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Forex Forecast for 2021

January 1, 2021 (Last updated on January 4, 2021) by

2020 is now over (to the best as we all hope), and it is now time to review my 2020 Forex forecast and to offer my attempt of predicting the movement of currency pairs, gold, oil, and interest rates for 2021. The COVID-19 pandemic wreaked havoc not only to the world’s economies but also to lots of forecasts. So, the year 2020 was probably the worst one for my annual Forex forecasts. Below, you will find a recap of the last year’s predictions and my new forecast for each trading instrument.

EUR/USD

Although EUR/USD spent most of 2020 inside my forecast range (1.0800–1.1700), the currency pair far exceeded the upper range, rallying on all the last year’s stimulus announcements and getting lots of support from fundamental factors. I see no reason for the uptrend to stop in 2021, at least not so soon into 2021 as to make the currency pair end up lower than the top of my previous forecast’s range. Thus, my forecast for EUR/USD in 2021 is the range between 1.1700 and 1.2900.

EUR/USD - Forecast for 2021

USD/JPY

The major weakening of the US dollar in 2020 has seen the USD/JPY FX pair moving well below the lower border of my forecast range (107.00–112.00). Fueled by risk-aversion, the Japanese yen turned out to be one of the best hedges for the global recession in 2020. Similarly to EUR/USD, I see no reasons for the US strength to return in 2021, hence my forecast range is for the end of this year 95.00–107.00.

USD/JPY - Forecast for 2021

GBP/USD

My 2020 forecast for GBP/USD was a total disaster as the currency pair traded below the forecast range (1.4000–1.5500) for the entire year. The initial downtrend in the first quarter of 2020 and the deficiencies of the Brexit process weakened the British pound enough to keep it from reaching my forecast range. Nevertheless, I keep my forecast for 2021 unchanged from the last year’s range of 1.4000–1.5500.

GBP/USD - Forecast for 2021

AUD/USD

The forecast for 2020 (0.6500–0.7100) turn out to be too far away from the actual outcome for AUD/USD despite the fact that I expected monetary easing from the Reserve Bank of Australia and they delivered three rate cuts in 2020. Who knew that everyone else will also be adopting a super-accommodative monetary policy? So, even though the Aussie traded for quite a long time inside (and below) my forecast range, it has ended the year well above that range. Although I believe that the US dollar will continue to weaken against its Australian counterpart in 2021, the Aussie’s performance may be not so stellar either, with negative interest rates still not completely off the table. That is why my forecast range for the end of 2021 is rather conservative — between 0.7200 and 0.8000.

AUD/USD - Forecast for 2021

USD/CAD

I expected a minor strengthening from USD/CAD in 2020, but instead it soared to multi-years highs in March only to fall straight through my forecast range (1.3000–1.3700) and to close 200 pips below its lower border. In theory, the loonie should benefit from the future US dollar weakness the same as the Australian dollar and other major currencies. However, the thing with the Canadian dollar vs. US dollar trading is that the two economies are very interconnected and the USD’s general weakness against other FX counterparts will likely diminish the CAD’s value too. In addition, the monetary authorities in Canada seem to be worried with the Canadian dollar’s appreciation against the US currency and are ready to provide even more easing (including future rate cuts) to undermine the CAD’s further strengthening. This makes me decide to leave the last year’s forecast unchanged for 2021 — 1.3000–1.3700.

USD/CAD - Forecast for 2021

USD/CHF

The greenback/Swissie pair had spent the first half of 2020 well within the boundaries of my forecast range for that year — 0.9400–1.0200. Then, things went south quickly, with the currency pair ending the year about 400 pips below the range as the demand for USD dwindled while the demand for the Swiss franc was strong during the pandemic crisis. Even though, the Swiss National Bank continues to call the Swiss franc “highly valued” in its monetary policy reports and continues currency interventions in order to cripple currency’s revaluation, there won’t be much that the SNB will be actually able to do in 2021 to prevent a further drop in USD/CHF. Hence, my forecast for 2021 is to anticipate a continued slide into the range of 0.8000–0.8800, where the closing price of the year should be in my opinion.

