IMPORTANCE OF GEOPOLITICAL NEWS IN FOREX TRADING

When I am writing this post, the most talked news on popular news channels and news papers is the "Earth Quake in Nepal". Fortunately, the Nepalese currency is not traded in international currency market otherwise the Earth Quake could bring tears in some of the investors' eyes.

As a Forex trader, I generally follow the economic data released daily on the economic calenders, where  the release time is known. But the geopolitical news come very suddenly, though some times the traders can be aware of the probability of news, if the news is supposed to be come from a scheduled program. 

Whatever the situation is, keeping abreast with the geopolitical news is not that easy for the traders, specially if the traders are from the third world countries. I generally keep the news tap on the metatrader4 trading platform open to track the geopolitical news as early as possible.

In currency trading, almost all geopolitical news that can affect the global economy are important. Geopolitical news can directly affect an economy by opening a new opportunity or introducing risk for the economy. Even by affecting the commodity market geopolitical news can affect the currency market. 

Domestic Political situation can play significant role in determining the value of a currency in international market. Stable domestic political situation remarkably affect the foreign investment in the domestic economy. 

Even the elections of a country can dramatically affect the value of the currency of that country. For example, in May, 2015, when the conservative party was won in the election in UK, the GBP/USD currency pair added 500 pips within some hours.This was because the currency traders thought that the conservative party is better for the economy of UK.

Similarly, unexpected election can affect the currency value of a country as it is considered as a sign of political instability. Other signs of political instability are domestic violence e.g. terrorist attack, political revolution etc.   

The news regarding the international trade agreement with any foreign nation can have positive effect on the domestic currency because international trade agreement may open new opportunities for the nations involved in the trade agreement.

Global political news may increase the risk or open new opportunities for the involved nations. For example, the "Iranian Nuclear Deal" in 2015 decreased the risk of war for United States, as a result the sanctions on the Iran by the world's powerful countries to restrict the international trade of Iran were removed.

Iran is one of the top five oil exporter of the world, and the removal of the sanctions allowed Iran to supply  oil in the international market, which increased the oil supply in the international market. The probability of excessive oil supply dramatically decreased the oil price.

By this global event US Dollar was positively affected because United States is one of the top five oil importer and consumer of the world. It is remarkable that the US Dollar is negatively correlated with oil price.

War is a very strong global event that can cause a crash in the currency market. War actually increases the risk for the countries involved in the war. A war causes waste of energy and damage of natural wealth and infrastructure.

News of natural disasters can affect the currency market. Natural disasters affect an economy as the war do.Natural disasters destroy the infrastructure of an economy, and the economy needed huge fund for the recovery. It also hurts the pace of economic development and commercial activities.

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