The currency market started the new year very slowly. Lack of volatility led to tight ranges as traders waited for the winter holidays to end before laying down the plan for 2020.
Many market participants expected the first half of the year to remain rather calm, as the most influential event – the US Presidential election – was scheduled only for the latter half of 2020. Little did they know the storm was yet to come.
Quick background check: what is the Forex market?
The Forex market or the foreign exchange market is the place where you can buy or sell any currency pair at any moment during the trading day from Monday to Friday. It is the largest market in the world, with a diverse range of players – institutional investors, commercial banks, central banks, family offices and many more.
As online trading is now very popular due to strong Internet penetration in our day-to-day lives, forex trading has become more accessible to retail traders as ever. The beauty of it is that you can buy or sell a currency pair without owning it – simply speculating on the future market direction.
Forex market overview: currencies to invest in February 2020
Despite uncertainties related to the coronavirus outbreak in China, the currency market held incredibly well.
The epidemic in China owns the headlines so far in 2020, with the world focusing on containing its spread and finding an effective cure. Because of China’s immense role in the global economy, the measures taken locally will affect the global Gross Domestic Product (GDP) eventually. Yet, the market took all the news out of China with calm, and the typical risk-off currencies did not move an inch. Even the stock market in the US, the ultimate risk proxy, did not react much, holding grounds around all-time highs.
Yet, the opportunities to speculate still exist. EUR/USD fell sharply and AUD/USD followed suit. The fall in the Australian Dollar did not come as a surprise, since a big part of the country’s exports goes to China. Hence, the weakness was expected.
So far, the USD was one of the best currencies to invest in February 2020. But what Forex pairs are set to rise in the weeks ahead?
Top three forex risers to invest in today
Even though half of the month is already behind us, there is still some time to find currencies to invest in February 2020. It might be ever easier as the best currencies to invest in now have already developed a trend, offering some tips to potential trades.
One of the most interesting Forex pairs to watch for the rest of February is EUR/USD. It has moved only to the downside for the entire year so far, but the technical picture suggests that a bounce may come soon.
The chart above shows the steady decline in the pair since flirting with the 1.25 level in 2018. As the ECB moved its interest rate into negative territory due to slow economic growth and lack of inflation, the EUR/USD pair reacted by dropping to 1.08 area.
Helped by the Fed in the US, the USD has risen in the last couple of years due to the positive interest rate differential – federal funds rate vs. ECB rate. However, the current 1.0830 area shows the price at the lower edge of the falling channel, a place that may provide dynamic support.
Buying in a falling trend is always risky. For this, traders must have a risk-reward ratio that is worth the challenge. In this case, the invalidation for the long trade would be a move below 1.06, while the target exceeds 1:3 for a move above 1.1400.
The Australian Dollar is one of the currencies that has suffered the most on the back of the Forex market latest news. The news out of Asia did not give many options to investors when it comes to the AUD, sending the AUD/USD pair to decline steadily.
However, the current levels are interesting because the AUD/USD pair forms a bullish divergence with the RSI. For a bullish divergence, the price makes two lower lows, while the oscillator does not confirm the second low.
The area marked on the chart above shows both dynamic and horizontal resistance. It seems like the pair builds energy to break the bearish trendline and surpass horizontal resistance. Coupled with the bullish divergence, the AUD/USD may become one of the top FX risers for the rest of February.
Another currency pair with the potential to become one of the top Forex risers for February 2020 is the EUR/GBP cross. It suffered recently due to the Brexit developments and uncertainties, but the current levels suggest a potential double bottom pattern.
Providing the pair does not fall below 0.8150, there is a potential bounce to complete the pattern that indicates a move back to 0.8600. If that is the case, it will support the EUR/USD scenario and the AUD/USD, too, as the two pairs are directly correlated most of the time.
The bottom line
February 2020, so far, has been marked by a strong USD across the Forex dashboard. The world's reserve currency tends to act as safe-haven for investors in search of hedging their portfolios against risks.
If we look back in time, during the 2008 financial crisis, the USD appreciated the most, despite the fact that the Federal Reserve cut the interest rates to almost zero literally overnight.
If Asia manages to contain the virus’ spread, a risk-on move may start building momentum. If that is the case, the EUR/USD and AUD/USD look poised to take advantage of such a move. Together with the EUR/GBP, they are the Forex pairs to watch for the rest of February 2020.