There is never a shortage of new developments in the forex world. Over the last week, there have been several developments, notably between the EU and other parts of the globe. And of course there is the possibility of Chinese meltdown. Politics and forex news make for interesting bedfellows, do they not?
Headlines from the Forex World
We saw all hopes for a quick EU-Canada trade partnership dashed because of a single country – Belgium. And it wasn’t even the entire country that was against it – they just could not get Wallonia to sign up in time. Better luck next time.
New developments also took place in China as well, and several experts are warning about its economy being on the verge of collapse. Should this come to pass, however, it is not China alone that will carry the burden. This crisis could be even more devastating than the one in 2008/9, and it would almost certainly affect a lot more people – including those in the U.S.
The biggest splash this week in North America, at least when it comes to forex, is the failure to finalize the trade agreement between Canada and the EU. The postponing of a major agreement is going to leave a bitter aftertaste. It was undermined by a single region of Belgium which sends a powerful message about bureaucracy and inefficiency of the Union’s political system. It is in dire need of reform and most Canadian experts would surely agree. To think the entire EU could be held hostage by one of its members’ internal political problems… This did not go unnoticed in all circles of the forex world. Needless to say, neither EUR nor CAD investors needed this right now.
Another chain reaction that caught Wall Street by storm can be traced to a political decision in Iraq to back out of their promise to cut production to comply with new OPEC agreement. The price of oil has plummeted once again, and the same could be said about any associated financial instruments – stocks and currencies alike.
And finally we have the elections in the U.S. that are just around the corner. With the third presidential election debate behind us, it seems that Hillary Clinton came out on top, at least according to all the polls except the ones that Donald Trump is looking at. Unless there are any major developments, her odds of becoming the next president are looking good. As far as the forex world matters, this seems to be the lesser of two evils, and the dollar should remain relatively stable in this event.
Meanwhile in Europe, the preparations for Brexit talks between the U.K. and the rest of the EU are well underway. As both sides gear up for the upcoming diplomatic battle ahead, Germany is playing its strengths as time seems to work in their favor for now. Meanwhile the U.K. politicians are putting their trust in German weaknesses. The industry and major players are more concerned with their own profit than the big (political) picture. In terms of currencies, the pound seems to be holding its own. However, if this whole thing comes down to a war of attrition, its chances are not good.
On the other side, we have Russia and Turkey rekindling the old flame from the ashes of a burning wreck in Syria. Ankara grows ever more distant from Washington. Moscow is more than willing to extend a hand, and in it lies more than just a gas line. Perhaps this will mark a turning point in the relations between the two countries? In any event, their economies can only benefit from this arrangement.
Finally, our eyes turn to the Far East, specifically to China. The world’s most populous country as well as the second largest economy is having some difficulties in maintaining its status. Its economy possesses a lot of property bubbles and state-owned companies. The next major crisis may well originate right here. As Xi Jinping is trying to get the top 400 most influential Party members in China to close ranks and consolidate his power, his attempt to make a switch from a manufacture-based society to a more consumer-oriented one just might be enough to derail his country’s entire economy.
This should concern forex traders: without Chinese economy, the world would be in a recession right now. That crisis would quickly spill over to other economies: those of Russia, New Zealand, Canada, Australia and Brazil, as well as those in its general vicinity, such as Japan and South Korea. This could quickly snowball into one of the largest crisis in the financial world.
For the time being, there is plenty of instability going around. Right now, GBP seems to be particularly risky. Also, this looming threat of a Chinese meltdown could reduce value for several major currencies, specifically NZD, CAD and AUD. The thing is, we don’t know when the bubble will burst, or that it will burst at all. No trader should be complacent by the relative stability of those three currencies. For now, the biggest threat comes from GBP, and the looming exodus of banks from London makes this abundantly clear. This means they predict a hard Brexit and this is not the time to hold a lot of U.K. currency. Do this at your own peril.