the 60-minute and 4-hour timeframes will also come into play when there is a better sense of how Brexit and the trade war deal are being resolved. Until then, swing traders will be able to capitalise on volatility and uncertainty.
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