Political Storms and the Forex Market

Political Storms and the Forex Market: Navigating the Turbulent Sea

The Forex market, as the largest and most liquid financial market in the world, is always exposed to turbulence and fluctuations. Meanwhile, political developments are like unpredictable storms that can create huge waves in this raging sea. From elections and changes of governments to wars and international tensions, all can suddenly change the direction of the wind and steer traders’ ships towards profit or loss.

In this article, we will dive into the heart of this turbulent sea together and by examining the impact of political developments on the Forex market in detail, we will help traders to take the helm of their ship with more skill and navigate towards success and profitability among the raging waves of politics.

Why Does Politics Go Hand in Hand with Economics?

To understand the impact of political developments on the Forex market, we must first understand the close relationship between politics and economics. Politics and economics are like two sides of the same coin that are inextricably linked. Political decisions and actions can have a profound impact on the economic conditions of a country and consequently the value of its national currency.

For example, a government with policies that support domestic production can lead to economic growth and increased exports, which in turn increases demand for the national currency and strengthens its value. On the other hand, political unrest and international tensions can reduce investor confidence in a country and lead to capital flight, which leads to a decrease in the value of the national currency.

Types of Political Developments and Their Waves in the Forex Market

• Elections: The Field of Competition between Parties and Currencies Elections, as one of the most important political events, can cause severe fluctuations in the Forex market. During election periods, traders usually act more cautiously and wait for the results of the election and the policies of the new government. The victory of a party or candidate can strengthen or weaken the national currency, depending on what their economic policies are. For example, in the 2016 US presidential election, the victory of Donald Trump, who promised tax cuts and increased infrastructure spending, strengthened the US dollar, as investors expected these policies to lead to US economic growth.

• Change of Government: A New Chapter in Economy and Currencies A change of government can also have a significant impact on the Forex market. The new government may pursue different economic, fiscal and monetary policies, leading to a change in the value of the national currency. Also, a change of government can lead to a change in international relations and the country’s foreign policy, which can also affect the value of the national currency. For example, in 2013, after the change of government in Japan and the coming to power of Shinzo Abe, new expansionary monetary policies were adopted, which led to a decrease in the value of the Japanese yen against other currencies. The aim of these policies was to combat deflation and stimulate economic growth.

• War and International Tensions: A Dark Shadow over the Currency Market War and international tensions cast a dark cloud over the Forex market and cause instability and severe fluctuations in the value of currencies. During times of war and political tension, investors usually seek safe assets such as the US dollar and gold and avoid investing in the currencies of countries involved in war and tension. This can cause a sharp decline in the value of the currencies of these countries. For example, in 2003, after the US invasion of Iraq, the value of the Iraqi dinar decreased sharply, causing economic instability in this country.

• Economic Sanctions: Chains on the Feet of Currencies Economic sanctions are like chains that are tied to the feet of a country’s economy and can have a significant impact on the value of its currency. Sanctions can reduce a country’s exports and imports, as well as reduce foreign investment in it, which leads to a decrease in the value of the national currency. For example, US economic sanctions against Iran have reduced the value of the Iranian rial against other currencies and created many economic problems for this country.

• Political and Social Unrest: Fire Under the Ashes of the Currency Market Political and social unrest, such as popular protests, riots and strikes, can also cause instability in the Forex market and reduce the value of the national currency. These events can reduce investor confidence in a country and lead to capital flight. For example, in 2011, political unrest in Egypt, known as the “Arab Spring”, caused the Egyptian pound to depreciate against other currencies and faced the country’s economy with serious challenges.

How to Navigate in the Turbulent Sea of Politics?

Traders can take advantage of the opportunities in this market and avoid its risks by following political news and events and analyzing the impact of these events on the Forex market. Some of the points that traders should consider are:

• Following political news and events: Traders should regularly follow political news and events from various sources such as news websites, TV networks, social media and political analysis and be aware of the impact of these events on the Forex market.
• Fundamental analysis: Fundamental analysis helps traders make better investment decisions by examining the economic, political and social factors affecting the value of currencies. This analysis includes examining economic indicators such as interest rates, inflation, economic growth, unemployment, as well as examining government policies and the country’s political stability.
• Technical analysis: Technical analysis helps traders to predict market fluctuations and make successful trades using charts and price patterns. This analysis includes the use of technical indicators, candlestick patterns and other technical analysis tools.
• Risk management: Risk management is one of the most important principles of trading in the Forex market. Traders should always determine their stop loss before entering any trade and not risk more than the allowed amount. Also, using tools such as Stop-Loss Order and Take-Profit Order can help traders in managing risk.
• Patience and perseverance: Success in the Forex market requires patience, perseverance and discipline. Traders should not expect to achieve huge profits in the short term. With continuous training and learning, accurate market analysis, risk management and adherence to discipline in transactions, one can succeed in the Forex market in the long term.
• Using a demo account: Before you start trading with real money, use a demo account to practice and test your trading strategies. The demo account allows you to get acquainted with the real market conditions and strengthen your trading skills without the risk of losing money.

Conclusion

The Forex market is a dynamic and complex market that is affected by various factors. Political developments are one of the most important of these factors and can have a significant impact on currency values and market fluctuations. Traders should take advantage of the opportunities available in this market and avoid its risks by following political news and events and analyzing the impact of these events on the market. With continuous training and learning, accurate market analysis and risk management, one can succeed in the Forex market in the long term.