One of the key factors for succeeding in the forex market is the ability to predict the market. To be fair, it is an important trait in any business – the ability to forecast and predict possible changes – to be successful. However, in a volatile market such as the forex market, predicting the market is not easy.
You must have the experience, knowledge, and ability to analyse the available data. You should be able to think ahead, use the data to predict the possible outcomes, and put the information into practice to reap the maximum benefit from the potential possibilities.
Contents:
- What is Forex?
- Identifying the Trends – the Key to Success?
- Forex Analysis
- Why is the GBP/USD Forex Pair Trend the Best?
- GBP/USD Price Predictions
- How Will the GBP / USD Currency Pair Behave in 2021?
- Some Key Influences on GBP/USD Price Prediction 2021
- Conclusion
What is Forex?
Before we proceed into the details of forex trend predictions, we need to answer the basic question - what is the Forex market? In simple words, it refers to a global decentralized market for trading currencies. It is the largest and most liquid market in the world, with transactions worth trillions of dollars taking place every day.
The key players are international banks, hedge funds, commercial organizations, numerous central banks, and retail forex brokers and investors.
As it is truly a global market, anyone wishing to predict the forex market movements must have a thorough knowledge of factors that influence the movement of currency exchange. Even then, there is no super formula that can give you 100% correct predictions every time. You must remember that it largely depends on your skill, experience, knowledge, and the accuracy of your forecast along with a commitment to succeeding.
Experts suggest that there are five factors you must understand if you expect to get the predictions somewhat correct. They are:
- Economic growth
- Geopolitics or political stability
- Monetary policy
- Imports and exports
- Interest rates
If you meticulously follow all events, including the macro and micro factors, you have a greater chance of success in making correct predictions. However, you will have to put in a lot of time and effort if you expect to succeed in forex trend predictions.
You might find some sites that offer free Forex predictions, but it is better to steer clear of them as they are less likely to be reliable. Most professional forex traders use the forex calendar to track economic announcements, forecasts, and other important information related to the forex market.
Identifying the Trends – the Key to Success?
One of the core skills of a forex trader is his capability to identifying forex trends today. It is extremely useful in making forex market predictions. A trend is a general direction where the market or an asset price is headed. Trends could vary in duration – it could be short to intermediate, or even long term. Whatever the nature of a trend, the ability to identify it is a highly profitable skill because you will be able to trade with the trend.
Generally, the best strategy is to trade with trends. So, if the general trend is moving up, be cautious and attentive while taking positions that rely on trends that move in the opposite direction. The trend can also be observed in the case of interest rates, yields, equities, and any such factors that are characterized by a movement in price or volume.
For making good forex predictions, you need to know about three types of trends - uptrend, downtrend, and sideways trend. For instance, if the trend is upward, then your chosen currency’s value will appreciate. For a novice, this might seem like a forex winning trend.
However, it is not always the case. Likewise, if a trend moves downwards with the graph, the value depreciates. In the case of a sideways trend, the currencies neither depreciate nor appreciate - they just stay stable. You need to know about all these to master forex trend predictions. It is the key to making the correct forex predictions daily.
Forex Analysis
Let us look the different ways to analyse the forex market for profitable trading. Some forex traders use tools such as forex trend detector, focus indicator, trading cloud indicator, or similar software to predict forex trends. Although the software can be a great tool, it is better to develop certain skills if you wish to minimize risk and understand price movements for a thorough analysis. You should never lose sight of your goal, no matter what type of analysis you use.
There are two key areas of forex analysis. Let us discuss them in detail as they are intricately linked with your making the correct forex trading predictions. You can choose between the two or a combination of both – whatever suits your need and goal.
Fundamental analysis
The fundamental analysis of forex trend concentrates on various factors within the FX market that influences the market. As such, you should pay attention to certain fundamental factors such as GDP, inflation, economic growth activity, and manufacturing. In short, fundamental analysis requires studying the economic strength of various countries, so that you can make the right Forex predictions.
The fundamental analysis offers us information about geopolitical and economical events that influence the currency market. If economic experts or heads of states give certain figures and statements in their speeches, traders consider them as concrete economical announcements. For instance, any announcements related to the economy or politics in the US are particularly crucial to the forex market. Hence, you should watch out for them.
Economists have created a standard economic calendar, where they make predictions every day, based on various economic values focussing upon recent history. This calendar has detailed data on date, time, currencies, data published, actual, forecast, and previous. For instance, for Pound to Dollar prediction 2021, you knew that Brexit would impact the GBP movements and you would have adjusted your forecast figures accordingly.
Apart from these, certain economic figures, when announced, have a substantial impact on the movement of the FX market almost every time.
These factors are:
- Interest rates
- Employment situation
- Budget, trade balance, and treasury budget
- GDP
Conventionally, if a particular country raises its interest rate, its currency will subsequently strengthen. This is because the investors will transfer/reallocate their assets to the said country to achieve higher returns. Likewise, substantial reductions in payroll employment are one of the warning signs of weak economic activity, which would eventually result in lower interest rates. When this happens, it affects the currency adversely.
