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Trading and Terror: How ISIS Affected Financial Markets


It is well known to all the people who do regularly online trading that this speculative activity is easily influenced by external factors, such as terrorism and particularly the terrorist attacks of ISIS in last months.

Trading and Terror: How ISIS Affected Financial Markets

As already happened in the past (for example the 11st of September) the occurrence of such incidents, financial markets tend to be adversely affected by such events.

The climate of fear and uncertainty that reigns internationally will definitely be the main protagonist of the economic, political and social scenes during the entire 2016.

ISIS, in fact, is first and foremost an economic and financial threat, before even a form of terrorism that aims to hit the civil life of the people.

Nowadays, ISIS is synonymous of terror. This factor has an influence on the market that when it comes, investors/traders rely on safe havens.

This reaction links to important effects. The market is now dependent on technology and the achievement of certain levels, or the breach of support and resistance, involves important technical reactions that amplify the movements.

We know very well what is the safe haven par excellence (i.e. gold) but can we also identify the same on currency and bond markets?

Experience teaches us that even in the forex market there is a safe haven. We can locate it in the US dollar which is the currency in which are traded most of the commodity.

However, the gold and the US dollar are subject to an inverse correlation so, when gold is strong, the US dollar weakens.

But, if we want to use a practical example, when there Paris were under the attack of ISIS , the weakening of the euro has strengthened the dollar and this was one of the cases in which investors chose the dollar to run for cover.

Trading forex literally means investing in the price of one currency relative to another. Traders that bet on the dollar after Paris attacks gained from changes in EUR / USD exchange rate.

Speaking of safe haven in the bond market instead, opens a more complex issue.

If the safe haven logic is valid also for the bonds, it would be logical to find additional purchases of Bunds and Treasuries, offset by sales of bonds of the most “dangerous countries”.  But, do not forget to pay attention to the ECB which acts as an “insurance policy” for markets.

Securities that are part of the ECB’s purchase plan will keep strong their prices. The bonds at risk are first the corporate ones and high yield but also those of emerging countries.

In summary, on the currency front, analysts and experts believe that the climate of terror produced by the terrorist acts of ISIS, could very soon lead to an increase in the dollar against the euro. As for commodities, however, the ongoing war will significantly increase the price of gold.

We do not know if what is described above will happen, but the hope to see the world in a spirit of peace and serenity is always alive.

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