How War Affects Forex

I wanted to write an article on Forex and how I am positioning myself in case of war. War is not pretty let's face it and many do not want to discuss this topic. I would like to discuss this topic as it is inevitable that war will come again. The question is when? I may sound pessimism in my statement, however, we must understand something. "History repeats itself", so if you do not know your history, you are condemned to repeat it. The fact of the matter is many Americans growing up at the moment, have never experienced a  real war, one where America was involved in and the evils of war were visible and ubiquitous. What about Iraq? Where you there? probably not. The fact of the matter is many countries who have witnessed first hand the effects of war, I find these people are least likely to try and start a war. Germany is one example. As a friend and partner of a fellow German, to this day, my German friend reminds me that "Germans are very war weary, as well as careful about the politicians they elect".  This is not the case in this country, in fact no major wars have been fought on U.S. soil since the Civil War. You will be amazed of how many people may forget the tragedies of war and may be ready and willing to engage. One thing we should keep in mind is; why do politicians want wars? Well, its big business! That's right.  For example the Du ponts made 10 mil per year, prior to World War one, during war time they averaged ten times this amount in revenues. This was world war one, imagine how much more the profits would be today. I am not going to talk much on this topic, as this should be saved for another type of article. So let's just say a war starts how do we play Forex?:

 How War Affects Forex - Infrastructure

During war key Infrastructures may be destroyed, this can have a negative impact on the ability of an area to sutain itself economically. The process of cleaning up damages means that the private sector will stumble since these monies will be used for rebuilding the Government rather than investing in emerging businesses which have the most favorable impact on the economy.

How War Affects Forex - Consumer Sentiment

Since the U.S. is a service orientated Country this means that much of the Countries economy relies on consumer spending due to the economic uncertainty and a possible loss of consumer confidence. This will have a severe impact on the overall Economy of the nation at War.

One important thing to keep in mind, if a Country goes to war their currency will probably suffer. To rebuild in times of war Interest rates normally stay low to provide cheap capital for financing the war.It is interesting that this "war talk", is coming at a time when this Country must be raising rates soon or at least tapering. If you do not believe me just look at the 10 year bond, this does not lie.  You will see a huge move over the last 5 months.

What Forex Strategy To Employ?

It is uncertain as the markets will really turn out in the event of a U.S. war in Syria, however one must  be prepared for volatile moves.  I will be day trading certain pairs. Pairs like the YEN offer the best moves during global issues such as war. I am also playing the Swiss Franc. Both of these pairs are safe havens, as investors seek safer ways to park their cash.  At the moment I have some trades on the Swiss Franc and the Yen. If war or bombing does happen on Syria I feel both these currencies will get stronger.

Here is a quick chart of  GBP/CHF, you will notice on some of the higher time frames this pair is well overbought.
I am bearish on this pair at the moment, with target of 1.4513

At the moment this pair is bullish, I expect a move lower if talks of Syria start again.

How War will play out with the U.S.D.? Is the U.S.D.  A Safe Haven?

Let's use common sense here. U.S. at the moment has more debt than they have ever had in their history. Our market recovery is one which appears to have taken place in the stock market but fails to show jobs being created. With the added debt of a huge war that may arise with a fight over Syria, this is the last currency I would be holding.

Of course my opinion is just my opinion and anything is possible. When I worked as a young Stockbroker on Wall Street my sales manager would say "Excuses are like butts everyone has one and they all smell". Sorry to be so crude I just had to say this quote.

Here is an interesting video. As usual Jim is very radical so I would not take him totally serious, but good points he makes.

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Happy Trading!

Gerard (BT)