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they all can be logically explained

2021-04-02

2021-04-02

Markets in 2021: don’t tear your hair out! Review as of 02.04.2021Dmitri Demidenko

Don’t be afraid of market paradoxes: they all can be logically explained

The US dollar and oil aren’t behaving normally at first sight, but

that’s not so

You’re all so fun and funny! May I leave now?

One can laugh oneself sick **** in the financial markets these days. A series of US disappointing statistics and reduction of the USD’s share of central banks’ gold and currency reserves to 59%, the lowest until 2010, resulted in the USD index’s growth. The OPEC+ decision to increase oil production by 2 million b/d led to an upsurge in [Brent][1] and [WTI][2] quotes. The market is full of paradoxes, but don’t tear your hair out, thinking you can’t understand them.

According to the IMF, the euro’s share of global currency reserves grew from 20.5% to 21.5% in the fourth quarter of 2020, while the yuan’s share rose from 2.1% to 2.3% during the same period. More renminbi is changing hands than ever before in London these days. Inversely, the US dollar’s share slid. But if we think of the [EURUSD’s][3] and the [USDCNH’s][4] estimated prospects at the end of December, everything falls into place.

What doesn’t kill you makes you stronger. Nietzsche’s aphorism may be inspiring but not always correct. Anyone who’s been fighting COVID-19 can prove that. What doesn’t kill you makes you weaker sometimes. A slow vaccination campaign and lockdowns dropped the [EURUSD][3] quotes to their lowest since the beginning of November. If not for another paradox of the US upbeat employment statistics, things could have turned out even worse.

If the US dollar was growing on weak data in March, why shouldn’t it fall on strong statistics? After all, why is it not a problem if my wife stays overnight at her girl friend’s house, but I can’t do the same? In contrast to reducing the greenback’s share of global currency reserves, buying the euro on positive employment stats is a preemptive strike and a belief in the global economy’s bright future. In other words, that’s an attempt to act based on optimism.

Almost the same is happening to oil. [Brent][1] and [WTI][2] grew despite OPEC+’s decision to pump another 2 million b/d into the market. Thinking that the alliance is optimistic about global demand, investors are actively buying “black gold”. However, the bulls were severely criticized before the summit in Vienna. It was rumored that an output increase would ruin futures quotes. However, experience has shown that one can build an excellent fence of the stones cast at oneself. OPEC+ may pretend to be optimistic about the future, but in fact, it may be simply afraid of losing its market share as the US producers’ activity has been growing. The cartel’s and Russia’s positions have changed dramatically since the last meeting, and that’s OK. Everything changes. Just remember that her “you’re so funny” may turn to “shut up, clown” after a wedding.

So, any paradox can be explained. Don’t be afraid of the market. Just be in sync with it, and you won’t repeat one unlucky investor’s experience. He was so scared to lose his hair that he tore it out.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=UKBrent_n&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=USCrude_n&returnUrl=true
  3. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  4. my.liteforex.com/trading/chart?symbol=USDCNH&returnUrl=true