An Expert’s outlook on Forex Volatility for 2022

The simplest definition of volatility refers to the measure that indicates how drastically the prices in the financial markets can change. The liquidity of the forex market has a significant impact on the volatility thereof, with lower liquidity resulting in a more volatile market, causing drastic price movements.

With more liquid markets, such as Forex, prices of currency pairs move in smaller increments because their liquidity causes lower volatility. When individual traders are participating in the forex simultaneously in certain trading sessions, the prices will move up or down in small, quick increments.

Between 2020 to date, the Forex market has seen extreme times of high volatility. This is because the market conditions are extremely susceptible to political, economic, and social events such as rate hikes, fiscal policy, monetary policy, editorial policy, and others.

This can force retail traders to select their trading strategies more carefully when they take to the financial markets.

The Covid-19 pandemic caused chaos around the globe, disrupting financial markets, causing prices on securities to plummet while others soared, something that could be seen across several financial markets including the stock market, cryptocurrency market, futures markets, spot markets, and others.

While things seem to be stabilising with global efforts towards returning to normal pre-pandemic economic levels, we are nearing the end of another year, making it crucial to gain expert insight into the outlook of currency markets’ volatility for 2022.

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Technical Analysis on Major Currencies and the Global Economy

The global economy reflects recovery that will continue into 2022 and the forecast for the overall global Gross Domestic Product (GDP) is that it will maintain a growth of 6% unless there are unforeseen circumstances such as the resurgence and spread of new variants of the Covid-19 virus.

This is an average indicator, and the overall growth will depend on the rates of recovery for different economies, which will subsequently indicate the volatility of the Forex Exchange Markets.

For example, EUR/USD (the most traded major currency in the world) shows different vector behaviour now when compared to the start of the pandemic.

EUR/USD started at 1.0635 in March 2020 and the exchange rate increased to 1.2350 at the beginning of January. As of November 3, the exchange rate has decreased to 1.1525.

The competition that exists between different central banks in regions across the globe is not expected to decrease any time soon, especially not between major economies such as Europe and the United States, factors that will drive the rest of the market.

The United States economy is expected to stabilise by the second half of 2022. The Eurozone is expected to gain momentum during the same time, with these two economies leading the pack and other…