"Trading Bad News"
Fundamental market analysis usually gives the best results if it is aimed at identifying a downward trend.
Bad news that is associated with various terrorist attacks, natural disasters or the outbreak of hostilities in a certain region has always had an impact on the exchange rate of the national currency.
The precursor to writing this article was the terrible terrorist attack that occurred in France, where, according to official data, 128 people were killed and over 250 people were injured of varying degrees of severity.
According to preliminary data, the terrorist attack was carried out by representatives of the Islamic State, to which the entire world community declared war.
Such an event in the center of the European capital caused a very violent reaction from society, since one of the explosions occurred right in front of the President of France during a football match between national teams.
No matter how bitter it may sound, it is precisely such events that allow a trader to take profit from the market. There is nothing shameful in working on blood, and most famous traders became rich precisely because of their timely reaction to such events.
Many analysts argued that such a terrorist attack in Paris is almost analogous to the terrorist attack in the United States, when the twin towers fell and the reaction of financial markets would be of the same kind. However, the reaction has become restrained, so I propose to analyze the market reaction on various currency pairs with the euro.
How does a currency react to bad news?
The first currency pair to display the incident is EUR/USD. Before the terrorist attack occurred, the euro reached a strong level and then successfully rebounded. The market was gaining momentum, but the first explosion occurred at the stadium. The reaction was immediate in the form of a gap of 31 points with further continuation of the downward movement to the level of 1.0699, which amounted to a total of 76 points.
After the market closed, a number of political statements followed, which were related to the fact that France would not be intimidated, and a state of emergency was declared in the country to search for Islamists. Successful special operations with the detention of representatives of the Islamic State instilled confidence in the eyes of some large investors, so on Monday we could observe an upward movement and the classic closing of the gap.
At the same time, various media sources are making statements that the European economy confidently withstood this blow, and the financial market reacted to this terrible event with extreme restraint and without panic.
However, the tragic consequences were followed by very belligerent statements, which were associated with the intensification of French air strikes on the positions of the Islamic State. Such rhetoric has never satisfied investors, and the release of a video declaring war on the people of France and threats of further terrorist attacks had a chilling effect on market participants.
Perhaps, after successful arrests, the panic would have subsided, but all investors understand that the huge influx of refugees from Syria has brought Islamists to all European countries, who, when called, are ready to continue terrorizing civilians and undermining infrastructure.
Understanding that France is under a strong threat, and terrorist attacks may continue in other European countries, market participants began to actively sell the Euro, so the chart updated new lows and continued its downward movement:
Chasing changes in the euro exchange rate, very few people paid attention to gold. However, it is gold that most often reacts to various incidents due to the fact that gold is considered a refuge for panicked investors. The resulting panic in Europe immediately pushed the price of gold up, as frightened investors began to actively buy it. The reaction of the gold chart to the terrorist attack in France can be seen in the image below:
Summarizing, we can say with confidence that trading on bad news is one of the profitable areas, since if the market can react to good news in two digits, then terrorist attacks and military actions that cause panic almost always cause a response.
It is also worth adding that when dealing with bad news, you should not chase only the decline of the national currency where everything happened, since gold, as a refuge, always reacts with growth to such events.