Benefiting from Market Reactions to Political News

by Business Case Studies on Friday 17th November, 2017

Markets can’t be separated from international politics or news associated with these major events. That is a fact and most successful Forex traders know how to use this to their advantage by staying informed and developing the ability to anticipate the impact of upcoming international events on the market.

This is particularly important for Forex trading and investing in international indices. Some commodities such as oil and gold are also influenced by global political news. Our article today will provide relevant instances of the influence of these events on global markets

Saudi consolidation of power and oil prices

The recent news from Saudi Arabia are a good example of how global markets are influenced by political news.

Growing concerns over Saudi Arabia’s political landscape started with Mohamed Bin Salman’s consolidation of power both locally and internationally. His most notable move was the recent crackdown on corruption that led to the arrest of more than a dozen Saudi princes and notable figures. This move led to the arrest of Alwaleed bin Talal, a notorious face of Saudi investments with important holdings in US large corporations.

This domestic move indicated possible political trouble in the country considered to be the world’s largest oil producer which ultimately drove crude oil to its highest level within the last 2 years. From an international perspective, the tension between the country and Iran is another dynamic to watch closely.

Oil and Forex traders are also watching what will happen with Bin Talal’s stock holdings: Will they be seized and held or liquidated and if yes how fast? A fast liquidation might put some stocks under serious pressure or present good entry points.

US Internal affairs and foreign policies

Another good example is how the US’s internal politics have contributed to the massive rally in the US stock market since Donald Trump’s election in 2016. Since then the stock market seems to have priced in the projected positive impact of Trump’s tax reform plan on American corporations, especially the industrial and transportation sectors.

Healthcare reform news have contributed to sharp surges and retraces in the Bio sector. When there seemed to be no support for the bill, the market would view it as the white house is unable to pass a reform therefore might not be able to deliver a healthcare or even a Tax reform. The stock market will retrace right after and the Dollar would usually be under pressure. The opposite was also true.

It is fair to say that the American healthcare and tax reform took center stage since Trump’s election and had a wide impact on the Forex and US Stock market. The chart below shows some of the price movements following news related to the healthcare reform in the Nasdaq Biotech Index.

Another good example is Trump’s recent Asia tour that contributed to important price movement in the US dollar. As the President seemed to be building alliances and striking deals with the countries visited, the US Dollar was strengthening. When news making the deals look shaky arise, the price of the US Dollar is negatively impacted.

The US Federal reserve and the European central bank and financial markets

Dovish or Hawkish statements or speeches by the US fed or by the ECB are other good examples of events that can literally move markets across the globe.

When the Fed raised the Interest rates in December 2016, it triggered a solid run in financial stocks and the US Dollar. In general, dovish Fed statements seem to be driving Gold higher and Hawkish statements tend to push the Dollar higher.

Like the Fed, the European central bank’s statements are watched closely by traders. They are dissected by investors and analysts for valuable clues on future market directions depending on the policies announced.

As we can see, there is so much going in the world and every day presents an array of trading opportunities, but in order to benefit from these opportunities one needs to join the markets.

The first step to profit from these market reactions and price swings is to open a forex trading account and the very next step is to stay informed. That’s how smart traders can generate solid gains in a replicable fashion.

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