Optimism and Fears Mixing in the Forex Market, How to Profit from the Sentiment?

The foreign exchange or forex is the world’s largest financial market. As of 2019, the daily turnover stood at $6.6 trillion while the total market value reached $2.409 quadrillion. Forex operates 24 hours a day and comprises 170 different currencies. This exposure also means that any economic, political, or social event is likely to tip scales in favour of one currency or the other.

The economic performance due to high inflation rate in 2022 has so far been punctuated by major economic and geopolitical events. The question is what causes inflation? Production costs and demand are some of the factors that drive prices or inflation in the economy. One great example is the Russian invasion that has greatly affect the production and demand of oil and has greatly affect the global economy. While economies are yet to fully recover, the war between Russia and Ukraine has set markets on a tailspin, the US and China relations have also added more fuel into the turmoil. As an investor you must tweak and revise your forex money management rules to effectively maximize your gains and minimize losses.

The US Dollar Rally

The U.S. dollar has been on a rally for the past days, ending Wednesday on a high note. Investors are holding onto their positions as they wait for comments from Jerome Powel, the Federal Reserve Chair. The end of the week will also see the publication of the crucial November jobs report.

The U.S. dollar index (DXY) tracks the performance of the dollar against a basket of other currencies including the euro. Since the middle of November, the DXY has dipped twice to values around 105.30. The dips have resulted from optimism that the Fed will pivot to less aggressive rate hikes after inflation sentiments signalled that a peak could be closer.

Traders are projecting 63.50% odds that the Fed will pivot to a 0.5% rate hike while there are 36.50% of traders who’ve placed bets that the fed will stick to the 75-basis point hike. Friday, December 2, will see a release of nonfarm payroll figures. Economists are projecting an addition of 200,000 new jobs down from 261,000 recorded in October 2022.

China Factory Data Turns Markets Tepid

For the first time in almost two years, China’s factory gate prices fell, causing a loss of momentum on the Asian markets. China’s producer price index dropped by 1.3% in October compared to the same month last year. The drop pushed the index to a negative territory, the first such instance since December 2020.

The consumer price index on the other hand went up by 2.1%, a slight reduction from the 2.8% recorded in September. However, Industrial Production rose by 5% year on year against a target of 5.2%. In the same period, retail sales came down 0.5% beating a slightly gloomier forecast of a 1% drop.

Russia-Ukraine war and Missed Targets

The global economy sentiments around the Russian-Ukraine war haven’t been so optimistic. That said, the misfired missile attack that landed at Przewodów, a village at the border of Ukraine and Poland, changed the mood significantly.

Poland being a NATO member means that than attack its assets and people would be interpreted as an attack on NATO. The likelihood of an escalation dampened the financial markets leading to lost performance on some euro currency pairs. For instance, the EURUSD pair dropped to 1.0292 after a 1.0480 peak.

Disappointing UK-Employment-Related Data

The July to September 2022 period saw UK unemployment rate rise to 3.6%. This rise is a slightly deterioration, of about 0.2%, from the April to June period. Compared to the pre-pandemic levels, the current unemployment numbers are still 0.4% below.

Despite the drops and misses, the UK economic activity 0.2 percentage points higher to clock 21.6%. Compared to pre-pandemic levels, the economy has improved by 1.4%. The news caused a shift in the GBPUSD pair that started trading at 1.2028 and later eased to 1.1830.

How To Profit from The Missed Sentiments

As a forex market trader, one of the most important money management tips is to trade what you can afford to lose. Have a maximum acceptable loss either weekly or monthly. Quantify your trades based on fixed sums or percentages as you establish your stop loss levels.

Also, have a risk to reward ratio that you are aiming at and take profit when the conditions are right. Take time to refine your strategy and evaluate your appetite for risk. Lastly, capitalise on leverage but do not open larger positions that could amplify your losses beyond your risk limits.


At any one time, the forex market will exhibit a mix of sentiments, some good and others disappointing. However, as a trader, you cannot afford to time the market wrongly. You must always be on top of your money management strategy. Having the right tips can help you take charge and control your trades even when your positions are not moving so much in your favour.

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