What are the Forecasts for the Forex Market in the Coming Years?

As the largest financial market in the world, forecasting is a major factor in deciding when you will trade forex, how to do so, which strategies, etc. There is no central forex exchange or physical location, which makes forecasting even more important. We’ve looked at some predictions for the coming years and what they can mean for you. 

Firstly, how does forecasting work?

Preparation is the key to being successful, or rather, it’s one of the key factors to ensure your forex journey is a success. Forecasting the FX markets means that you predict current and future market trends. You do this by using existing trends, as well as looking at what took place at the same time in the past. Forecasting goes much deeper than this, but this is generally how it works. Analysts also rely on statistics, which is arguably the biggest way to predict anything related to the markets. 

What is on the cards?

As we’ve seen with 2022 so far, traders have been in a tight spot, either being pro-dollar or anti-dollar. In the past, traders generally favored the dollar, but with a recession looming for 2023, the dollar seems less likely to be favored, yet this can still change. Historically, when it came to currency fluctuations, the dollar was the driving force behind it. This has since changed and is predicted to stay on this course.  

How are things looking for the dollar?

According to reports, for the first quarter of 2023, we could see the greenback peak during this time versus both the euro and the yen. Throughout the year, things could slow down and soften against emerging markets. But it’s not all doom and gloom. Analysts also predict that the currency pair EUR/USD could rise in 2023 as well.  

EUR/USD currency pair

Let’s take it back to 2020 before we look toward the future. Only two years ago, the Euro was moving in a multi-year downtrend. Things turned slightly in July that year when the Euro reached the $1.16 mark. At this point, it was difficult to predict the trend for the Euro. Many analysts insist they were caught off guard due to the lack of signals. Between 2018 and 2020, there were upper and lower borders that formed at the peaks of trading, these were quite extreme. Now let’s fast-forward to 2022 and beyond. 

One trend on the cards for the near future is that this market will more than likely remain in the sideways trend. That is, if there are no significant factors that affect the Euro exchange rate. Even if we look at the next three months alone, we see a steady price decline; however, the decline will not persist for long. But if the Euro reaching parity with the dollar for the first time in 20 years is anything to go by, we are in for an interesting few months and years.

And what about the long term?

If you are looking into your trading plan, the EUR/USD pair is likely going to be one of your currency pair picks. The forecast naturally shows us some expected highs and a few lows, yet it is possible to work with this. Keep in mind the high liquidity of this currency pair. So, what does the future look like? 

What paths could the currency pair be on? Currently, four factors will dictate the projection of this currency pair. 

• The first is the ongoing Russia and Ukraine war, specifically how this is going to affect Europe economically in the coming years.
• Supply chain stocks and supply coupled with Chinese growth
• FED-ECB Policy trade-offs
• US-Eurozone growth

In the first scenario with the Russia – Ukraine war, the EUR/USD pair outlook is 1.15 for Q4 2022, 1.20 for Q2 2023, and 1.30 for Q4 2023. This is if everything is still as is. Furthermore, for this scenario to play out as it should, fiscal stimulus should help with economic recovery in China; FED does not hike early and cuts ECB, and FED puts a damper on US growth. While this is only until 2023, for now, analysts are playing it safe and only forecasting in-depth for 2023.