Forex and Chaos in Egypt

Egypt threatens to descend into chaos with street battles between the overthrown Islamic government on one hand and the army and secular majority on the other. This does not bode well for the Egyptian pound, the price of oil, rebels in Syria, or Middle East stability in general. Our opinion is that at the current time trading Forex with Japanese Candlesticks as regards the Egyptian pound is futile. Events on the ground will drive pricing and the market will adjust. This is not a matter of central bank pronouncements but rather the threat of a nasty civil war. The matter of Forex and chaos in Egypt extends beyond the borders of the ancient country on the Nile. Much support for rebels in Syria has come from Islamists who want to overthrow the secular government of Mr. Assad more so than institute a democratic government there. The risk of blockage of oil passing through the Suez Canal not only drives oil prices higher but may threaten the Euro as the debt problems in Europe continue. The overthrow of Hosni Mubarak and institution of an elected government was a seminal event of the Arab Spring. However, the elected president, Mr. Morsi, has acted as though a small majority vote during a poor turnout was a mandate from the Almighty to institute Islamic law in a nation accustomed to secular governance. The coupling of Forex and chaos in Egypt will likely continue for some time with a substantial drop of the Egyptian pound until events come to a resolution.

Trading Forex and the Chaos in Egypt

Anyone with a crystal ball is certainly welcome to trade the Egyptian pound during the current crisis. However, a more rational approach to Forex and the chaos in Egypt is to look at major currencies affected by current events. The Euro seems to be an obvious target and even the Turkish lira. Although the lira is not a major currency it is the currency of a healthy and large economy. Because Turkey has an Islamist government it may be concerned about events in Egypt. Europe is concerned because of the potential for another civil war on its flank, loss of exports, and higher priced oil. The Euro certainly does not need more bad news. A practical approach to trading the Euro would be to trade versus the US dollar as the North American economic recovery proceeds or the Yen as fiscal and monetary policy there is driving the currency higher.

US Dollar vs Oil

Another useful way to trade Forex and the chaos in Egypt is to look at trading the US dollar if oil prices are driven up by events in Egypt. In this case one may choose to trade the dollar against the currency of a country that does not have domestic oil supplies. As the USA increases domestic production and its reliance on foreign import the end result should be an increase in the value of the US dollar. If events deteriorate in Egypt the price of oil for a country like Japan or for the EU could become a burden driving currency prices down.