Protecting Currency from Wars

by: FXedu

By Sean Hyman

When I see North Korea’s Kim Jong Il, I see a “mad man” much like the Joker off of the latest Batman movie. He’s truly a power crazed psycho and making any deal with him might as well have been made with the devil himself. Both could be trusted about equally.

As you know, North Korea defied the United Nations and their agreement with them and launched a long range missile that was supposedly launching a satellite. However, instead of it being pointed more at the sky...everyone couldn’t help but notice that it was really pointed more towards Japan.

They fired off the missile and it flew over Japan into the Pacific Ocean. Guess what? South Korea, the U.S., Japan and even Russia admit that they find no new satellite in orbit and that nothign made it to orbit.

What was this? It was an attempt to show that North Korea has improved its missiles significantly. It could now bring buyers out of the wood work for their missiles upon this successful launch. (You’ll remember the one in 2006 wasn’t successful).

While this launch was aimed at Japan (a close neighbor), it has the ability to reach Alaska, Hawaii and parts of the western United States. So he could have just as easily fired it and hit California!

With that said, which currencies were affected and why? Money gets scared when it hears of wars, missile launches, etc. Since the missile was pointed at Japan this time, money ran away from the yen and went to the “big guy on the block”, the U.S.

Therefore the launch hurt the yen and helped the U.S. dollar as a result. See the chart below and you will see what I’m talking about. The USD/JPY pair “gapped upward” once trading resumed after the weekend, as traders fled the yen for the safety of the U.S. dollar (since the U.S. is the biggest super power and world’s reserve currency).

Money Runs from the Yen as the Missile Heads Towards Japan!

So money generally flees the country that could be the victim and runs to a safer part of the world, usually the U.S. dollar. At times, it can run to the Swiss franc too (out of habit because the franc used to be backed by gold but that is no longer the case).

Don’t allow the missiles to hit your currency account either!

Since you or I either one can’t prevent what these guys do, we should be aware of what currencies could be affected and their potential outcome. In other words, you sure wouldn’t want to be short the USD/JPY pair going into a weekend where North Korea is threatening to launch a missile and everyone knows its pointed towards Japan.

I was, however, comfortable being “long” USD/JPY because me buying that pair for other reasons formerly would only be helped if North Korea launched its missile. So I enjoyed the gap upward and the rally that followed as a result.

Now I’d never want anyone to be hurt so that I could profit, but since I can’t help what they do... I should at least position my account to where it can’t get hurt from the outcome and hopefully profit from the stupid decisions of North Korea.

One of these days, either North Korea or one of their buyers of their missiles will probably launch a missile towards the west coast of the U.S. (likely California). It’s no secret that North Korea hates the U.S. as much or more so than they hate Japan and South Korea. Plus, I think Russia would applaud their launch as well.

If this were to happen, money might flee the U.S. and head for somewhere far off that appears to be more insulated from the turmoil, like Switzerland. If so, it could then cause USD/CHF to sell off. So keep things like this in mind when you watch the nightly news. Make sure your currency account is out of harm’s way too!

Original article