Monday February 14, 2022 - 14:40:40 GMT
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[Forex View] How to Trade in a Politically Driven Market
Political markets are generally difficult to trade as there is often a short shelf life before whatever crisis is dominating is diffused. This suggests going with the flow while the market is on high alert but be aware that the factors driving it can fade quickly.
What complicates the current risks is that markets were already in a fragile state over rising inflation and a pivot to tighter monetary policies by major central banks.
How to trade in a political market
Each situation is different so it is important to be in sync to how individual currencies are reacting to political news headlines. In other words, identify which currencies are acting as safe havens and which are bearing the brunt of political concerns.
Typical safe havens in times of risk-off and political stress are the dollar, jpy and chf. It is important to see whether any are correlating with moves in equity and/or bond markets.
So, the bottom line is that politically driven markets can be traded if in sync with what is driving the flows but can be a difficult experience if you overstay your welcome doing so or get caught by a surprise headline. The latter suggests you need to be light on your feet as the market will have a tendency to overreact to news.
The best way I have found to get on the right side, more often than not in the direction when surprise news comes out, is by getting acces to the Amazing Trader.
The current political market
Trying to analyze what Putin might be thinking is beyond my pay grade. I know what logic says should happen as political crises have been diffused in the past.
However, these are different times and it is hard to see how Putin can seek a diplomatic solution (unless the West caves in to his security demands) without making him seem like he is backing down and thus a sign of weakness. So, the question would then be whether there is a full scale invasion of Ukraine or just an incursion that seizes pockets of territory barring a sudden diplomatic breakthrough.
Whatever the case, markets have a tendency to price in the worst so expect it to be on edge in a week that is likely to see this situation come to a head (if not before then after the Olympics end).
Feel free to contact me with any comments.
Jay Meisler, co-founder, global-view.com
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