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As the world slowly begins to recover from the pandemic, many are left wondering what will happen to the various emergency measures that have been put in place to help individuals and businesses weather the storm.
One of the impactful of these measures is the U.S. emergency spending that has been in place since the beginning of the pandemic. However, funding legislation is expected to come to an end in the coming months.
Let’s understand what this could mean for the financial markets and how you can position yourself in this market environment.
End of U.S. Emergency Spending
Emergency spending has been a way of life since 2020, but funding legislation is expected to come to an end in the coming months.
The Biden administration is planning to let the pandemic related healthcare emergencies expire in May.
The public health emergency was first declared by the Trump administration in January 2020. It was last renewed earlier in January, and many state health officials expected it would be allowed to expire in mid-April.
The White House recently said that the U.S. pandemic related public health emergency (PHE) and national emergency declarations – both of which have been in place since January and March of 2020, respectively – will expire on May 11, 2023.
The move carries some weight and would have a host of implications.
These declarations have allowed the U.S. greater flexibility to respond to the pandemic over the last 3 years, including making changes to government health insurance program requirements, and making vaccines and tests free to the public via emergency funding.
Millions of Americans have received free tests, treatments and vaccines during the last few years, and not all of that will continue to be free once the emergency is over.
The Repercussions
Changes in government policies and the overall economic situation can have a significant impact on financial markets.
For example, the end of free pandemic related testing and treatment, as well as extra funding for hospitals, may lead to higher costs for individuals and businesses, which could potentially impact the markets.
Similarly, changes in the healthcare system and potential loss of Medicaid coverage for millions of people could impact various healthcare related sectors, employment, and disposable income levels.
On the other hand, the transition to treating the pandemic as an endemic health threat could bring some stability to the market. It could lead to a more predictable investment environment.
The Forex market, which deals with the exchange of currencies, can also be impacted by changes in government policies, the economy, and overall market sentiment.
Here’s a way you can trade the potential shifts in this market.
RISK ON Trading Opportunities
Risk-On Trading environment refers to when the market sentiments are bullish. It’s where the market participants have a high-risk appetite and bid up the prices of assets on the back of positive sentiments.
So, typically, a risk-on environment is when…
- Sentiment is bullish
- Stocks and stock indices are bullish and gaining
- There’s trader and investor optimism
On the other hand, Risk-Off Trading happens when the market sentiments are bearish. In this situation, investors become more risk averse and sell assets, thereby sending their prices lower.
Here’s how you can use these readings to trade the Forex market.
As we saw, cutting on the healthcare emergencies will mean less government expenditure. This, at a time when the central bank is looking to bring down inflation, could be seen in a positive light by market participants.
Treating the pandemic as an endemic health threat and reducing government expenditure could also bring some stability to the market, leading to a more predictable investment environment.
So, we will be most likely looking to trade a “RISK ON” environment as this unfolds.
The currencies that get bullish during a risk on market environment are called Risk-On Currency Pairs. They are: AUD, CAD, NZD, GBP.
Each of these currencies is closely tied to a commodity. The CAD and GBP are tied closely to oil, the AUD is tied to gold, and the NZD to food prices and imports-exports. So, when we see risk-on trading, we tend to see these currencies feed and fuel the growth. And so, they are more likely to get stronger and perform better in a risk-on environment than the other safe haven currency pairs.
On the other hand, the currencies that get bullish during a risk-off environment are called Risk-Off Currency Pairs. These are: USD, JPY, CHF.
They are considered as safe-haven currencies and tend to fund the world’s growth. And these currencies commonly become much stronger during times of concern and fear (risk-off environment) as they are widely considered safer bets.
All in all, for traders and investors, the current developments can potentially lead to more volatility in the markets. We will have to wait and watch if they lead to any Risk On environment in the coming days.
Our top analysts are closely monitoring this trend. They’ve analyzed 50+ years of data and price action and are predicting a major shift in this currency pair.
This prediction is our biggest call for Q1 with around 9015+ PIPs of potential opportunity trading USD pairs. Click here to learn more.
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Predicted movements expected to last through the end of Q1 2023.
Predictions are not a guarantee of this or any result. Information provided on this prediction is for general information purposes only. We offer no representation or warranty with regard to this prediction. No prediction is personalized or otherwise directed at any individual or particular circumstances. We disclaim and will not accept any liability for losses associated with this prediction.
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