The Dollar fell against the Yen and EURUSD is under heavy pressures following reports that Malaysian Airlines plane MH17 shot down in a conflict area in Ukraine. Most of the victims on the plane are of European origin, but there are also Americans on board. The incident incite fears that Ukraine crisis may escalate into an all out war that involved the US.

The Dollar fell against the Yen and EURUSD is under heavy pressures following reports that Malaysian Airlines plane MH17 shot down in a conflict area in Ukraine. Most of the victims on the plane are of European origin, but there are also Americans on board. The incident incite fears that Ukraine crisis may escalate into an all out war that involved the US.

MH17

2014: The Year Of Conflict

USDJPY fell almost 0.5%, and EURUSD is traded on low level yesterday with latest development indicate increasing downward pressures. The same happen in the stock market with Australian and Asian equities opened lower following the crash. On the other hand, Commodities and safe haven assets are gaining tractions. Beside of defeating USD, the Yen drowned Euro and Sterling. Gold skyrocketed, and crude oil prices continue to prolong its gain in commodities market.

This event highlight one thing that should have become clear for us; it is that 2014 is the year of conflict. Compared to the beginning of the year, geopolitical risk has risen significantly. Persisted risk have prevented the Yen from further depreciation, although Bank of Japan keep interest rate on the low and stimulus program continues. It is also pushing up commodities prices, made it more and more expensive for emerging countries to keep up their economic growth.

From this point onward, everything could happen. Some people have mentioned the possibility of a World War 3 or a second Cold War. Most analyst think it is not likely, because the economic consequences will be too much for the Eurozone failing economy and US economy recovery. However, it is possible that one way or another, the US will embroil itself in the war. Escalating conflicts in Middle East also points toward the possibility of upcoming terrorism attack somewhere in the world. And at this point, we have not see any resolution to these conflicts. That means, risky market will persist, or even escalate further.

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For forex traders, rising risks mean changing market condition. Technical indicators that have been working well in the previous year, could fail this year. Scheduled data release that have been hoped to bring about bullish trend failed to do so. Prices turned around without prior alarm. And others. Many traders might fell victim to this situation and gone bankrupt. What to do? In this editorial, we would like to talk about some alternatives you could take.

 

Wait It Out

When market is uncertain, the first choice you should consider is to get out of the market and stay out until the market calmed. Many traders have taken this option, as shown by the depressingly low volatility we see on the market lately. Meanwhile, they observe investors attitude toward risks to pinpoint the right time to enter the market again; do risk aversion wins, or is risk appetite prevail?

There are many things you could do while waiting for the market to calms. You could go looking for other investment opportunities that provided safer environment. You could volunteer yourself for humanity missions. You could take your family out for some early holiday or entertainment. Or, you could review your portfolio and trading strategy.

 

Evaluate Your Strategy

If you are a forex trader that fully utilized technical analysis and meet with numerous fails lately, then this might be time for you to evaluate your strategy. Maybe you trade with trading bands, but for some time now the pair your traded is oftentimes flat and the indicators failed to come up with any signal. It could be too, that you are a news trader that again and again failed to read the direction of the market. Get out of the market now, and reestablish your strategy. You might even need to apply different indicator or reset your technical indicator's initial setting.

 

Observe Investors Attitude Toward Risks

Investors attitude towards uncertainty is divided into two: Risk Aversion and Risk Appetite. Risk Aversion refers to investors' preference for assets with lower potential return but relatively safer, than assets with higher payoff expectation, but riskier. In a high risk condition, investors tend to withdraw from the stock market. They shifts their assets into safer investments, such as bank deposits, Bonds, and golds. Consequently, risk aversion drive safe haven asset prices higher.

On the other hand, Risk Appetite refers to investors acceptance of risk, until the risk/reward balance changes. The way investors buy Dollars even though the US was embroiled in Middle East war is an example of risk appetite. But risk/reward balance changes when 9/11 happen, triggered a US Dollar selloff. The same could be said now for EURUSD reign on high level, although the its economy have weaken significantly. Risk appetite keep investors buying the Euro, a state of mind that could change if another European bank is going into default, or in the instant ECB announced mega-stimulus (if ECB is ever going to do that).

Risk aversion and risk appetite usually could be observed by the ups and downs of Gold prices. As the ultimate safe haven, Gold represent the attraction of safer assets for investors. Rising gold prices means investors tend to avoid risks, while decreasing Gold prices could mean that investors are starting to accept the existing risks on the market.  Observing risk aversion/risk appetite could help you determine when to enter the market. However, it does not mean that the 'risk' factor has disappeared. Risk is ever-present, and you should well remember to put on good money management to control it.