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Currency Pairs to Avoid in Forex Trading in 2022

The forex market saw significant price action in 2021 as investors reflected on the vaccination process and actions by central banks like the Federal Reserve and the European Central Bank (ECB). The industry is also expected to show volatility as most major central banks start to unwind their policies. In this article, we will look at some of the top currency pairs to avoid in 2022. The main criteria will be that we expect these pairs to show little volatility.

USDHKD

The Hong Kong dollar is a relatively unique currency today. Its uniqueness comes from the fact that the currency is not free-floating. This means that its rate is not set by the market. Instead, the Hong Kong government has decided to peg the currency on the US dollar.

The peg means that the USDHKD pair cannot move below a certain level or above another one. Precisely, the pair cannot move below 7.7500 or climb above 7.85.

Hong Kong’s decision to peg its currency to the US dollar has some strategic importance since the city positions itself as a gateway to mainland China. And for years, China was known for manipulating its currency in a bid to favor its exporters. Therefore, the stability of the Hong Kong dollar helped to establish the city as a major financial center.

This stability, however, does not favor forex traders who like volatility. Therefore, since Hong Kong is not expected to change its policies, we believe that traders can do well by not trading it.

CHFJPY

Switzerland and Japan are two of the biggest economies in the world. Japan has a GDP of more than $4 trillion, while Switzerland has about $750 billion.

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The two countries have several similarities. For one, they are usually not involved in major global conflicts. Switzerland is known for its neutrality on most issues that lead to geopolitical tensions. Japan is rarely in military conflict with other countries.

Another similarity between the two countries is inflation and the unemployment rate. The two countries have the lowest unemployment rate in the world. Japan has an unemployment rate of about 2.8%, while Switzerland has a rate of about 2.5%. They have also defied the so-called Phillips curve since the low unemployment rate has not translated to high inflation. They both have an inflation rate of less than 2%.

The CHFJPY pair is known for its low volatility because of how predictable the two countries are. For example, we already know that the Bank of Japan (BOJ) and the Swiss National Bank (SNB) will not hike interest rates in 2022. We also know that they will maintain their overall easy-money monetary policy. Most importantly, the two countries will not have significant political changes.

Therefore, if you are interested in trading the Japanese yen and the Swiss franc, I recommend that you trade the USDJPY, EURCHF, and USDCHF.

NZDJPY

Like Japan, New Zealand is one of the most advanced economies in the world, with a GDP of more than $212 billion. This is a notable amount considering that New Zealand has a population of over 5 million people.

While the NZDJPY cross is offered by most brokers, it is usually not all that liquid. Besides, the two countries have a relatively small trade relationship.

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The main reason why you should just avoid the NZDJPY pair is its predictability. Unless something major happens, we don’t expect any major changes that will bring volatility to the currency pair. For example, we already know that the Reserve Bank of New Zealand (RBNZ) will embrace a relatively hawkish tone in 2022. Besides, in 2021 it decided to end its quantitative easing policies and start a hiking cycle.

At the same time, we don’t expect that the Bank of Japan will start a hiking cycle. It has already hinted that it will maintain negative interest rates for a while. Also, we don’t expect any major changes to the two countries’ politics since they held their elections recently.

Therefore, because of this predictability, we recommend that you just avoid the NZDJPY pair. Besides, it usually has wider spreads than its major counterparts. Therefore, instead of the NZDJPY pair, we recommend that you focus on the NZDUSD and USDJPY.

EURSEK

Sweden is one of the few European Union member states that do not use the euro. Instead, the currency uses the Swedish krona. The logic behind this is simple. By having its own currency, the Swedish central bank can tweak its monetary policy based on the prevailing economic conditions.

Indeed, the concept of the euro and the European Central Bank (ECB) has been criticized by people like Nobel-winning economist Joseph Stiglitz. Critics argue that having a single central bank is a disadvantage of several small members of the EU since these countries can’t apply an appropriate monetary policy. For example, if the German and French economies are doing well and Greece is not, tightening of rates by the ECB will put the latter at a disadvantage.

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Still, Sweden makes a lot of trade with the European Union. Indeed, it sells most of its goods to the European Union and vice versa.

The main reason you should avoid the EURSEK pair is that I believe that you can benefit by trading the USDSEK pair instead. That is because these two pairs tend to move in sync with one another. As such, by trading the USDSEK pair, you will incur less cost than when you are trading the EURSEK pair.

The same is true when you are thinking of other currency pairs like the GBPZAR, EURNOK, and GBPSEK. It will be cheaper for you to trade the USDZAR and USDNOK instead.

Summary

There will be so many opportunities in the forex market in 2022. Therefore, we recommend that you avoid the currency pairs mentioned above and instead focus on majors like EURUSD, GBPUSD, and USDCHF.

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Source: https://forextraders.guide/currency-pairs-to-avoid-in-forex-trading/

Posted by: derivbinary.com