Promoted by Learn To Trade
The stock market has just seen its worst trading day since the Great Financial Crisis of 2008. The broad US stock index S&P 500 was down a whopping 7.6% on Monday, while major stock indices in Europe and Asia also saw similar declines. And with sell-offs of this magnitude, which haven’t been seen since the worst days of the Financial Crisis, some now fear that the world could be entering another recession.
What is worth keeping in mind, however, is that a crisis like the one we’re currently seeing also opens up amazing opportunities for those who know what to look for. And in this sense, we as forex traders are in a particularly good position.
The fascinating thing about forex compared to the stock market is that as professional forex traders, we couldn’t care less which direction various pairs are trading in. If a pair trends lower, we go short. If it trends higher, we look to go long. Either way, we will make money as long as we manage to strictly follow our trading strategy and remain disciplined about proper risk and money management.
Opportunities in beaten-down assets
Just to give a few examples what is possible to take advantage of now, it’s clear that opportunities exist in some of the most beaten-down assets that exists. Among these are various energy commodities, and in particular oil, which collapsed in price on Monday. The question now is if the price has already “capitulated,” and if so, how strong will the rebound be?
Other extremes can be found in the metals, with one interesting indicator being the gold/silver ratio, which is something very few people pay attention to nowadays. This indicator is now showing extreme levels of almost 100 – a new all-time high. When this indicator has hit these levels in the past, it has always reversed sharply lower shortly after. As a result, silver may represent a great value buy at current prices!
Aussie dollar weakness
Lastly this week, we will take a look at how the Australian dollar is doing versus the Greenback. As you all know, Australia is a commodity producing country, which is sensitive towards the oil price in particular. And with the oil price shock we saw on Monday, it should come as no surprise that the Aussie dollar also dropped sharply lower against the US dollar.
The interesting thing to note about the USD/AUD move on Monday, however, was how quickly it reversed. After spiking up by about 3.3% from the open until the highest point of the day, the pair quickly fell back to a level just 0.8% above the opening price. That was certainly still a decent one-day move for any currency pair, but far from the extreme reaction we saw earlier in the day.
As we have said for months in our monthly market overviews here on this blog, the USD/AUD pair has traded inside a relatively narrow and uptrending trading range for about two years now. And as of today, the price is still inside this range, although it is approaching the upper limits of it. It is if and when we break the upper limit of the range that the real opportunities present themselves in this currency pair. Until then, it may be best to sit patiently and wait while keeping some cash ready on the sidelines.
Some observers have noted that with the virus situation seemingly coming under control in China, the worst should be over for now. However, that may have been a premature conclusion.
Now, the story is no longer about China but about how the virus is impacting Western economies in Europe and North America. And with Italy and its fragile economy already hard hit, we may be entering some interesting times ahead. The question remains about whether governments and central banks will have enough ammunition left to get these sluggish economies back on track, even after the virus disappears.
Join our new trading seminar series
To learn more about how you can take advantage of the opportunities that now exist in the forex market, don’t hesitate to join one of our free forex trading seminars around Australia. As the global leader in forex trader education for ordinary people with no prior background in finance, we have already trained thousands of people how to profit from the markets, and we would love for you to be the next one!
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Join The Nest Egg community
We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
Your email address will be shared with nestegg and subject to our Privacy Policy
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