Forecast of the overall foreign exchange and the cryptocurrency market in 2022

At present, the global economy is gradually recovering from the impact of the COVID-19 new crown epidemic, and this process will continue until at least 2022. The forecast for global GDP growth this year remains unchanged at 6%. According to preliminary forecasts, the global economy will continue to grow next year (unless there is a new "surprise"), reaching about 5%. However, this is only an average indicator, and the difference in the speed of economic recovery of different countries will have an impact on their respective national currency exchange rates.

You can see that since the beginning of the epidemic, the euro/dollar currency pair has shown completely different vector behaviors. From the 1.0635 level in 2020 to the beginning of January 2021, the exchange rate has reached 1.2350. As part of the monetary stimulus (QE), the Fed injected a large amount of US dollar cash into the US economy, which caused the US dollar exchange rate to appear weak.

With the beginning of the new year of 2021 and the entry of the new US President Joe Biden's administration into the White House, the market feels more "sense of security", and the reduction policy of the quantitative easing program is about to begin. More importantly, the performance of macroeconomic indicators, especially the inflation rate and labor market recovery, is encouraging. The U.S. dollar rose strongly. As of the end of March this year, the euro / U.S. dollar exchange rate had fallen to 1.1700.

However, dovish sentiment prevailed among the Fed's top executives at that time. They advocated continuing to inject funds into the US economy and the resolution to reduce the quantitative easing program was postponed indefinitely. People did not even have the idea of ​​raising the benchmark interest rate. As a result, the exchange rate once again broke through the important psychological level of 1.2000, rising to 1.2265.

Of course, the race between the European Central Bank and the U.S. Central Bank did not end there. It's just that while the European Central Bank continues to insist on their dovish wording, the top executives of the Federal Reserve have begun to release a harsher hawkish voice. Investors have begun to anticipate that the Fed will begin to reduce quantitative easing at the end of this year and complete it within 2022, to achieve an increase in the discount rate at the beginning of 2023.

Although at its regular meeting in September, the Fed did not announce any specific content about curtailing its monetary stimulus plan. But if their decision-making trends remain the same, then the Fed will be faster than the European Central Bank by about six months.

On this basis, many experts predict that the U.S. dollar will continue to strengthen from the end of 2021 to the beginning of 2022. If so, the currency pair will continue to fall, first falling to the support level of 1.1500 and then 1.1200. Some particularly enthusiastic bears expect that the exchange rate will even fall to the low level of March 2020.

As for the trend in the second half of 2022, according to many forecasts, the US economic situation will stabilize, and the economy of the “sluggish” eurozone will start to accelerate its development instead. The reduction in the scale of quantitative easing in Europe and the rise in euro interest rates may reverse the trend of this currency pair and return the exchange rate to the 1.1700-1.2000 region.

The market development of this currency pair depends on the influence of many factors on both sides of the Atlantic, such as politics, economy, and epidemiological development in recent years. There is another very important participant, and that is China. China has a pivotal influence on both the new world economy and the old world economy. Therefore, what needs to be understood is that everything we are talking about is an outlook based on the current situation, and will (and should) be adjusted many times with the development of the next few months.

 

Cryptocurrency: virtual gold and real gold

Although we can predict the prices of major currencies against the euro/dollar, we can make misunderstandings and arguments from political and economic aspects. But as far as cryptocurrency is concerned, the situation is much more complicated. Despite the assurances of influential people, in the past one to one and a half years, this market has looked more like a center of large-scale speculation than a stable and reliable investment platform. This year is not over yet, but the price of Bitcoin has successfully soared from USD 28,550 in January to USD 64,800 in April, and then plummeted to USD 29,300 in July, and then repeated this sharp increase, but on a slightly smaller scale. Some.

The volatility of the Bitcoin / U.S. dollar exchange rate will not only be affected by the policies of the US regulators and the Chinese government but even Elon Musk’s mood when he gets up. A tweet from Musk may make you a millionaire, or it may make you impoverished. For this reason, the broker NordFX provides its clients with the opportunity to make money when the price of cryptocurrency is rising, but also when the price of cryptocurrency is falling, even if the client does not have a coin. Why should you buy and sell bitcoin with risk? It's fine to open a position and sell it immediately.

No one knows how much Bitcoin will be worth. The opinions of professionals are also very different. Some experts, such as Standard Chartered Bank, believe that the price of Bitcoin will reach $100,000 by the end of this year. Another group of people also expect the price to rise to 100,000, but it will have to wait until the end of 2022. Other experts, such as Nobel Prize winner Robert Schiller (Robert Schiller), are convinced that this kind of bubble will burst soon and investors' investment of more than two trillion US dollars in this market will be completely overwhelmed.

The result depends to a large extent on the recovery of the US economy, the progress of the monetary stimulus plan (QE) reduction, the prospect of the Federal Reserve raising interest rates, and the volatility of US Treasury yields. These factors can greatly reduce the risk appetite of institutional investors and make them switch to more familiar financial instruments.

As with Bitcoin, Standard Chartered Bank experts are also very optimistic about Ethereum and believe that its prospects are very optimistic. In an interview with Reuters, they stated that each Ethereum will be in the price range of US$26,000-35,000. But they think this is not an upper limit, especially when the price of Bitcoin is close to $175,000 by the end of 2022.

According to a report published on Forbes by Goldman Sachs, the world's major investment bank, the underlying cryptocurrency-Bitcoin may lose its leadership and give way to Ethereum. Goldman Sachs believes that the main reason for the popularity of Ethereum, the main alternative currency, is its ability to create new applications. There is also the fact that based on its application platform, many financial instruments can be substituted. These financial instruments include credit and other banking services.

As for real (rather than virtual) gold, many experts believe that the growth potential of this precious metal in 2022 has not yet been exhausted. They do not rule out the possibility that the price of gold ( XAU/USD ) will break through August 2020 high and then rise to US$2,200-2,300 per ounce. However, as we mentioned earlier, the price performance of such reserve assets will also depend on whether investors are willing or unwilling to take risks.