USD/CHF - Forecast for 2021

NZD/USD

The dynamics of NZD/USD trading in 2020 was much similar to that of AUD/USD, with the sharp initial drop and a subsequent super-rally, which exceeded the upper border of my forecast range (0.5800–0.6400) by hundreds of pips. And similarly to AUD/USD, my forecast for 2021 will be a bit more conservative than with some other currency pairs because New Zealand still has some room for interest rate cutting, which might get employed this year. My forecast for the year’s end is rather wide at 0.6600–0.7600, but it leaves enough room for a potential appreciation of the NZD/USD rate.

NZD/USD - Forecast for 2021

Gold

I had expected to see a moderated decline of gold price in 2020 (down to the 1,250–1,400 range), but instead saw it soar first to the levels above 2,000 and then retrace somewhat but still ending the year 30% higher than the upper border of my yearly forecast. This year, I continue to bet on gold’s correction and I forecast it to end 2021 between 1,500 and 1,800. My main reason is gold’s lack of attractiveness due to the inflation remaining subdued despite all the stimulus measures by global central banks and governments. Simply put, investors will choose to hold some yielding assets during the coronavirus crisis recovery this year rather than to hedge against the elusive inflation.

Gold - Forecast for 2021

Oil

Oil (WTI) ended trading in 2020 super close to my forecast range (49.00–62.00). Unfortunately, after spending two days inside that range just two weeks ago, it declined somewhat and ended the year outside of my forecast range. 2021 will see a recovery of demand for oil as the pandemic will be largely overcome with mass vaccination. This will push the price up to the range between 50.00 and 65.00 by the year’s end.

Oil - Forecast for 2021

Interest rates

My 2020 forecast pointed at the 1.50%-1.75% range for the federal funds rates. Had the coronacrisis not hit us, it would probably be an accurate prediction. However the Federal Reserve cut the rates relentlessly in 2020, down to 0.00%-0.25%. For 2021, I expect that the Fed won’t have any reasons to lift the rates, keeping them at the current range of 0.00%-0.25%.

The eurozone’s main interest rate had already been at 0% before the coronacrisis, so the European Central Bank didn’t even have a chance to mess up with my no-change forecast for 2020. There are really no signs right now that the ECB plans changing the rate anytime soon.

As always, there was no challenge in guessing what the Bank of Japan will do with its interest rate (hint: it did nothing!). As with the ECB, I forecast that BoJ will keep its rate unchanged at -0.10%.

I expected the Bank of England to cut rates once in 2020 (to 0.50%), but it cut them twice (to 0.10%). The combination of Brexit woes and the coronacrisis consequences will make the BoE cut the rates further to 0% this year.

The Reserve Bank of Australia cut its interest rate three times in 2020 (to 0.10%) whereas my forecast was for only one cut (to 0.50%). Considering the market expectations, the RBA will likely cut its rate to 0% in 2021.

My 2020 forecast had been for the Bank of Canada to reduce the interest rate once (to 1.50%), which was a major underestimation of the extent they would ease the monetary policy — which was three cuts to 0.25%. My forecast for 2021 is for the BoC to cut the interest rate down to 0%.

Another easy hit was with the Swiss National Bank as it has been keeping the rate unchanged at -0.75% for quite some time now and I expect it to continue keeping it at that level in 2021.

Surprisingly, my forecast for New Zealand’s rates wasn’t that far from the reality — I said it will drop from 1.00% to 0.50%; instead, it was cut to 0.25%. I expect the Reserve Bank of New Zealand to cut the interest rate even further in 2021 — down to 0%.

Update 2021-01-04: As usually, I’ve put my money where my mouth is by entering trades based on my 2021 Forex forecast.

If you want to share your own Forex or interest rate forecast for 2021, you can do so using the commentary form below.

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