Saturday, November 8, 2014

Currency Wars Brings to Light Another Trading Strategy

How could currency wars generate a trading strategy?

A week or so ago, The Bank of Japan too action which could affect your trading strategy. The decision to enter the market supposedly to buy assets has the effect of boosting the markets and devaluing their yen currency.

Michael Casey , of the WallSteet Journal opines “A Currency War looms”. This could be quite serious as Japan has effectively lowered the prices for is auto production and that will affect jobs in other countries. At some point the affected nations will have to respond.

The United States Dollar has been rising for quite a while and that will allow the purchases of foreign goods to seem cheaper, US manufacturers will be feeling the pressure and may have to cut costs, meaning layoffs.

When the US Dollar settles lower, exports increase, profits increase and employment numbers improve.

Naturally as the large economies such as Japan and the US move their currencies and make adjustments to their trade, other countries are affected, perhaps finding it difficult to sell their goods.

As a result of these manipulations we can expect other nations to take actions to improve their economies.

What has this got to do with trading strategy?

Certainly currency devaluations will be bringing volatility as countries make adjustments. And this will be to the benefit to nimble traders and astute investors.

Here is a handy trading strategy to allow you to benefit from currency wars.

One example that we can watch is the comparison of the two currency pairs EurUsd and UsdDkk, these two have an inverse relationship and good profits can be earned as these two move. Certainly the European Union will be making moves to stimulate growth in coming days and that will cause these two pairs to move nicely. As part of this strategy entries will have to be adjusted regarding size and spreads as they are quite different. The beauty of their strategy is that the pairs move together and in opposite directions.

There is a lot of pips in this little strategy, it is well worth your time to study it and paper trade it until you master it.

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