Turbulence in Europe may Create Opportunities for Risk-Tolerant Investors

After several weeks of what can only be considered “bad news” for the continent, investors whose portfolios are heavily entrenched in European assets and currencies may be looking for new strategies to allocate their resources. Though many of these potential reallocations will still be considered risky, the opportunity cost for leaving the Eurozone has certainly been decreasing.

In the United Kingdom, future uncertainty about Brexit leaves investors hesitant to hold long positions in the GBP and even invest in London Stock Exchange (market cap over $4 trillion). Despite the fact that Prime Minister Theresa May was able to narrowly evade a vote of no confidence, the lack of a comprehensive Brexit strategy—or even a clear goal—has resulted in the relative decline of the Pound and will likely stagnate growth until at least a final decision has been made.

In France, opposition to business-oriented President Emmanuel Macron’s recent carbon tax triggered protests, led by a populist group known as the yellow vests, and has created an unusual coalition of right-wing and left-wing anti-establishment resentment. Unless France can quickly and legitimately address these grievances, the effects of these issues will likely be reflected in the future value of the Euro.

Elsewhere in Europe, populism has made it difficult for Italy, Hungary, and other markets to create the stable conditions necessary to encourage foreign direct investment. Even Angela Merkel—once lauded as the “backbone” of Europe—has recently lost clout within her own party and, though still safely Chancellor of the Europe Union’s largest nation, has inspired an even further degree of skepticism among those in the financial industry.

While the Eurozone has withstood several bouts of economic turbulence in the past, all of these events occurring in an incredibly short amount of time (early December 2018) have already begun to create stronger levels of market and currency volatility. Consequently, the benefits of keeping wealth allocated in Europe will likely lower returns and entering into the market will simultaneously be considered more risky.

Exploring Alternative Options

There is no such thing as a risk-free investment and any investor (or day trader) who is considering exploring alternative markets will still need to pay careful attention to forex indicators and other essential sources of fundamental analysis. Still, anyone who is hoping to successfully enter into and out of a given position ought to recognize that the accumulation of wealth will be based off of relative increases in wealth.

Though the stock market in the United States—often considered one of the “safest” wealth accumulating positions in the world—has experienced a negative quarter, the dollar itself has remained relatively strong. Swing traders looking to escape the Euro’s (and the GBP’s) general peril may look for a currency that, despite various sources of controversy, may remain a bit more stable.

For others who are looking to open a long-term position while also avoiding potential problems being experienced on the NYSE, then new positions in rising cryptocurrencies and the currencies of developing countries may be exceptionally attractive. Even commodities trading—something that many traders traditionally avoid—is something that is beginning to have deteriorating opportunity costs.

Exploiting Volatility

No matter what the future may have in store, any series of events that creates doubt in the international community will result in a high level of market volatility (as has already been observed). Regardless of the consequences that this has on the global economy as a whole, day traders—especially forex day traders—are discovering a multitude of new opportunities.

The currency pairs USD:EUR, USD:GBP, and GBP:EUR have all been experiencing larger bouts of daily volatility than normal (at least within the year 2018), which means that reliably earning 2% ROI or even more in a single day is now something that is well within reach. Paying attention to technical indicators (RSI, MT4, MACD etc.) and carefully monitoring international news will be absolutely essential in order to succeed.

Engaging in other short-term trading strategies such as swing trading, volume trading, wedge trading and various others will also be quite useful. At the very least, due to the increasingly high probability of a nearby global recession, opening short positions in forex and major stock markets has become an increasingly attractive option.

Though there is still a strong possibility that Europe will be able to weather this recent series of economically challenging events, for now, there are a bounty of new opportunities to exploit. By engaging in active trading strategies, timing your entries correctly, and being able to tolerate a little bit of risk, your portfolio may be able to significantly improve.

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Created on Dec 18th 2018 08:21. Viewed 361 times.

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