Implications of War on Forex Trading
This week let’s have a look at how global uncertainty, like wars, can impact forex and especially gold trading:
Uncertainty can have significant implications on forex trading due to its impact on global economies, currencies, and market sentiment. Historically, war has also had a significant impact on gold trading due to the metal’s status as a safe-haven asset. Forex traders closely monitor geopolitical developments and the potential for armed conflicts, as these events can have a substantial impact on currency markets. Understanding the implications of war on forex trading can help traders make informed decisions and manage their risk exposure during times of heightened global uncertainty.
Here are some key implications of war on forex trading:
Currency Volatility:
During times of war or geopolitical tension, currency markets can experience increased volatility. The uncertainty and risk associated with military conflicts can lead to sharp fluctuations in currency values as traders react to changing geopolitical dynamics.
Safe-Haven Currencies:
Certain currencies, known as safe-haven currencies, tend to appreciate during times of war or geopolitical instability. Examples include the Swiss franc, Japanese yen, and sometimes the US dollar. Investors often flock to these currencies as a perceived safe investment, leading to an increase in their value relative to other currencies.
Commodity Prices:
Wars can disrupt the production and transportation of commodities such as oil, which can significantly impact the economies of both exporting and importing nations. This can lead to fluctuations in currency values of countries heavily reliant on commodity exports or imports.
Central Bank Policies:
Central banks may adjust their monetary policies in response to the economic effects of war. They might implement measures such as interest rate changes or quantitative easing to stabilise their domestic economies, which can influence currency values.
Flight to Quality:
During periods of war, investors may seek to move their funds into more stable and secure assets, leading to a flight to quality. This can impact currency markets as traders shift their investments away from riskier currencies to safer ones.
Global Trade and Supply Chains:
War can disrupt global trade and supply chains, affecting the economies of countries involved and those closely tied to them. Currencies of nations heavily reliant on international trade can be impacted by disruptions in supply chains, leading to currency fluctuations.
Market Sentiment and Risk Aversion:
Geopolitical tensions and the outbreak of war can create an atmosphere of uncertainty and fear among investors, leading to increased risk aversion. This sentiment can influence forex trading, causing investors to shy away from currencies of countries directly or indirectly affected by the conflict.
Economic Indicators:
Economic indicators such as GDP, employment data, and consumer confidence may be negatively impacted during times of war. This can affect investor confidence and influence currency values as traders assess the economic consequences of the conflict.
Here are some key impacts of war on gold trading:
Safe-Haven Demand:
Gold is considered a safe-haven asset, meaning it tends to retain or increase its value during times of market turmoil or geopolitical instability. Investors often flock to gold as a hedge against economic and political uncertainties, including the outbreak of war.
Investor Sentiment:
Wars can create an atmosphere of fear and uncertainty in financial markets, leading to increased investor demand for safe-haven assets like gold. This surge in demand can drive up the price of gold as investors seek to protect their wealth from potential market volatility and currency devaluation.
Supply Disruptions:
Wars can disrupt gold mining and distribution activities in affected regions, leading to potential supply shortages. This disruption can further drive up the price of gold, as reduced supply can increase its scarcity and perceived value.
Currency Devaluation:
The outbreak of war can lead to currency devaluation in countries directly or indirectly involved in the conflict. Investors often turn to gold as a store of value during such times, as it is not subject to the same devaluation risks as fiat currencies.
Central Bank Reserves:
During periods of war, central banks may increase their gold reserves as a form of financial security and to diversify their holdings away from volatile assets. This can contribute to increased demand for gold and influence its price on the global market.
Market Sentiment and Risk Aversion:
Gold tends to perform well when investor risk aversion is high. During times of war, the heightened risk perception can drive up the demand for gold as investors seek to protect their portfolios from potential market downturns.
Long-Term Investment:
Some investors view gold as a long-term store of value, particularly during times of prolonged geopolitical instability. Wars and prolonged conflicts can create an environment of persistent uncertainty, leading investors to hold onto gold as a long-term investment, which can support its price over time.
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DXY chart:
I still think we will see some further upside in the $. I’m targeting the 110 area.
Gold;
Uncertainty in the world = strong gold. See this week’s blogpost.
Oil;
I think oil might challenge the $100 a barrel level. Stuck above the 200 EMA last week.
Bitcoin;
I’m still keenly watching the 30k level. If that breaks, I’m targeting the 40k level.
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You can also follow us on Twitter https://twitter.com/marcwalton
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Red flag news:
US retail sales on Wednesday and UK figures on Friday.
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MAJORS
EUR/USD: Looking for shorts. I’m looking at the 1.0700 area to enter.
USD/CHF: Looking to long form 0.9080
GBP/USD: Short from 1.2400
AUD/USD: Short from 0.6600
NZD/USD: Short from 0.6100
USD/CAD: Long from around 1.355 -I’m looking at the shorter timeframes with this one.
USD/JPY: Still leaving alone for now.
CROSSES
EUR/GBP: Long from the current position. I’m, however, looking for one more daily candle to close bullish.
EUR/CAD: Short from 1.4450 *See video.
AUD/CAD: Short from 0.8900. *See video.
GBP/AUD:1.9220 to long.
GBP/CAD: 1.663 to short but I’m keeping an eye on 1.685 as well *See video.
GBP/CHF: See video for an update on the pattern we have been following.
AUD/NZD: Short from 1.078
As always, remember correlation! -Especially when taking more than one JPY trade!
M3 -Shorter timeframes.
I do my analysis on daily and weekly charts first and make a note of the MAJOR areas of support and resistance. Then copy them onto Pierre’s Earth and sky template. Then I make a note of the weekly & monthly pivots points and add them to the charts. You will see lots of opportunities line up during the week. The important thing then is to select a bias for the next few days and do NOT take trades if the price is too near a trend line or pivot. Ideally, you want to buy when the price is near a major support and or pivot point line and has the potential to make at least 40 pips. Vice versa for a short.
New members, please note: If I am looking to take a trade long, for example, 1.5000, I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.
We are NOT a “tipping service” our aim is to teach you how to trade for yourself.
Watch the video below for more detailed explanations of this week’s analysis and trade plan (click the 4 arrows bottom right to view full-screen):
Regards
Thinus
