CHAPTER 3 - LESSON 3

Geopolitical Events and their Effect on Forex Markets

In addition to watching economic indicators, it’s important to understand how geopolitical events have a significant impact on forex markets. Geopolitical events can be defined as events related to politics, diplomacy, and international relations.

Examples of Geopolitical Events

They can make currency prices move by influencing investor sentiment and changing economic conditions.

Here are some examples of geopolitical events that can make a major impact on forex markets:

Elections

Elections can have a huge impact on currency prices. This is because investors may expect changes in economic policy and political stability.

• As an example, if a candidate who is seen as favorable to the economy is elected, this can lead to a boost in investor confidence and a stronger currency.

Wars and Conflicts

Wars and conflicts can also have a significant impact on currency prices because these hostile circumstances may lead to increased uncertainty and risk.

• For example, if a country becomes involved in a military conflict, this can lead to increased geopolitical risk and a weaker currency.

Natural Disasters

Natural disasters have an impact on currency prices as well, as they can disrupt economic activity and change investor sentiment.

• For instance, if a country experiences a major earthquake or hurricane, this can lead to a drop in economic activity and a weaker currency.

International Trade Agreements

International trade agreements can also have a big impact on currency prices because they can change the flow of goods and services between countries.

• For example, if a country enters into a new trade agreement that opens up new markets for its exports, this can lead to a boost in economic activity as well as a stronger currency.

Geopolitical events may be difficult to predict, but they create significant trading opportunities for forex traders looking to enter the market. Fundamental analysis traders should be sure to keep up to date on current events and geopolitical risks in order to identify potential trading opportunities and manage their risk more effectively.

In short, you can see that geopolitical events do have a major impact on forex markets, and understanding their potential impact is essential for successful forex trading. In the next part, we will cover the importance of technical analysis in forex trading.