Will Forex Markets Start To Reverse?

Will Forex Markets Start To Reverse?

During the summer months, forex markets tend to slow down as trading volumes decrease and fewer macro data releases tend to influence price activity.   But that has not been the case this year, and forex markets have recently encounter some of their most volatile sessions in 2015.  Most of this increase has been based off of stock market declines and negative economic releases in China.  This has put the market in somewhat of a desperate state and at the moment many forex traders are unsure which trends are likely to prevail as we head into the final months of the year.

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Going forward, the real question market bulls will be asking is whether or not this type of activity can continue.  Major declines in the stock market that are driven by financial uncertainty tend to increase the need for safe haven assets as protection for adverse price moves.  In forex, this creates the potential for some currencies to gain over others.

Potential Winners and Losers

“In the forex markets, currencies like the US Dollar and Swiss Franc tend to be given safe haven status,” said Alexey Panasenko, markets analyst at Fresh Forex.  “Generally speaking, these currencies tend to rise in value when stock markets are declining in value.”

This is important information for forex traders because this type of environment can give traders an indication of which currencies are likely to rally next.  Many in the market fail to acknowledge the importance of stock trends within the broader environment.  But as the Federal Reserve starts to implemented changes in its interest rate policy, stocks will more than likely influence the forex space in a more pronounced way.  

Because of this, market bulls will need to monitor occurrences in external before establishing large positions in the forex space.  Currently we are seeing stock moves trending forcefully in both directions, so it is generally a good idea to wait for market volatility to slow before getting back into positioning.  Downward moves in stock markets will likely benefit currencies like the US Dollar, as long as investors feel as though they need to buy into safe haven assets.  

Riskier currencies like the Euro and the Australian Dollar would likely need to see the alternative scenario (rising stock markets) in order to post rallies themselves.  These are the types of factors that are currently at work, so forex traders might need to familiarize themselves with the terminology of other assets classes.  There are many resources available on the Market Bulls website, which can be accessed for free and these will help you to understand which factors are most likely to generate rallies in the stock market.  

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