For many forex traders, whether experienced or amateur, the risk is inevitable and comes in different forms. Many factors affect the trading market.

Not many people expect that a health crisis will affect the forex and financial market. However, Coronavirus has taken the world by storm and influenced the financial market across the globe.

The virus, also called COVID-19, was first reported in December 2019. To date, the virus has claimed over 2,100 lives. It has been estimated that more than 75,000 people are now infected with this deadly virus.

Photo by engin akyurt

What Is Coronavirus?

The Coronavirus was first reported in the Chinese city of Wuhan in December 2019. It is officially known as COVID-19. People infected with the virus exhibit various symptoms, including a cold or pneumonia. The mortality rate is estimated at 2%, while China is trying to contain it. Some cities, such as Wuhan, are isolated while patients are quarantined.

Although Coronavirus mainly affects the Chinese population, it is spreading to other parts of the world. On January 20, 2020, more cases were reported outside of China, including in Thailand, South Korea, and Japan.

Subsequently, on the 30th of that month, the World Health Organization declared the virus a global health crisis. Therefore, what does all this have to do with the Forex market?

The Impact Of The Coronavirus On Trading

The impact of Coronavirus on the forex market can be viewed from different angles. China is probably one of the world’s economic giants. The value of the Coronavirus in the national economy still cannot be ignored.

Financial experts warn that the number of scam attacks has escalated significantly. In such conditions, one should take extra precautions when trading. It is advisable to read reviews and study all of the information carefully. Honest reviews on brokers might be hard to find, even on well-known ones such as Nadex, Finmax, or IQ Option. You can read a trustworthy review on IQ Option here.

According to several economists, including a survey by Reuters, in the first four months of 2020, the country’s annual economic growth will decline. It has been estimated that this has indeed happened, with figures ranging from about 6.0% to 4.5%. After the change, some sectors also experienced negative changes, such as Apple stock prices, which went down after the Coronavirus outbreak.

Although the spread of the virus is expected to be kept to a minimum, the economic impact may be more tangible if the virus continues to spread. There are concerns that after China’s protracted trade war with the U.S., doubled with the spread of Coronavirus, the economy will probably not survive.

As this virus continues to spread to other Asian countries, it is expected that they, too, will suffer adverse consequences for their economies.

China’s Financial Market

China closed its markets during the Lunar New Year, and this period was extended until February 2 this year. However, after the extension, the market was reopened, and before that happened, the Central Bank of China announced an injection of 1.2 trillion Chinese yuan as liquidity. The market experienced further changes, including the suspension of over-the-counter trading to avoid forced selling. The Shanghai index fell to 10%.

Against the background of cancellation and suspension of flights to China by such significant airlines as Lufthansa and British Airways, China’s economy plunged into an abyss. Many major companies, such as Hyundai, have suspended some of their operations because of the problems they face.

Hyundai, for example, could not get spare parts from China, as a result of which some plants in South Korea were shut down.

In connection with these events caused by the outbreak of the epidemic, experts estimated a decrease in GDP by 0.5-1% in case the Coronavirus would peak in February or March.

The impact of these events on Chinese financial markets should not be underestimated. USD/CNH is trading higher and is expected to move even higher. It is anticipated that USD/CNH might face a holding of 7.0000 if the virus is contained.

Impact On Global Value Chains

During the past two decades, China has played a crucial role in the world economy. China’s growing importance in the world economy is not only due to its status as a producer and exporter of consumer goods.

China has become a significant supplier of intermediate resources for manufacturers abroad. Today, about 20% of world trade in intermediate products is produced in China (compared to 4% in 2002).

It is believed that any significant supply disruption in China in these sectors has a significant impact on producers throughout the rest of the world.

Indeed, many companies around the world fear that the measures introduced to curb COVID-19 (i.e., restrictions on economic activity and on the production of intermediate goods) are being implemented.

Impacted Countries

A reduction in China’s supply of intermediate inputs may affect the production capacity and therefore, exports of any country, depending on how dependent its industry is on Chinese suppliers.

For example, some European car manufacturers may face a shortage of critical components. Japanese companies may also find it challenging to obtain the parts needed to assemble digital cameras.

For a lot of companies, the limited use of inventories as a result of a lean and timely production process will lead to shortages that will affect their production capacity and total exports.

In general, the countries most affected will be the European Union (engineering, automotive and chemical), the United States (engineering, automotive and precision instruments), Japan (engineering and automotive), and the Republic of Korea (communications equipment and facilities), as well as Taiwan Province of China (communications equipment and office equipment).

Other Markets

While the financial markets of China and other Asian countries are becoming disorderly, some markets are winning. Safe currencies, including the Japanese yen, Swiss franc and U.S. dollar, continue to thrive.

These currency markets continue to gain support, while the Euro is slightly behind, with limited assistance. The commodity market is the worst hit. Commodity currencies like the Australian dollar are in danger, while the sterling pound is becoming vulnerable at a slower rate, especially if the global economy eventually slows down.

Photo by Austin Distel

Crude Oil And Change In Market Prices

The influence of Coronavirus is felt not only in China but also indirectly, in other markets. Looking at light crude oil, one can see the influence.

While crude oil prices fell after Iran attacked U.S. bases in Iraq, it is clear that after the Coronavirus outbreak, about three weeks later, prices fell from an estimated 65.65 to a low of 52.13.

We cannot ignore the fact that China and the U.S., which signed the deal, kept the price of crude oil at 58.00 for a while. However, Coronavirus is slowly gaining momentum. If the outbreak continues, especially in China, the demand for crude oil is predicted to decline and then decline further.

Although Norway has not reported any deaths or infections from Coronavirus, it has been affected by the value of its Coronavirus infection. Since December, the prices of U.S. dollars for Norwegian Krone have fallen, and this was due to the demand for crude oil.

Norway exports crude oil and, therefore, changes in oil prices directly affect the price of the Krone.

With lower demand for oil, it looks like USD-NOK will rise, and if held down, oil rates will rise, and therefore USD-NOK will move even lower than at present in the market.

Photo by Austin Distel

To Sum Up

While there is still uncertainty regarding the impact of COVID-19 on China’s productive capacity, recent statistics indicate a significant decline. The full implications of COVID-19 on global value chains will become more evident in the coming months.

One crucial question, however, is how interruptions in the supply of intermediate inputs from China will affect the rest of the world.

The Coronavirus has also affected financial markets around the world, and it remains to be seen how much damage can be done or avoided.

It all depends on whether this virus is in the body or not. If governments can stop an outbreak like SARS, the expected extreme negative impact on trade can be avoided.

Author’s bio: 

Dmitrii B. is the founder of GRIN tech – full-service agency.