FX volatility increased once central banks shifted away from an accommodative stance, so traders now have plenty of options when choosing what to trade. With the focus on inflation, interest rates and risks of a global recession, such events will very likely need to be priced into currency exchange rates.
If you are interested in FX trading, these are some of the top pairs you should keep an eye on in 2023. The factors mentioned above could lead to new trends emerging and thus, new trade opportunities along the way.
Still the most liquid and popular currency pair in the world, EURUSD is more volatile because the Federal Reserve is now near the peak of the hiking cycle, while the European Central Bank projects some more tightening, given higher inflation in the EU. As a result, the pair is now seen trending up, already reaching 1.10 at the time of writing.
Interest rates differentials are narrowing and that brings capital back into Europe. Rates are no longer at zero or negative, so there are new alternatives to the US market. As long as prospects for a recession remain low, risk sentiment should stay elevated, according to experts working at Main Group FX, a retail CFD brokerage regulated by ASIC.
Shifting towards minor pairs, GBPJPY is an option to watch for, since it has a higher volatility. This pair is suitable for traders who are able to handle larger price swings in order to catch bigger trends, even on an intra-day basis.
The Bank of England is also not far from peak interest rates, so attention is shifting toward the BoJ. Inflation in Japan has been on the rise and with a new central bank governor in place, there are already speculations that the institution will soon give up on its yield curve control policy. That has the potential to revive Yen bids, after over a decade during which Japanese financial institutions moved capital abroad.
The Aussie is now seen weakening after the Reserve Bank of Australia decided to keep interest rates unchanged. In Australia, private debt levels are elevated and so the sensitivity to higher rates keeps a cap on what the central bank can do.
Watching this FX pair is advantageous also because Australia is one of the main trading partners of China and so, better economic prospects in Asia are favorable for exporting nations. Traders who work with regulated brokers such as MainGroupFX can benefit from such pairs thanks to the tight spread that the brand offers.
CAD is another commodity currency that can become volatile when the price of oil or other agricultural commodities starts trending in either direction. Canada exports energy to the USA and other European countries, so higher or lower energy prices influence the commercial balance.
Traders are recommended to focus on commodity currencies this year, especially after the latest OPEC decision to cut oil production by more than 1.5 million barrels per day. That should keep energy prices volatile during the summertime when consumption increases.