Forex Trading Basic

Fundamental Analysis : Geopolitical Risks

Marker Sentiment Analysis - Forex Trading Strategy

Fundamental Analysis on Geopolitical Risks: With currencies, it focues on the political military, or natural disruptions to the global economy or individual regions or nations. Global investors will move their assets in response to geopolitical developments. Like all markets, the currency market is affected by what is going on in the world.

Fundamental Analysis on Geopolitical Risks

Natural Disasters:

Natural disasters like earthquakes, volcanoes, tsunamies, hurricanes can cause dangerous devastation to a country and its economy. We know that the currency move can be drastically change, but the direction of the move is hard to gauge. Sometimes the direction defines that one’s immediate best guess. For example, when the earthquake and tsunami hit Japan on March 11, 2011, I thought the Yen will get weak; after all, this disaster killed over 10,000 people and leveled the whole towns and threatened the entire country with main radiation from from the Fukushima nuclear-plant meltdown.Moreover its debt-to-gdp ratio was over 200% and that its finance ministers didn’t  like to have their currency be that strong. But while Japan’s Nikkei 225 Index get highed by 6.18% in one day, the Yen strengthened. The USDJPY fell 350 pips new 10-year low of 79.55. This repatriation idea for currency strength cannot be so easily extended to other nations. Japan  is unique in having an superb amount of stockpiled of foreign currency as a result of decades long positive trade surpluses, and consequently its citizens and corporations can be repetaed so much more than most other industrialized countries. The US is in an opposite predicament: it has had decades long trade deficits and most of its citizens and corporations are living out of borrowed funds. Hurricane Katrina caused the US Dollar to lose 300 pips against the Euro in the immediate aftermath of the event on August 25, 2005.

Terrorist Attacks:

This kind of  damage consumer and business confidence, hampering economic growth. They also increase the likelihood of war, and consequently, a budget deficit to support the associated spending. The 9-11 attacks effected the dollar to lose 200 pips against the Euro in immediate aftermath of the event.

War:

War is very destructive to everything and everyone when it comes in contact with, including fiat paper currencies that are used to help fuel it. Every major war in the past has brought inflation to some degree. The major reason is that wars are massively expensive and must be paid for somehow.

Elections or Change in Government Leadership:

Confidence in or wariness of a new system can cause investors to flock to or fly away from the home currency. Money is attracted to strong, effective leaders. If the new persons are voted into office and don’t have the confidence and wisdom to run a country effectively, then money will leave the country. If the new leaders borrow and spend more money on social programs or foreign wars than they can collect in taxes and money will leave the country. If the new leaders nationalize any major industries, money will leave the country. If the new leaders impose sharp tax increase or  regulations which are not needed, money will leave the country. The rule of thumb says that money is attracted to governments which are modest in ambition and friendly to business and investment.

Turmoil in Other Countries:

When other countries  conflict, their currencies may be perceived as unstable. It used to be that investors would flock to the US dollar as to have a safer bet. However, when we saw the political turmoil in the Middle East in 2011—the revolutionary movements in Tunisia, Egypt, Libya, Yemen, Bahrain, and Syria—the US dollar suffered a lot. History tells that when oil rich countries have trouble, then the US dollar falls when oil prices surge.

Financial Turmoil and the Flight to Safety:

Flight to safety means that traders move their money from one country to another in order to help to global financial risk. It is used to be that the US dollar was the de facto currency that investors would use in response to increased global financial risk. For example, in the banking crisis of 2008, investors fly away to the safety of the US dollar as all the markets in the world crashed. But increasingly, with the steady weakening of the US dollar and investors worried about the European sovereign debt and US debt ceiling, investors have been fleeing to gold and Swiss franc. Gold has a been see as a real monetary instrument immune to inflation as opposed to a fiat paper currency doomed to inflationary extinction. The Swiss have both a fiscal and current-account surplus, a low inflation rate and relatively low debt-to-GDP ratio, and consequently investors flee to the safety of the Swiss franc when it is not overly manipulated by the Swiss Central Bank.

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Please note that: gaining profit from fundamental analysis largely depends on your brokers MT4 platform functions. If your broker is vulnerable to high slippage problem during the time of news release, you are not going to get expected result from trading. So, while Choosing Forex broker, we would like to recommend you to start trading with a broker that has slippage guard. We recommend you to trade with HYCM Broker to get the best possible outcome of forex trading fundamental analysis. Read review of HYCM Broker to learn more on this.

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Chapter 6

Forex Trading Fundamental Analysis

Lesson 1.Forex Trading Fundamental analysis
Lesson 2Forex Trading Fundamental analysis
Lesson 3Fundamental Analysis of Interest Rates
Lesson 4Fundamental Analysis of Inflation Rates
Lesson 5Fundamental Analysis on Balance of Trade
Lesson 6Fundamental Analysis on Government Factors
Lesson 7Fundamental Analysis: Employment / Unemployment
Lesson 8Fundamental Analysis on GDP
Lesson 9Fundamental Analysis on Geopolitical Risks

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About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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