Currencies to invest in today: top picks for 2020 - Capital.com

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Currencies to invest in today: top picks for 2020 - Capital.com Posted: 30 Jan 2020 10:24 AM PST The largest market in the world, foreign exchange or simply Forex, has become increasingly popular over the last decade. Traders love its volatility as it brings many opportunities for speculation. Every currency pair has two prices – bid and ask. If traders believe the price will move to the upside, they will buy from the ask price. If the market indeed rises, when marking the profit, traders close or square the position using the bid price. The opposite is true when selling. The implementation of leverage made it all possible. Nowadays, online trading gives retail traders access to the currency market at a fraction of the cost compared to a decade or two ago. Forex market overview At the beginning of 2020, the currency market continues from where it left the last decade – with record low volatility due to central banks' interventions. Because of that, the main challenge in 2019 was to find the top fx risers for the year.  Central banks around the world lowered the rates to unprecedented levels to stimulate economic growth. The European Central Bank (ECB), under the leadership of its new president, Christine Lagarde, has started a strategic review of its monetary policy. Estimated to take until the end of the year to complete, it aims to calculate the implications of its negative interest rate on the European economies, as well as calculate inflation. The ECB is not the only major central bank that applies negative interest rates. In Switzerland, the Swiss National Bank (SNB) is even more aggressive, keeping the interest rate at -0.75 per cent with no sign of lifting it anytime soon. Perhaps the most compelling case is in the United States. Until 2019, the Fed raised the federal funds rate on the basis of strong economic growth. A stable job market and inflation that ticked up were good enough reasons for the Fed to tighten. While predicting more hikes for 2019, the Fed has turned and delivered rate cuts. It did that despite robust growth and almost zero unemployment rate. It made traders wonder why the Fed would ease with such a strong economy. The answer might come from the White House, as President Trump constantly put pressure on Fed's Powell to cut the rates to offer a competitive advantage to the United States. Currencies to invest in today The beauty of Forex is that one cannot just trade currency, but a currency pair. As a trader, it is not enough to believe that a currency will appreciate or depreciate – it is also important to know against what other currency it does that. The Forex dashboard, therefore, is made of many currency pairs reflecting the economic differences between the countries or areas a currency represents. For instance, one of the major drivers on the currency market's volatility in the last few years, Brexit, influenced both the EUR and GBP pairs. If you believe the GBP will benefit from Brexit, the next thing to do is to decide against which other currency will the GBP appreciate. As a rule of thumb, the Forex dashboard has two currency pairs' categories – majors and minors. A major pair is one that has the USD as one of the two currencies, while minor pairs do not have the USD in their components. Correlations between different currency pairs, majors or minors, do affect the overall outcome of a portfolio. For instance, if a trader believes the EUR/USD will move to the upside in the medium term, it is unlikely for the other USD pairs to do differently. Instead, it is most likely that the USD will move in a downtrend. Top 3 forex pairs risers to invest in today Speaking of the EUR/USD, it is one of the best Forex pairs to trade now. It has the possibility to be one of the top Forex risers in 2020, as the technical picture looks rather interesting. While the euro is not one of the currencies to invest in now due to the negative swap to pay when holding positions overnight, the EUR/USD technical setup reveals a bullish pattern – a falling wedge.  Simple and intuitive platform No commission Competitive spreads   The wedge broke higher recently, and so far in 2020, the price only corrected from the 1.12 area to the current 1.10. From an Elliott Waves' point of view, the EUR/USD pair evolves in a flat pattern. One of the key elements of any flat pattern is that b-wave's retracement beyond the 61.8 per cent level when compared with the a-wave. The b-wave, therefore, ended on the move below 1.09, and now the c-wave, an impulsive move, albeit terminal, should see the pair heading to 1.20. The risk-reward ratio for a long trade is more than appealing. If the current spike higher from the 1.09 is the start of an impulsive wave, no parts of it should retrace beyond its start. It means that the stop-loss for any long trade should be at wave b lows, around 1.09. That is the risk, and the 1.20 reward means a risk-reward ratio of over 1:9. Based on this ratio, the euro is one of the best currencies to invest in today, providing the 1.09 bottom holds. Trade Euro / US Dollar CFD AUD/USD – bidding at the highs Many traders went on the long side on the AUD/USD pair in 2019 due to the stock market, making new higher-highs. However, while it did trend higher for most of last year, the AUD/USD pair failed to break the series of lower highs, characteristic for bearish trends. It means that as long as that series holds, the path of least resistance is to the downside. Hence, any long trade should come only after the market invalidates the lower highs – that is happening when the price breaks above the blue line in the earlier chart. The risk-reward ratio, in this case, of 1:2, is enough for making the AUD/USD a candidate for the best currency pair to invest in today. USD/JPY – bidding at the lows The JPY is a safe-haven currency, meaning it reacts strongly to the news with a negative impact. The recent outbreak of the coronavirus in China may be just the trigger needed for the pair to move back to 104. That is where a long trade would make sense, with an invalidation at 100 and targeting a move above 116. It is a long shot, but the USD/JPY consolidated for the entire Trump's term now, and with 2020 being an election year, it may be just what the pair needs to break higher. Conclusion 2020 has only started, and the road ahead is full of important economic events. Central banks and monetary decisions affect the currency market the most, but other fundamental factors have their say in the way the Forex market moves. Above all, the US Presidential election will dictate the tone for the USD in 2020 and the US stock market. Because of the correlations with the currency market, expect rising volatility to affect the way the currencies are traded this year. What do you say: what is the best currency to invest in today? Join Capital.com to always stay on top of the latest Forex market analysis to make rational trading decisions. Ready to get started? Download Capital.com Share Article

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