Trump, Brexit, Greek Crisis etc – Why Should We Care?
Earlier this week, our eyes were glued to the news of Donald Trump’s address during the joint session of Congress. We also follow the news of Brexit and the British PM’s Theresa May’s statements, and a number of other international news. As a beginner trader, you may be asking yourself a question: ‘Why should I care?’
There is a professional term for this: Fundamental Analysis. To put it in simple terms, the value of any currency is formed in a context of its country’s economy and political events, as well as global events. For example, a political crisis or a natural disaster can lead to a currency losing its value. And vice versa: when economy strengthens and country’s overall outlook improves, the value of its currency increases.
Here’s how it works in the real world. Remember how the British Pound fell as a result of the Brexit vote? This was a natural reaction to the frustration and uncertainty of what was to come with the Brexit. During the US Presidential Election campaign, when candidates’ statements were making the future of the country’s course uncertain, the value of the USD would go down. Since Donald Trump was viewed as an unpredictable candidate, the price of ‘safe haven’ currencies, such as the Japanese Yen and Swiss Franc was on the rise, and the USDJPY and USDCHF were the pairs to trade. And Mexico being the frequent victim of Donald Trump’s threats during the campaign, its currency, the Mexican Peso, was going down. Yet, after Donald Trump got elected and started making statements about tax plans that would strengthen the US Dollar, the American currency went up. This is how USA’s political landscape affects markets and currencies worldwide.
Yet, some traders would argue that Donald Trump does not influence the world economy as much as this woman does.
The world’s most powerful woman is not a Beyonce-type celebrity but this woman: the Chair of the Board of Governors of the Federal Reserve System Janet Yellen. In every speech she makes, investors are looking for clues of the Fed’s next steps, such as possible rate hikes or cuts. For example, the current growth of the USD is driven by the high probability of 3 rate hikes in 2017, one of them most probably happening in the coming months.
Summing up the whole idea of following current news and applying your knowledge to trading, we can say that ‘It all matters in context’. When Harborx Star Traders prepare their trading recommendations, they look both into the context, current and upcoming events (so-called Fundamentals), as well as charts and graphic representation of the currency performance (Technical Analysis). This way, you don’t have to worry about these multiple factors affecting currency rates: Star Traders do all the analysis for you.
Last but not least, here’s a little pro tip: if you come across the news of a looming political crisis in some country, it may be high time to sell its currency. And remember that all global events, including currency rates, happen in a broader context – this is why forex trading never gets boring as it keeps changing.
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