Furthermore, a country with a sizeable trade balance deficiency is most likely to have a weak currency, as there would be a sustained commercial selling of its currency. Gross Domestic Product or GDP is a key identifier of the strength of economic activity. There is a correlation between a high GDP and expectations of higher interest rates, which is positive for the currency.
Technical analysis
If you wish to predict the forex trends, you should also undertake technical analysis. The major advantage of technical analysis is that future changes in forex trend lines are forecast by carefully examining past market data, especially price data. The idea behind it is that history is likely to repeat itself in predictable models. These patterns produced by price movements are known as Forex signals.
So, the goal of technical analysis is to discover the present signals of a market by examining its past signals. This analysis is helpful for traders to perform daily Forex predictions and to detect any trend reversal as prices move in trends.
Technical analysts state that price fluctuations do not happen randomly or unexpectedly. They are predictable and regular, especially if a certain trend is established, it is likely to sustain for a certain period. In other words, technical analysis help you predict price movements.
This is how forex traders discover the optimum entry or exit point for a trade. They use the volume charts, price charts, and other mathematical representations of market data/studies for arriving at these points. Some of these data indicate trends, whereas the others help to define the strength and stability of that trend over a period. Technical analysis offers objectivity to do your daily analysis and forex prediction.
Types of Technical Indicators
There are different kinds of technical indicators. One of them is the trend which shows price in such a way that you can find out if it is moving up, down, or sideways, without any additional efforts. This indicator makes it possible to gauge the market's intensity on a particular price by examining the market positions taken by various market participants. Strength indicators are based on volume or open interest.
Volatility is another indicator of strength, and it refers to the scale of daily price fluctuations. The directional trend doesn’t matter here. Volatility changes are expected to be equivalent to price changes.
Cycle indicators identify repeating patterns and determine the timing of a specific market pattern. It could be any recurring event such as elections or seasons.
Support and resistance are two indicators that two describe the price levels where markets regularly rise or fall, and subsequently reverse. Momentum is another indicator specifying whether the trend will be strong or weak after a certain period. Generally, momentum is greatest at the start of a trend, and lowest when it changes.
Why is the GBP/USD Forex Pair Trend the Best?
Let us now try to find the answer to the question - which forex pair trend is the best. You must remember that the forex market follows a trend more than other markets most of the time. This is mainly because the forex market is influenced by macro-economic trends that take years to unfold.
The trends usually develop in major forex pairs. As most experienced traders use strategies based on trends, it makes currency pairs an important factor. Some strategies work best with currency pairs that trend together. So, it makes sense to use a trading strategy for the specific currency pair. A major currency pair with different spreads, volatility, and other attributes is an attractive choice for traders analysing trends.
The GBP/USD pair is one of the most liquid currency pairs in the FX market. The narrow bid-ask spreads, volume and volatility all make this pairing popular to trade. In this market, the GBP is the base currency, and the USD the quote currency. It means the GBP/USD price is the amount of dollars one British pound will buy.
Read Also: The Best Time To Day Trade The GBP/USD Forex Pair
GBP/USD Price Predictions
The USD/GBP pair is one of the most popular and widely traded pairs as they allow large jumps and pips that can be profitable. However, greater profits are always associated with higher risk.
The USD/GBP pair is considered a volatile currency pair. Even so, several traders choose this pair because there is a wealth of online market analysis on it. Let us take a closer look at the GBP/USD pair based on their performance in 2020 and try to predict the trend for 2021.
GBP/USD price variation during 2020
The Pound Sterling started strong against the USD at the start of 2020 with some consolidation during the months of March and April even as the pandemic spread. While the USD seems to have faltered during the early days of pandemic, the GBP held its ground until the new UK variant of the pandemic and Brexit kicked in.
At least, in hindsight, the figures seem to indicate this. Also, the fact that following the US election the new government has been able to handle the pandemic situation better along with economic stimulus helped USD stay strong. Furthermore, the extended lockdowns, Brexit, inflation, and economic recession, all seem to have had a negative impact on the GBP.
The following table showing Bank of England (BoE) average exchange rates for USD tells us the story
|
January |
1 USD |
0,7653 GBP |
|
February |
1 USD |
0,7718 GBP |
|
March |
1 USD |
0,8101 GBP |
|
April |
1 USD |
0,8065 GBP |
|
May |
1 USD |
0,8131 GBP |
|
June |
1 USD |
0,7985 GBP |
|
July |
1 USD |
0,7881 GBP |
|
August |
1 USD |
0,7619 GBP |
|
September |
1 USD |
0,7720 GBP |
|
October |
1 USD |
0,7701 GBP |
|
November |
1 USD |
0,7573 GBP |
|
December |
1 USD |
0,7446 GBP |
Here is the graphical representation of the GBP/USD trend for 2020
How Will the GBP / USD Currency Pair Behave in 2021?
