EURUSD Gaps Lower: How to Trade in a Geopolitical Market
I can’t remember the last time European politics was a market factor but as this chart shows, the gap opening down in the EURUSD suggests this is currently the case. Whether it is an expected gains by the far right in EU election results or the shock call for a snap election call in France or a combination of both, geopolitics is back in the headlines. This comes in a week that was looking ahead to Wednesday’s FOMC decision as the main focus.
Source; The Amazing Trader
Geopolitical markets are generally difficult to trade as there is often a short shelf life before whatever crisis is dominating is diffused. It is like the law of diminishing returns. The more headlines, the less impact they often seem to have as the worst case basis tends to get factored in. This suggests going with the flow while the market is on high alert but be aware that the factors driving it can fade quickly.
Nevertheless, it is worth paying attention to trading in a politically driven market as a headline at any time could see markets run for cover.
Trading in a geopolitical crisis:
Trading in a geopolitically charged market can be highly risky due to increased uncertainty and volatility in financial markets. It’s essential to exercise caution and consider the following:
1. Stay Informed: Monitor news and geopolitical developments closely to understand the evolving situation.
2. Risk Management: Use stop-loss orders to limit potential losses and diversify your portfolio to spread risk.
3. Safe Havens: Some assets like gold, the Swiss Franc, and U.S. Treasuries may act as safe havens during geopolitical crises. Look for what is being used as a safe haven refuge.
4. Volatility: Be prepared for increased market volatility and consider trading smaller positions.
5. Expert Advice: Consult with financial professionals or advisors who specialize in crisis management.
6. Long-Term Perspective: Consider the long-term impact of geopolitical events on your investments rather than making impulsive decisions.
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It appears that geopolitical news pushed an already vulnerable EURUSD over the edge. As opposed to a global geopolitical crisis,such as the start of the Israel-Hamas war, this one is more of a European political event with global ramifications depending on how it plays out.
This suggests keeping an eye not only on the EURUSD and EUR crosses as well as European stocks and bond spreads crosses to gauge market concerns.
Whatever the case, geopolitics has reared its ugly head but as I noted above, this is not a normal market so adjust your trading accordingly.
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