LEARN TO TRADE FOREX NEWS - QUICK TIMELINE OF THE CONFLICT
The US-Iran war, which was simmering for decades, has presently hit the boiling point. Washington killing of Iranian commander Qasem Soleimani and Tehran responding with strikes on Iraqi bases housing US troops is not the beginning of the dramatic conflict between the two countries. There have been significant odds between these two, starting from 1951. The relations have affected the economy and the financial markets of countries other than just the US & Iran. Before getting into the talks on how the war has affected and is going to affect the markets and economies, here is a relevant timeline on the happenings, which could help comprehend the effects better.
1980 – Iran-Iraq war begins
1984 – The US declares Iran a sponsor of terrorism
1986 – Iran-Contra Affair
1988 – The US shoots down an Iranian plane
1997 – Soleimani appointed head of Quds Force
2002 – George Bush declares Iran part of an ‘Axis of Evil’
2003 – Iran Nuclear threat
2013 – Iran nuclear deal is signed
2017 – Trump takes office
2018 – Trump quits the Iran nuclear deal
2019 – June: Iran blamed for attacks in the gulf
2019 – December: the US strikes facilities in Iraq and Syria
2020 – The US kills Soleimani, and Iran responds
The Consequences if the US goes to war against Iran
In May 2019, US President Donald Trump tweet read, “If Iran wants to fight, that will be the official end of Iran. Never threaten the United States again!”
Trump has placed sanctions on both Iranian oil and metals. Also, the US department of defense sent drones, fighter jets & troops to the Middle East to counter any Iranian attacks on the US personnel. In fact, the USS Abraham Lincoln carrier strike group, Patriot missile defense battery, and the USS Arlington have been sent to the region.
In all these events taking place, here are some of the impacts on the financial markets.
Learn to trade the Forex news about CHF & JPY (safest bids)
Given the negative interest rates on the Bank of Japan and the Swiss National Bank, CHF and JPY are considered to be the safest currencies to consider buying in the event of a crisis. This pair that would be hit badly is the AUDJPY. So, it could prove to be an excellent pair to go short. It is unpredicted on what could happen with the USD since the war would put brakes to the global growth and make a cut by the Fed than a rate hike.
Having said that, it is most likely that the USD would revert to its recent safe-haven status. But we should have a clear knowledge on which currency pair to trade and when to trade. For that, we should be following what is happening around this conflict. That is why it is important to learn to trade Forex news rather than just looking at the charts and indicators.
Dramatic changes in the commodity markets
Falling supply of oil and slowdown in global growth could be the two pressures faced by the US. Also, the supply cut on oil from Iran would get harder to get to market, which would, in turn, result in potential bids.
This could be surpassed by considering the concerns of the war that would result in the slower growth of global markets - and hence bringing the value of US oil down.
Learn to trade Forex news with respect to Gold as it might lose its safe-haven status in case of a war breakout. It is quite hard to predict the bids exactly, as it will depend on the severity and length of it. And finally, other metals like Iron Ore and Copper should see a decline as slower growth prospects would affect their demand levels.
A downside in the US Stocks
Fighting and winning a war on both fronts is not an easy thing. But, this what President Donald Trump is precisely doing. Presently, Trump has placed tariffs on China and Mexico. Moreover, the US is already fighting a huge trade war on European car imports also.
If Trump begins a war against Iran, it will increase the uncertainties on the trade, which markets do not entertain. And this is considered to be one more factor in slowing global growth.
Furthermore, China and the US constitute more than 40% of the world’s global economy. And with the Chinese manufacturing PMI declining lately, there will be a drop in the worldwide growth when the US-Iran war is added to that event. Also, to keep yourself updated from the details regarding PMI of US & China, you should follow that news and also learn to trade Forex news.
The drop would not only drag down the top indices of the US but also the indices across the globe as well. The only stocks that would sustain in these situations are the defensive stocks for businesses that deliver everyday essentials like food items and energy materials.
Fixed return investors will find interest in US bonds
US bonds might attract the investors looking for a fixed return, as they offer the safety of fixed bond returns even in uncertain situations. Also, government bonds with extra security are existing around the world. The greater bids would be on them because the investors across the globe prefer to exit the riskier financial instruments in favor of fixed returns.
It is important for the traders to keep themselves updated by reading the news related to the US-Iran conflict as it has a direct impact on the economy and financial markets as well. It is very important to learn to trade Forex news.
How would the length and extent of the US-Iran war impact the financial assets?
The effects on the war are different depending on the length and extent of it. For example, a ‘flash war’ would have a limited impact in the financial markets than a long, extended war.
In a war that involves the regime change, or an attempt to regime change, the impact can last for a more prolonged period after the war has officially ended, as the entire regions will be in a state of insecurities.
The impact of a US-Iran war could also be damaging and would seriously affect the risk sentiment and growth prospects of the world. Also, the use of a potential nuclear weapon on the US would result in instant retaliation which would again create an imbalance in the global financial market. Hence learn to trade Forex news as the markets would go haywire if a war of that magnitude occurs.
Would the US-Iran war lead to slower global growth & recession?
Following the assassination of al-Quds commander - Qassem Suleimani by the US and initial retaliation against two Iraqi bases housing US troops by Iran, the financial markets have moved into a risk-off mode. That is, the oil prices spiked by 10%, the US and global equity markets fell a few percentages, and the safe-haven yields dropped. However, despite the continuing risks of a US-Iran conflict and the impacts that it would have on the markets, the idea that both parties would eschew further escalation calmed the investors down. This led to the reversing of price movements, with equities making higher highs.
The majority of the crowd mistakes the assumption of what conflict would mean for markets. Though the US has been less dependent on foreign oil than in the past, even a modest spike in prices could trigger a broader recession, as happened in 1990. While an oil-price shock would inflate US energy producers’ profits, the benefits would be outweighed by the costs to oil consumers in the US. So, the US growth would slow down and also the growth of major oil-importing countries, including China, Japan, Turkey, most European countries & South Korea. And also, the central banks would neither hike interest rate after an oil-price shock nor would they loosen monetary policies further as they do not really have much space left.
According to an estimate by JP Morgan, if there’s a conflict that blocks the Strait of Hormuz for six months, it could drive the oil prices up by 126%, to more than $150 per barrel. And this would hence set up a stage for a severe global recession. In fact, even a limited disruption (a month blockade) could push the price of oil up to $80 per barrel.
Presently, Wall Street is all optimistic. But, despite the optimism, even a mild resumption on US-Iran tensions could bring the market down below the mediocre level of 2019; hence it is essential to learn to trade Forex news. A severe conflict could increase the oil prices much above $80 and more likely pushing the equity market into the bearish territory. Finally, a full-scale war could sky-rocket the oil prices above $150, and at least a 30% fall on the equity market. Hence, causing a severe global recession.
Bottom Line
However, the probability of a full-scale war remains moderately low for now. The scenario that could most likely to occur is the current situation escalating into a grey area. Meaning, there might be an indirect conflict and direct clashes falling short of war, which would eventually increase the risk of occurrence of a full-scale war. In conclusion, the risks of growth stall or global recession are at a high point and are likely to rise much higher with time. Finally, learn to trade Forex news. If at all you are willing to trade any of the above-mentioned commodities or currencies, keep a check on the news releases before placing your trades.
Hopefully, you have enjoyed today’s article. Thanks for reading!
Have a fantastic day!
Nisha Patel
Live from the Platinum Trading Floor.