This is one of the most common questions people are asking the experts. Luckily no one knows for sure, otherwise, forex would not be very interesting. Predictions are not a good trade, people get it wrong most of the time. Still, if we collect some facts about the market now, one might get it right. You have to ask yourself though, would you make a decision based on a prediction that is more likely to fail?
Forex Traders’ Way
If you ask a forex trader what will happen in 5 years, get ready for a disappointing answer. They do not know, and they do not care really. Traders know better. They have their strategies and systems that say some asset is probably going this way. but not for the next 5 years. Traders do their thing intraday, daily, and on a weekly timeframe at most. There are simply too many events that could interfere with some asset. At the end of the day, it does not matter what will happen in 5 years as long as they play the long game and play your strategy to the letter. It is how they have their share of profits.
The further we go into the future, the less predictable the outcomes are. To cover for this uncertainty, predictions get more broad or vague. If we say the bitcoin price at the end of 2025 is going to be $142500, would you bet on it? A mathematical model might give you this precise result but we all know it is a 99.99 (and then more nines)% miss. So we blend and say it is going to be higher than today. All this is based on some fundamentals, the rising crypto market, people-orientation to savings, pandemic, and so on. But no one knows if governments are going to ban crypto as the market gets bigger, we all know they do not like it.
On the other side, who knows it is the bitcoin that will perform the best out of all other, more advanced cryptocurrency concepts? Predictions are fun to listen to, but common sense says let’s spend our time finding or creating information that we can use today.
There is a way you can use such predictions and make money, a lot of it. It is nothing new, get ready… TV. How many times have you watched smart people on popular TV news channels predicting and reasoning? Listening to them will probably set you on the losers’ side. These people have skills in analysis and presentation, but they are not good when it is trading time. To quote Ray Dalio from his “Principles” masterpiece “Truth be known, forecasts aren’t worth very much, and most people who make them don’t make money on the markets.” They make money by producing fun predictions people like to listen to, not to mention the media.
Now let’s get to the fun part, how investors think and adjust to the fundamentals. Fundamentals play a key role obviously in how they make predictions. They do not go too far into the future, up to a year at most. We are not talking about the buy and hold forever saving strategies here of course, but analyze the state we are now at the end of 2020. Forex is interconnected with other markets, major players are the banks, governments, companies, and sometimes viruses. It is said COVID-19 just deepened the problems already present in the global economy.
Present Time Directions
Here is a snapshot of how the currencies performed during this year:
US dollar became a questionable safe-haven for many reasons, the major one is the FED decisions and printing. The stimulus is evergrowing, however, little budge is seen in the economy fundamental measurements.
If we speak about safe heavens, precious metals are not really in the focus. According to research, gold is about to boom in 2021, and likely to continue in the next years as the economy gets back on its feet. Aside from the supply and demand stats all pointing to a long-term bullish sentiment that stretches beyond 5-year prediction, gold is not on the big scene yet. Consequently, the US dollar is not the currency to hold in 2021 and probably not in 2022. Japanese Yen or even Euro is a safer asset at the moment, likely to strengthen their value in the coming years.
Now, the pumping is not stopping. Today we have a record high equities level, despite the bad fundamental results with employment, spending, and general activity indicators. Something is definitely wrong with this chart:
The massive printing and stimulus policies are producing a scary storm below this peak, and as the forex market is a part of the global capital flows, equity correlated AUD and NZD might follow the ride down in 2021. Despite all this turbulence, forex hasn’t shown the turbulence a trend trader would like to see. Looking at the Euro VIX ($EVZ), the 2019 and partly 2020 are still calm for forex:
The reason behind this is the overall drop in economic activity, there is no spending or rushing to safe heavens, even though the bullish pressure is rising on the elemental values as stated above.
We have another market to consider too, the crypto market that is taking its share of the money flow. Even though this is below a $trillion market, small compared to the enormous precious metals or forex, it is increasingly attractive to young, open-minded investors. It is regarded as a safe haven area since the DeFi concept sets crypto out of the crisis danger zone.
They Know and Decide When
So, you have very good prediction info, and guess what, majors players know them too, and some more. Everything says there is something fundamentally wrong with the charts, they are not following the real world. Well, it is not because the big banks, governments, and other big figures decide when it is time to let go. The moment they are ready to let the storm out, they would try their best to knock (stop loss) every forex or equities trader out of their positions. A common chart pattern is an unusually large price move before it starts to strongly reverse. This move happened with the gold right before the pandemic unleashed and the bull trend base in March 2020.
Forex and other markets are not free out of control and there is no way around it. It is regarded cryptocurrency market is not in the same boat but rest assured governments have control over how this market will develop. Interestingly, more and more major companies will compete to set the ladder with their dominant currency. Facebook is one example of the Libra. Investors and companies increasingly consider crypto assets as the offset instead of the USD or other major.
The average guy listening to this is not really going to understand, but he might like the „conspiracy“ side of it. Investors know how the FED and the big banks think, the play hasn’t changed yet. History is repeating and so-called smart money stands by. Reversal positioning is not their play. Investors wait out for the sudden shakeout and wait for the market to settle in direction. The pause could be a week or two before they move in. They did not long the EUR/USD before 2020 US elections results, only after the USD started to weaken after the charts show it is time and the fundamentals are still in line with the prediction.
Traders all deal with the prediction, with technicals and fundamental analysis. They protect their wealth with risk and money management. Prediction is actually what we do, but all professionals have a sound and consistent way of doing it. The title question is out of their scope as the answer will not be of any use to them.