Political News: When the Market Is “Rough”

For enhancing the growth of a certain currency in the market, political stability is preferred. It is not uncommon that prior to presidential or parliamentary elections the market is “stormy” – tremendous fluctuations in the trend movement emerge, and it is impossible to predict them.

In this situation, many players close positions and wait till the market stabilises and it becomes clear how the trend will act. But in general terms, “storms” in the political situation in a country or region have a negative impact on currency rates – they lead to their devaluation.

Each important political news affects the Forex market. But no specialist has developed a definitive methodology so far that will allow making the most accurate forecast. The thing is that the news in itself cannot change the movement of a long-term trend.

At times, the political news and gossips are stove-piped: unproven or false information is deliberately provided to affect the rate of a certain currency. Knowing how the market will react, the authors of the stove-piping may receive a considerable profit. It is because of this a true signal is usually proven by other news or technical analysis results.

Also there are instances when political news influences the trend yet before the publication. Usually this happens if politicians’ opinion on a discussed issue and a real situation in the country are known. In this case, the market will not get “rough”, but some minor fluctuation will still emerge.

So, the key point in the analysis of the political news is to distinguish facts from gossips and lies. Novice traders are not advised to trade on one single news, even if it seems the most plausible.

In general, the scheme is typical: if the trend is downward, after some positive news is published, the Forex market players start buying currency. Still at some point the news effect turns not sufficient enough for a trend reversal, and the price pulls back – moves to the initial numbers. In an upward trend for some negative news, the situation is similar.

The “storm” may also start against some positive news in an upward trend and some negative news in a downward one. In this case, the trend will remain in the market but it will move rapidly.

When the market is in the sideways flat, the political news can trigger a local “storm”. The price increases drastically and for a short period. Then the market reacts, and the price goes back to the equilibrium position, having made a compensatory zigzag – it falls lower than expected and then moves up to the equilibrium position.