The forex market is the most liquid market in the world and there are hundreds of little factors that affect currency prices every day. There are also a lot of much larger global and financial events that can significantly strengthen or weaken major and minor currencies. The best traders use these events and predictions as part of their trading strategy to make well informed trades.
If you’re hoping to become a successful forex trader then it is important you pay attention to all the elements that could affect the market. There are a number of big global events that could have a massive effect on the forex market over the next 12 months. Take advantage of these when creating your trading plan and put into action by using ETX Capital services and platforms.
A Potential US Recession
As a global financial powerhouse, anything that affects the US Dollar in a positive or negative way can have large repercussions around the world. At the time of writing the US Dollar is still the strongest currency in the world, despite a slight weakening in the past few months. However, that could all change with talk and theories that the USA could enter another recession in the next 12 months.
Jim Rogers, chairman of Rogers Holdings, is convinced that another US recession is on the cards within a year. He claims this is because they usually happen every four to seven years, the nation’s debt is still huge and there are signs the economy is already faltering. Others claim there is a much smaller chance of another recession.
There isn’t actually any set rule of what happens to a currency if the country goes into a recession. Generally it is believed that it will weaken, as the pound sterling did in 2008, but sometimes it remains unaffected or even strengthens, such as the US Dollar in 1980. This doesn’t really help traders but assuming a currency will weaken at least somewhat is probably the safest bet.
The US Presidential Elections
The other huge event that could affect the US Dollar this year, and an event that is 100% certain to happen, is the 2016 US Presidential election. As the world’s largest economy this understandably garners a lot of attention. Due to the unpredictability of the election result it could be thought that a weakening of the US Dollar would occur.
There is data to show that in an election year, on average a currency is weakened overall, and this would be expected because of the political uncertainty. However, some other studies have found similar patterns based on years ending in ‘5’, suggesting it could be coincidence.
For forex traders it is advisable to prepare for any election, especially one as large as the US election in advance. As the largest economy it is bound to recover and strengthen pretty soon after the result is known. This makes buying US Dollars when it is weakened before the vote and selling once strengthened a good tactic. Assuming whoever wins doesn’t immediately put the US economy at risk.
A Possible Brexit
After years, even decades of debating, voters of Great Britain have the chance on June 23rd to decide whether the island nation should remain a member of the EU or leave. The British Pound is one of the world’s major currencies so the result of this referendum could have a big impact on the currency and forex market.
In the same way that the uncertainty surrounding other political votes usually weakens a currency, it probably will with the Pound. Already it has lost ten cents against the Euro since the beginning of 2016 when the referendum was announced. So not only could the referendum and fallout from the results significantly weaken the pound, it could also strengthen the euro. This presents an opportunity to buy into the pound in the run-up to the referendum and hope that whether it stays or leaves the EU the currency resurges.
Further Changes in the EU
The euro is another of the world’s major currencies, with the EUR/USD currency pair the most commonly traded in the world. It is the sole currency of 19 nations in the Eurozone and suffered its fair share of ups and downs.
The potential Greek exit of 2015 was resolved but it is hard to say whether a similar period of uncertainty may or may not arise again in the future. There are a few countries hoping to join the EU, which could affect the currency, while others like Great Britain may leave. The EU itself is constantly undergoing change and everything from trading policy changes to losing or accepting new members can see its currency fluctuate in value.
Australia’s Tumultuous Politics
Australia has experienced a more turbulent time with its political landscape in the past near decade. Since 2007 no prime minister has served a full term due to a number of factors, despite being less affected by the global recession that happened around the similar time. As the Australian Dollar is another of the six or eight major currencies this is of importance to many forex traders.
As mentioned, elections often see a currency weaken. Given the number of times the Australian prime minister has changed in recent years, who’s to say there won’t be another election in the next year? This is just speculation and the Australian Dollar could easily strengthen or not fluctuate in the next year at all, but it is worth keeping an eye on the country’s news in case the political situation changes again.
Physical war has a disastrous effect on currency. Even in 2016 there are still wars going on, such as the ongoing troubles in Ukraine around the world and there could easily be more break out. The amount war costs will lead to a weaker currency.
This is usually offset later by lowering interest rates, borrowing and more, all of which further weakens the currency and puts off potential investors. However, this can be a good time to invest when it is at its lowest price before a hopeful resurgence.
Keep a regular eye on global news to see if any of these events occur or look likely, and weigh up the impact they could have on currency when planning out your future forex trades.
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