Several questions must be going on in your mind right now. Will the GBP/USD rate fall or rise in 2021? When should you sell Pound Sterling and buy US Dollars? How will the pair behave in 2021 and beyond? The questions are endless.
Before we try to predict the trend, let us understand where the pair stands right now. Currently, GBP/USD currency pair is quoted at 1.386. However, the forecast for the pair for 2021 says that the Pound to dollar forecast for 2021 is under pressure.
Several factors contributed to this forecast. With the UK's exit from the EU, the GBP was expected to suffer some setbacks. However, the ongoing pandemic situation and the prolonged uncertainty over Brexit along with the UK going through an economic recession have put the Pound Sterling under pressure in 2021. The general outlook is that the GBP is likely to continue to suffer against USD.
However, it doesn’t mean there is no potential in trading the GBP. The USD is still weaker than the GBP and is acting as a prop for the GBP/USD exchange rate. The average rates forecast for GBP is as follows:
- Jun 2021: 1.31
- Sep 2021: 1.32
- Dec 2021: 1.33
As you can see there is no significant downtrend. It is stable and hence it can be safely predicted that other factors remaining the same, the GBP is likely to stay around the current levels in 2021.
Here are few reasons why GBP is likely to remain weak at current forecast levels in case of a Pound to dollar prediction 2021:
- Another wave of the pandemic that worsens in the UK, increasing the pressure on already loaded public health systems
- A prolonged global recession leading to less trade and lower demand for British imports, and a weaker local economy
- Recession and inflation hitting the UK economy leading to interest rate cuts
- Long term impact of Brexit kicking in, devaluing the GBP further
- The US economy improves post-election and new federal government policies, and economic stimulus works, and the Federal Reserve raising interest rates, strengthening the USD further
Some Key Influences on GBP/USD Price Prediction 2021
UK economy
Although the UK is in recession and was reeling under the impact of the pandemic, there are ample signs that the country is slowly emerging from it all. The economic stimulus seems to be working and it is expected that the GBP will stay stable and will not fall too low. Even though the impacts of the pandemic and Brexit are negative for the Pound, it is expected to hold on.
In this context, remember that the GBP to USD exchange rate fell 12% in two weeks in March 2020 when the first wave of pandemic hit the country. At that time, the investors sold the Pound in favour of the US Dollar.
Politics
As mentioned elsewhere in this article, politics has a huge impact on the currency, especially on currencies like the GBP. Brexit has resulted in a lot of uncertainty which has impacted the pound negatively. Although it is too early to take a call on whether the UK is better off leaving the EU, the political uncertainty it has created prompted investors to sell GBP.
After the Brexit referendum, the GBP fell 13% against the US Dollar in the following two weeks. The reason was the fall was the uncertainty in the UK for trade, emigration, and the legal system on account of Brexit.
Other currencies
The US dollar (USD) has the most significant influence on the GBP. Mostly, the stronger the USD gets, the weaker the GBP becomes and vice versa. However, GBP is one of the few currencies that is worth more than the USD. As the experts expect a weaker USD in 2021, it would mean the GBP will not become weaker.
What Is the Expert Forecast for GBP/USD In 2021?
Although one of the worst-hit countries by the pandemic, it seems the recent measures – lockdown and vaccination drive – undertaken by the UK authorities have restored the confidence in GBP. The Pound Sterling has been a strong performer against the US Dollar in the past few months.
However, the deteriorating relations with the EU and the frustrations arising out of Brexit continue to threaten the GBP. The consensus among the analysts hailing from various banks and financial institutions across the EU is that the UK has managed the pandemic situation by now.
However, the impact of Brexit will continue to hurt the prospects of GBP for a longer period into the future. The weak economy and recession haven’t helped the cause as well. So, even though it might not tumble, unless something dramatic happens, the GBP is likely to lose its holding against the USD in days to come.
Furthermore, more investors are preferring the USD over other currencies. A strong currency, the USD is now expected to become stronger due to the economic stimulus and policies announced by the new administration. The fact that the US has also been tackling the pandemic situation effectively in the past few months works in its favour.
Conclusion
Making forex trend predictions is not an easy task at all. It is not a quick fix or a way to get rich quickly. Forex predictions require constant analysis of the market, meticulous study, great skill in exploiting various strategies, and intelligent use of trading software.
This article has given you an idea of forex trend prediction and what are the factors you should consider for the same. Further, the detailed review of the GBP/USD pair gives you an idea of how various factors affect the currency movements.
Even an unexpected pandemic or a highly expected political decision can have a long-lasting, high impact on the currency movements. That is why you should be alert and be ready to take advantage of any opportunity that comes your way to earn profits. Forex trend predictions help you prepare for the event so that you aren’t caught unawares.
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